## tarea2025025-print-pdf ## Source details **Canonical URL:** [tarea2025025-print-pdf](https://www.imf.org/-/media/files/publications/tar/2025/english/tarea2025025-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/tar/2025/english/tarea2025025-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/tar/2025/english/tarea2025025-print-pdf.pdf.json) --- ### Preface - Purpose and mission: - CD mission visited Port Moresby during July 2nd—15th, 2024, in response to a request from the Government of Papua New Guinea (GoPNG) for capacity development on climate policy diagnostic (CPD). - Mission of the IMF’s Fiscal Affairs Department (FAD). - Mission team: - Led by Mr. Suphachol Suphachalasai (FAD). - Team members: Ms. Junko Mochizuki, Ms. Karlygash Zhunussova, Ms. Sylke von Thadden-Kostopoulos, and Ms. Danielle Minnett (all FAD). - Engagements with GoPNG: - Met Secretary of Treasury Mr. Andrew F. Oaeke; Governor of Bank of PNG Ms Elizabeth Genia; Acting Managing Director of CCDA Ms. Debra Sungi; and senior officials from DoT, BPNG, CCDA, CEPA, PNGFA, NFA, NEA, DAL, DPE, DNPM and District Development, PPL, PNG Water Limited, and National Disaster Center. - Acknowledgments: - Economic Policy Wing staff (Ms. Rhoda Karl; Mr. Swartz Buf; Mr. Ismael Sumb; Ms. Herla Ato) and IMF Resident Representative Mr. Sohrab Rafiq and staff Ms. Loa Anisi acknowledged for support. ### Executive Summary — Climate-related risks and macroeconomic impacts - Recent extreme events and costs: - Enga Province landslide in May 2024: over 2,000 lives lost and damages reaching US$130 million. - 2015-2016 severe drought: affected over 2.5 million people and cost PNG about 0.2 percent of GDP. - Projected macroeconomic costs of inaction: - Sea level rise (SLR) economic cost could reach 0.3 percent of GDP by 2050 in a moderate scenario. - Economy-wide impact could amount to 4 percent of GDP by 2050 and 15 percent by 2100 under a high emission scenario. - Emissions and exposure: - PNG emits negligible 0.08 percent of global GHG emissions. - As a large LNG exporter, PNG’s revenue is exposed to macro-transition risks. ### Executive Summary — Vulnerabilities and development challenges - Poverty, access, and services (2022 data): - 40 percent of the population lived below the extreme poverty line. - About 86 percent living in the rural areas without access to electricity and safe drinking water. - Only 13-21 percent of the population had access to electricity. - PNG has one of the lowest electrification rates in Asia and the Pacific; energy demand expected to grow rapidly. - Natural resource pressures: - Urban development and agricultural expansion pressure land, forests, and water. - Forest degradation driven by commercial logging is the biggest source of emissions; forest resources depleted faster than restored. ### Executive Summary — CPD goals and priorities - CPD prioritizes recommendations that: - create fiscal space and support financial sustainability (revenue generation, broadening revenue base, climate finance, cost-recovery); - internalize climate externalities associated with economic activities; - provide incentives and institutional changes to enable private climate investments aligned with NDC and NAP; - help manage climate-related risks and adverse impacts on vulnerable/poor households. ### Executive Summary — Water sector and DRM (key findings and recommendations) - Water sector challenges: - Provide adequate and reliable water supply to urban and rural areas; ensure upstream water resources managed sustainably. - FAO AQUASTAT (2020): renewable surface water 801 billion Cubic Meters (BCM)/year; renewable groundwater 211.6 BCM/year. - Renewable water per capita in 2020: 89,527 cubic meter/inhabitant/year (global average 17,037 cubic meter/inhabitant/year). - Municipal sector accounts for 57 percent of water withdrawal; industrial 42.7 percent; agricultural 0.26 percent (2020). - Water PNG production capacity: 91,000 ML (2021) target 100,000 ML (2023) with demand gap projected from 1,605 ML (2021) to 12,125 ML (2023 target). - Urban water tariffs (increasing block rate, exact bands and rates preserved): - Band 1: 0.2 to 30 kiloliters — K1.45 per kiloliter (Water Supply); 0.1 to 30 kiloliters — K1.00 per kiloliter (Sewerage Service) - Band 2: 31-100 kiloliters — K2.00 per kiloliter (Water Supply); 31 to 100 kiloliters — K1.50 per kiloliter (Sewerage Service) - Band 3: Above 100 kiloliters — K5.85 per kiloliter (Water Supply); Above 100 kiloliters — K3.50 per kiloliter (Sewerage Service) - Non-Revenue Water (NRW): - NRW estimated at approximately 30 percent physical loss, 20 pecent commercial loss, and additional 20 percent loss due to non-payment by the government sector. - Cumulative arrears by government sector estimated at K200 million. - Disaster risk management findings: - INFORM Risk index: PNG ranks 16th most at-risk countries globally. - Global Infrastructure Resilience (GIRI) Index: annual average losses (AAL) estimated at US$ 290 million, 76 percent climate-related hazards. - Climate change increases AAL to US$ 322 million (lower bound) and US$ 389 million (upper bound) from climate impact alone. - National budget allocations: approx K2 million for National Disaster Center (three-quarters for 10 full time staff); unforeseen payments related to natural disasters 2023 appropriation K3 million. - Water and DRM recommendations (selected, timing/priority indicated elsewhere in report): - Operationalize volumetric water resources abstraction and sewerage charges per Environmental Regulation 2002. - Review and update charges to internalize environmental externalities and reflect full economic value of water. - Incorporate NRW reduction and climate-relevant targets into ICCC service level indicators; link 2027 tariff approval to achievement of indicators. - Update water tariff for financial cost recovery with adjustments (block rates, consumer segmentation) to account for distributional impacts. - Operationalize national end-to-end early warning system; develop Disaster Risk Financing Strategy (DRFS); mobilize grant/concessional funding for rural water supply. ### Executive Summary — Carbon pricing, forestry, and energy sector measures - Forestry: - Recommend imposing carbon levy on commercial logging and deforestation from commercial agriculture, with potential exemptions/deductions for firms meeting sustainability standards. - Consider Payment for Environmental Services (PES) to incentivize forest conservation. - Energy and fuels: - Implement carbon levy on liquid fuels and adjust fuel excises to inflation over time. - Establish regulatory frameworks for off-grid renewables. - Adjust end-use electricity tariffs to reach cost-recovery with protections for low-income households. - Improve revenue collection rate and gradually phase out capacity charges to strengthen utility finances. - Other sectors: - Introduce regulations/fees to internalize environmental costs of emissions from oil and gas production and the waste sector. - Introduce technical standards and/or fees on fugitive emissions from oil and gas production. ### Executive Summary — Institutional and fiscal coordination to unlock climate finance - Institutional constraints: - PNG has robust legal, institutional, and policy frameworks, but climate policy often treated sectorally with insufficient cross-sectoral integration. - Inadequate partnership between CCDA and Treasury has impeded policies like carbon levy on fuels. - Institutional reform recommendations: - Establish a climate unit at the Department of Treasury to engage stakeholders on climate fiscal policies and climate finance. - Operationalize coordination bodies under CCMA (NCCB, TAC, CFSC). - Clarify sub-national roles and coordination mechanisms. - Leverage central bank green finance policy, provide incentives under Investment Promotion Act, and elaborate regulations to promote climate initiatives under CCMA. ### Executive Summary — Key recommendations (timing and priority examples) - Climate Adaptation Policy (examples): - Operationalize volumetric water resources abstraction and sewerage charges per Environmental Regulation 2002. — ST H - Review and update charges to internalize environmental externalities and reflect full economic value of water. — MT M - Make 2027 tariff increase approval conditional on achievement of revised service level indicators (including NRW reduction). — MT H - Operationalize national end-to-end early warning system; develop DRFS. — MT/ ST H - Climate Mitigation Policy (examples): - Impose carbon levy on forest degradation and deforestation starting with commercial logging and commercial plantation agriculture. — MT H - Implement carbon levy to carbon content of fossil fuels per 2023 CCMA amendment. — ST H - Restore real value of fuel excises (adjust to inflation). — ST M - Adopt regulatory framework for off-grid renewable electricity projects (incentives, feed-in-tariffs). — MT H - Enabling Institutions (examples): - Align CCMA, NTRA Act, and Excise Tariff Act to enable carbon levies and climate finance mobilization. — ST H - Operationalize CCMA provisions to establish NCCB, TAC, CFSC. — ST H - Establish Climate Unit at Department of Treasury. — MT H - Develop and adopt a long-term strategy guiding NDCs, transition, and climate finance. — LT M - Notes on timing labels: - ST = short-term (may be undertaken quickly by the authorities in a year). - MT = medium-term (could take over a year but within 3 years). - LT = long-term (require 3+ years). ### Sea level rise (SLR), ocean acidification, and adaptation targets - SLR observations and projections: - Satellite data: sea levels near PNG risen by approximately 7 mm per year since 1993 (global average 2.8 to 3.6 mm per year). - Without adaptation, economic cost of SLR could reach USD 700 million annually by 2090, about 2 percent of GDP (Coastal Impact and Adaptation model under RCP 4.5). - Ocean acidification: - Ocean acidification increasing in PNG waters; data indicate rise since the 18th century; threatens coral reef ecosystems. - NAP quantitative adaptation targets to 2030: - 10 percent of population having increased resilience for food, water security, health and wellbeing. - 100 percent of population benefiting from improved health measures for malaria and other climate-sensitive diseases. - US$1.2 billion of transport infrastructure built/rehabilitated to climate-resilient codes and standards. - 6 million people benefiting from improved early warning systems. - US$127 million of building and utility infrastructure assets built and rehabilitated to climate-resilient codes and standards. ### Water sector — detailed institutional, operational, and pricing notes - Institutional fragmentation and capacity: - Multiple laws: Environmental Act 2000; Water Supply and Sanitation Act 1996; Public Health Act 1973. - Agencies involved: CEPA, Water PNG, Provincial/Local Governments, DoH, DAL, DoWH. - No national policy guiding IWRM; WaSH policy 2015-2030 not fully implemented. - CEPA hydrological unit staffed with only three persons; hydrological observation network insufficient/non-operational; flood monitoring discontinued. - Water PNG financials and performance: - Among 24 service areas, 6 profitable; 18 break-even or loss making. - Major assets date from 1960s; production capacity targets noted above. - Volumetric abstraction charges (Environment Regulation 2002) — basic charges and use factors: - Basic charges: Surface water K.001/cubic meter/yr; Groundwater K.005/cubic meter/yr. - Use factors: Public water supply 1; Industrial activities with re-use 0.8; Sprinkle irrigation 0.3; Non-consumptive use 0.1. - Annual charge = volume (m^3/year) x use factor x basic charge. ### Disaster Risk Management and Financing — detailed findings - Hazard exposure and losses: - INFORM Risk index: PNG ranks 16th most at-risk globally. - GIRI Index AAL: US$ 290 million (76 percent climate-related); climate change increases AAL to US$ 322 million (lower bound) and US$ 389 million (upper bound). - Flood identified as the costliest hazard. - DRM legal and institutional gaps: - DMA 1984 limitations: unclear roles, predictability of financing, DRM structure below provincial level, emphasis on ex-post response. - Multiple DRM planning documents exist; many due for update. - Early warning systems and technical capacity: - National end-to-end early warning sub-plans in NDRMP 2012 not developed/operationalized. - CEPA’s flood monitoring discontinued; limited capacity for landslide and drought forecasting. - Communication channels under-developed; primary means radio broadcasting. - Disaster risk financing posture: - PNG has limited ex-ante and ex-post instruments; national/provincial allocations exist but contingency lines underfunded. - Single ex-ante instrument: parametric earthquake insurance for submarine cables. - National budget examples: National Disaster Center approx K2 million; unforeseen payments appropriation K3 million (2023). - Procurement practices: Public Finance Management Act 1995 permits waiver of tendering under K500,000, but regular tendering used—delaying emergency procurement by approximately 1 week. - Recommended strategic response: - Develop in-depth technical diagnostic followed by a Disaster Risk Financing Strategy (DRFS) modeled on approaches taken by other countries (Box 4 example: Philippines). ### Agriculture — climate resilience findings and recommendations - Importance and structure: - Agriculture: 14 percent of GDP; livelihoods for an estimated 85 percent of population. - Small-holder dominance; crop shares: ~25 percent of oil palm; 80 percent of coconuts; 75 percent of coffee; 70 percent of cocoa. - MTDP IV target: enhance export values by 58 percent and increase sector contribution to GDP to 31.7 percent by 2027. - Climate impacts on yields (RCP 8.5, 2050 projections): - Cassava: -9.3% (optimistic) and -11.5% (median) - Maize: -3.9% (optimistic) and -8.2% (median) - Rubber*: - -3.4% (median only) - Coffee*: - -5.8% (median only) - Cocoa*: - -4.5% (median only) - Note: *proxy values using GAEZ for Indonesia; RCP 8.5 = very high emission scenario. - Financial inclusion and risk management: - Financial sector: 1 national development bank, 4 commercial banks, 12 non-bank licensed financial institutions, 16 saving and loan societies. - Estimated 80 percent of population remains unbanked. - Market findings: 100 percent of farmers surveyed in MVF need credit; 100 percent lacked non-cash collaterals. - Recommendations: - Finalize climate smart agriculture policy with M&E framework. - Evaluate options to strengthen agricultural financial inclusion and risk management (shock-responsive lending/savings, index insurance) as part of green finance/disaster risk financing initiatives. ### Climate mitigation — emissions, AFOLU, and energy sector findings - GHG emissions estimates and shares: - IMF estimate: around 45 MtCO2e in 2022. - PNG accounts for approximately 0.08 percent of global emissions. - Per capita emissions: 4.4 tCO2e per person (regional average 9.1; global average 6.8). - Emission intensity of GDP: 1.42 tCO2e per 1000 USD GDP (regional weighted average 0.54; global average cited 0.54). - Sectoral breakdown (2022, IMF estimate 45 MtCO2e): - LULUCF: 76% - Energy-related and other: 19% (power, industry, fugitive, transport, buildings) - Power: 7% - Industry and fugitive: 5% - Transport: 4% - Buildings: 3% - Agriculture: 2% - Waste: 3% - AFOLU specifics: - Forests account for 77.9 percent of land; three-quarters undisturbed. - Between 2000-2018: 8.88 million ha disturbed (avg 150 thousand ha/year); deforestation >340 thousand ha (avg annual rate 0.05%). - Drivers: shifting cultivation 63 percent; oil palm development 29 percent. - Commercial logging drives >80 percent of LULUCF emissions. - AFOLU policy instruments and cautions: - Carbon levy on forest degradation/deforestation proposed, to start with logging and commercial plantations; consider administrative capacity and tax burden on timber exporters (50 percent log export tax in 2024, returned from 70 percent in 2023). - PES schemes feasible on pilot basis; prerequisites include land rights clarity (97 percent customary land), NFMS for monitoring, financing support. - Carbon Transaction Law and carbon markets require rigorous governance given international challenges (additionality, permanence, MRV credibility). - Energy sector: - Primary energy consumption (2022): Biomass 35%; Oil products 40% (together 75%). - Access to clean cooking fuels: 10 to 15 percent of population. - Household air pollution estimated to cause more than 10 thousand premature deaths in 2019. - Electricity access estimates: ADB 13 percent; World Bank 19 percent (14 percent rural); USAID 15 percent. - Government electrification goals: 70 percent by 2030; 100 percent by 2050. - Installed capacity estimates vary (EIA used): 1,263 MW in 2022; hydro 40–54% share; diesel 27–37%; natural gas 11–14%; geothermal 7–9%. - PPL losses, generation costs, and tariff freezing: - Losses in electricity sector in baseline: around US$ 370 million. - Tariff freeze since 2013 impaired cost recovery; NEA and PPL announced tariff adjustments in August 2023 with regulatory disputes. ### NDC targets, policy packages, modeling (CPAT), and quantified impacts - NDC and projections: - NDC AFOLU target: achieve net GHG sink of 8.284 MtCO2e in 2030 (10 MtCO2e reduction vs 2015). - IMF CPAT baseline projection: PNG total GHG emissions in 2030 = 41 MtCO2e. - Planned/proposed renewables pipeline: - 37 planned and proposed projects totaling 472 MW (summarized totals preserved): - Total Planned Hydro 380 MW; Total Planned Solar 17 MW; Total Proposed Hydro 24 MW; Total Proposed Solar 20 MW; Total Proposed Biomass 2 MW; Total across stages 472 MW. - Three illustrative policy packages modeled with CPAT: - Planned policies: gradual electricity tariff adjustment 2025-2030 and carbon levy per CCMA from 2025. - Planned policies+: adds adjustment of fuel excises to inflation from 2025. - Ambitious: adds gradual carbon levy from approximately $1/tCO2 in 2025 to $5/tCO2 in 2030 on top of planned policies+ (assumes exchange rates of 4 kina/US$ in 2025, increasing to 4.4 kina/US$ in 2030). - Fiscal and energy impacts (selected exact figures preserved): - Baseline revenues from petroleum products in 2030: about US$97 million (down from estimated US$125 million in 2020). - Additional revenues and avoided losses in 2030 relative to baseline: - Planned policies package: US$407 million (equivalent to about 1.1 percent of GDP). - Planned policies+ package: US$428 million (equivalent to about 1.2 percent of GDP). - Ambitious package: US$447 million (equivalent to about 1.3 percent of GDP). - Energy price impacts (selected table values preserved): - Electricity, industry $/kWh: 2023 = 0.16; Baseline, 2030 = 0.12; Planned policies, 2030 = 0.18; Planned policies+, 2030 = 0.18; Ambitious, 2030 = 0.19 - Electricity, commercial $/kWh: 2023 = 0.22; Baseline, 2030 = 0.16; Planned policies, 2030 = 0.23; Planned policies+, 2030 = 0.23; Ambitious, 2030 = 0.24 - Gasoline $/liter: 2023 = 1.02; Baseline, 2030 = 0.87; Planned policies, 2030 = 0.87; Planned policies+, 2030 = 0.90; Ambitious, 2030 = 0.91 - Diesel $/liter: 2023 = 0.93; Baseline, 2030 = 0.80; Planned policies, 2030 = 0.80; Planned policies+, 2030 = 0.82; Ambitious, 2030 = 0.83 - Kerosene $/liter: 2023 = 0.74; Baseline, 2030 = 0.64; Planned policies, 2030 = 0.65; Planned policies+, 2030 = 0.65; Ambitious, 2030 = 0.66 - Emissions and fiscal outcomes: - Energy-related CO2 emissions reduction in 2030, % to baseline: Planned policies = 7.3; Planned policies+ = 7.8; Ambitious = 8.9 - Cumulative CO2 emissions reductions in 2024-2030, MtCO2: Planned policies = 1.4; Planned policies+ = 1.6; Ambitious = 1.8 - Fiscal revenues raised in 2030 relative to baseline, % of GDP: Planned policies = 1.1; Planned policies+ = 1.2; Ambitious = 1.3 - Cumulative fiscal revenues in 2024-2030, difference to baseline, bn USD: Planned policies = 1.36; Planned policies+ = 1.46; Ambitious = 1.52 - Impact on GDP growth in 2030, percentage points deviation from BAU growth: Planned policies = 0.1; Planned policies+ = 0.1; Ambitious = 0.1 - Weighted average electricity prices in 2030, $/kWh: Planned policies = 0.2; Planned policies+ = 0.2; Ambitious = 0.2 - Overall conclusion: modeled policy packages reduce energy-related emissions by 7 to 9 percent in 2030, yielding up to 2 MtCO2 cumulatively over five years; total GHG emissions less responsive due to dominance of non-energy sectors. ### Legal, regulatory, and institutional framework for climate action - Legal instruments and amendments: - CCMA adopted 2015; CCMA amendments in 2021 and 2023 strengthen revenue mobilization (carbon levy) and CCDA mandate. - 2022 regulation supports 2021 NDC implementation: creation of Technical Advisory Committee and Sub-Technical Working Committees; formal recognition of NDC targets, implementation plan, MRV protocols. - Gaps and challenges: - CCMA carbon levy application suspended due to non-compliance with Section 209 of the Constitution; NTRA assigns levy collection to Treasury; inconsistencies exist among CCMA, NTRAA and Excise Tariff Act. - Sector regulations missing or outdated: water abstraction/wastewater (since 2002); renewable energy generation regulations absent; waste management regulations lacking; methane/fugitive emissions unregulated. - DRM law 1984 centralized and emergency-focused; lacks formalized local coordination and resilience focus. - Institutional bodies and status: - CCDA (Authority) central coordinating agency for climate policy and NDC implementation. - NCCB, CFSC, TAC mandated under CCMA; NCCB members in process of appointment; TAC timing undetermined. - Green Finance Centre to be created under Central Bank; Climate Finance Unit to be established within CCDA. - Recommendation: operationalize NCCB, CFSC, TAC; clarify CCDA transformation and staffing; establish Climate Unit at Treasury. ### Subnational engagement, climate finance, and private sector mobilization - Subnational pilots: - Provincial Climate Change Coordinators deployed in five provinces: East Sepik, Madang, Morobe, Northern, New Ireland. - Provincial Climate Change Committees piloted. - Climate finance needs and current performance: - Over US$1 billion estimated needed over 10 years to achieve Enhanced NDC targets. - PNG received approximately US$260 million (9 percent) of total international climate finance allocated to the Pacific since 2015. - PNG lacks accredited entity to access Green Climate Fund; relies on regional organizations. - Recommendations to scale up climate finance: - Build climate finance readiness; create pipeline of bankable projects; coordinate development partners; enhance climate finance tracking and oversight under Treasury in coordination with CCDA and CFSC. - Develop and adopt long-term strategy (LT-LEDS) for NDCs, transition, and climate finance. - Incentivize private investments via regulations under CCMA, Investment Promotion Act 2023 provisions, and Inclusive Green Finance Policy regulations. ### Tools, analytical instruments, and revenue recycling options - CPAT (Climate Policy Assessment Tool) features: - Spreadsheet-based ‘model of models’ for rapid estimation of mitigation policy effects for over 200 countries; quantifies impacts on energy, emissions, GDP, revenues, incidence across deciles, and co-benefits. - Converts NDCs to comparable metric; contains global datasets and decile-level household data for 84 countries. - Options for recycling carbon tax revenues (summary of instruments and trade-offs preserved): - General revenue uses/environmental investment; Universal transfers; Payroll tax; Personal income tax; Consumption tax; Corporate income tax; Deficit reduction; Targeted assistance (means-tested); Assistance for household energy bills. - Trade-offs include progressivity, efficiency, administrative burden, and capacity requirements. _Italic: Source — Preface and excerpts from IMF Technical Assistance Report (tarea2025025-print-pdf)._ ### Preface ................................................................................................................ ### Preface ### Purpose and mission - In response to a request from the Government of Papua New Guinea (GoPNG) for capacity development (CD) on climate policy diagnostic (CPD), a CD mission visited Port Moresby during July 2nd—15th, 2024. - The mission was of the International Monetary Fund’s (IMF) Fiscal Affairs Department (FAD). ### Mission team - Led by Mr. Suphachol Suphachalasai (FAD). - Team members: Ms. Junko Mochizuki, Ms. Karlygash Zhunussova, Ms. Sylke von Thadden-Kostopoulos, and Ms. Danielle Minnett (all FAD). ### Engagements with GoPNG - The mission held engaging and productive discussions with: - Secretary of Treasury, Mr. Andrew F. Oaeke - Governor of Bank of PNG, Ms Elizabeth Genia - Acting Managing Director of the Climate Change and Development Authority (CCDA), Ms. Debra Sungi - Discussions also involved senior officials from: - Department of Treasury (DoT) - Bank of PNG (BPNG) - Climate Change and Development Authority (CCDA) - Conservation and Environment Protection Authority (CEPA) - Papua New Guinea National Forestry Authority (PNGFA) - National Fisheries Authority (NFA) - National Energy Authority (NEA) - Department of Agriculture and Livestock (DAL) - Department of Petroleum and Energy (DPE) - Department of National Planning Monitoring (DNPM) and District Development - Papua New Guinea Power Limited (PPL) - PNG Water Limited - National Disaster Center ### Acknowledgments - The mission expresses gratitude to staff of the Economic Policy Wing of Department of Treasury, particularly: - Ms. Rhoda Karl - Mr. Swartz Buf - Mr. Ismael Sumb - Ms. Herla Ato - for their efficient support provided in organizing and facilitating the discussions with the government stakeholders. - The mission is also grateful to the IMF Resident Representative, Mr. Sohrab Rafiq, and his staff, Ms. Loa Anisi, for the support and coordination provided before and during the mission. *Source: Preface, IMF Technical Assistance Report (tarea2025025-print-pdf).* ### Executive Summary ### Executive Summary ### Climate-related risks and macroeconomic impacts - The landslide in Enga Province in May 2024 claimed over 2,000 lives and imposed damages reaching US$130 million. - Hazards likely to intensify: flooding, drought, landslide; extreme heat increases human health risk and lowers agricultural yields. - If current trends continue, climate change will have considerable negative repercussions on PNG’s food and water security, coastal communities, ecosystems, and critical infrastructure, and is likely to cause significant adverse effects on the macroeconomy and people’s livelihoods. - The severe drought in 2015-2016 affected over 2.5 million people and cost PNG about 0.2 percent of its gross domestic product (GDP). - If no action is taken, the economic cost of sea level rise (SLR) could reach 0.3 percent of GDP by 2050 in a moderate scenario, while the economy-wide impact could amount to 4 percent of GDP by 2050 and 15 percent by 2100 under a high emission scenario. - As a large exporter of liquefied natural gas (LNG), PNG’s major source of revenue is exposed to macro-transition risks. - PNG emits negligible 0.08 percent of global greenhouse gas (GHG) emissions. ### Vulnerabilities and development challenges - In 2022, 40 percent of the population still lived below the extreme poverty line. - About 86 percent living in the rural areas without access to electricity and safe drinking water. - PNG has one of the lowest electrification rates in Asia and the Pacific; energy demand is expected to grow rapidly. - Urban development and agricultural expansion are putting pressures on natural resources such as land, forests, and water. - Forest degradation driven by commercial logging is the biggest source of emissions in PNG; forest resources are being depleted faster than restored, while forest conservation is not financially attractive. ### Climate Policy Diagnostic (CPD) goals and priorities - CPD prioritizes recommendations that: - create fiscal space and support financial sustainability through revenue generation, broadening the revenue base and sources of climate finance, and/or helping to recover costs, in order to strengthen agencies’ capacity to deliver on climate and sustainable development goals (SDGs); - internalize climate externalities associated with economic activities; - provide incentive frameworks and institutional changes to enable private climate investments that align with the Nationally Determined Contribution (NDC) and the National Adaptation Plan (NAP); - help manage climate-related risks and adverse impact of climate policies on vulnerable/poor households. ### Water sector and disaster risk management (DRM) - Main water sector challenges: provide adequate and reliable water supply to urban and rural areas; ensure upstream water resources are utilized and managed sustainably. - Recommendations for water sector: - Update water pricing framework: revise water abstraction charges and wastewater discharge fees to reflect the true economic value of water and environmental externalities. - Update end-use water tariff review based on new cost structure with allowances for the poor and vulnerable households. - Make tariff approval conditional upon utility’s performance on non-revenue water (NRW) and other climate performance indicators. - Long-term integrated water resource management planning and regular monitoring of surface and ground water quantity and quality. - Mobilize grant/concessional funding for expansion of rural water supply. - Disaster risk management actions: - Operationalize the early warning system (EWS) and leverage new census data to identify disaster risk hotspots and target funding allocation. - Develop a comprehensive national disaster risk financing strategy (DRFS) to prepare an optimal mix of financing mechanisms for disasters of different severity levels. - Improve financial inclusion and make shock-responsive financial products available (microcredits, savings, index-based insurance) to build resilience of farmers and poorer households. ### Carbon pricing, forestry, and energy sector measures - Forestry: - Impose a carbon levy on commercial logging and on deforestation from commercial agriculture, with potential exemptions/deductions for those that meet sustainability standards, to support reforestation and slow forest degradation. - Consider payment for environmental services (PES) to incentivize forest conservation. - Energy: - Implement carbon levy on liquid fuels and adjust fuel excises to inflation over time. - Establish regulatory frameworks for off-grid renewables. - Adjust end-use electricity tariffs to reach cost-recovery with measures protecting low-income households. - Improve revenue collection rate of the utility and gradually phase out capacity charges to strengthen financial position. - Other sectors: - Introduce regulations and/or fees to internalize environmental costs of emissions from oil and gas production and from the waste sector. - Introduce technical standard and/or fees on fugitive emissions from oil and gas production. ### Institutional and fiscal coordination to unlock climate finance and investments - PNG has robust legal, institutional, and policy frameworks to support NDC and NAP implementation, but climate policy is often treated as a sectoral agenda with insufficient cross-sectoral integration. - Inadequate partnership between the Climate Change and Development Authority (CCDA) and the Treasury has been a roadblock to implementation of policies like carbon levy on fuels. - Recommended institutional reforms: - Establish a climate unit at the Department of Treasury to engage stakeholders on climate fiscal policies and climate finance. - Operationalize coordination bodies under the Climate Change Management Act (CCMA) to enhance coordination as the new NDC update cycle approaches. - Clarify roles and responsibilities of sub-national governments and coordination mechanisms with other government stakeholders. - Leverage central banks’ green finance policy, provide incentives under the Investment Promotion Act, and elaborate regulations to promote climate initiatives under the CCMA to catalyze private climate investments. ### Key recommendations (timing and priority) - Climate Adaptation Policy - Operationalize volumetric water resources abstraction and sewerage charges per Environmental Act (Environmental Regulation 2002). — ST H - Review and update charges to appropriately internalize environmental externalities and reflect full economic value of water. — MT M - Incorporate non-revenue water (NRW) reduction and other climate relevant targets as part of service level indicators to be reviewed by the Independent Consumer Competition Commission (ICCC), making an approval of 2027 tariff increase conditional on the successful achievement of revised service level indicators. — MT H - Update water tariff based on financial cost recovery and abstraction fees reflective of environmental/opportunity cost and make adjustments (such as through block rates and consumer segmentation) to account for distributional impacts. — LT H - Operationalize the national end-to-end early warning system outlined in the National Disaster Risk Management Plan 2012 with appropriate updates, establishing a clear mechanism to link early warning information with preparedness actions. — MT H - Develop a disaster risk financing strategy, strengthening ex-ante budgetary planning, use of alternative risk financing instruments by public and private entities including shock-responsive mechanisms. — ST H - Finalize the adoption of climate smart agriculture policy with a clear monitoring and evaluation (M&E) framework to strengthen sector coordination. — ST M - Climate Mitigation Policy - Impose carbon levy on forest degradation and deforestation starting with commercial logging and commercial plantation agriculture, while considering exemptions/deductions for companies that meet certain sustainability standards/criteria. — MT H - Consider introducing payment for environmental services (PES) schemes on a pilot basis to support conservation efforts. — LT M - Establish a clear and transparent multi-year regulatory framework for end-use electricity tariff setting and review and gradually adjust the tariff to reach cost-recovery, with measures protecting low-income households. — ST H - Adopt a regulatory and policy framework for off-grid renewable electricity generation projects that include incentives such as feed-in-tariffs and capacity building. — MT H - Restore real value of fuel excises (adjust fossil fuel excises to inflation). — ST M - Implement carbon levy to carbon content of fossil fuels, according to the 2023 amendment to the CCMA. — ST H - Introduce technical standard and/or fees on fugitive emissions from oil and gas production. — MT M - Enabling Institutions - Align the CCMA, the Non-Tax Revenue Administration (NTRA) Act, and the Excise Tariff Act to enable the implementation of carbon levies and climate finance mobilization. — ST H - Finalize the revision of Disaster Management Act (DMA) 1984 clarifying roles and responsibilities across all phases of disaster risk management (prevention, preparedness, response and recovery), establishing formal mechanisms for DRM coordination below district levels. — MT M - Operationalize the CCMA's provision to establish the National Climate Change Board (NCCB), Technical Advisory Committee (TAC), and the Climate Finance Steering Committee (CFSC) to support NDC coordination, implementation, and monitoring. — ST H - Establish a Climate Unit at the Department of Treasury to further enhance coordination at macro level of climate informed policy development and resource mobilization for climate actions. — MT H - Incentivize private investments in adaption and mitigation by elaborating (i) regulations for the promotion of climate initiatives under the CCMA, (ii) provisions of incentives for green/climate investments in the Investment Promotion Act 2023, and (iii) regulations related to the development of green financial products and services as part of the Inclusive Green Finance Policy (IGFP). — MT M - Develop regulations to assign clear roles and responsibilities of provincial governments on climate policy and planning, coordination, and reporting. — MT M - Develop and adopt a long-term strategy that can guide NDCs, transition, and climate finance. — LT M Notes on timing labels: Recommendations characterized as short-term (ST) may be undertaken quickly by the authorities (in a year). Medium-term (MT) could take over a year but can be done within 3 years. Long-term (LT) require 3+ years. *IMF Technical Assistance Report — Executive Summary* ### 5. Additionally, PNG is vulnerable to ### 5. Additionally, PNG is vulnerable to ### Sea level rise (SLR) — observations and projections - Satellite data reveal that sea levels near PNG have risen by approximately 7 mm per year since 1993, which is significantly higher than the global average of 2.8 to 3.6 mm per year. - The pace of global sea level rise is accelerating (IPCC 2023) and is expected to continue to accelerate. - Local Sea-Level Rise (SLR) probabilistic projections until 2100 are presented under three emission scenarios (Paris – RCP 2.6; Moderate – RCP 4.5; Extreme – RCP 8.5), with median and 5th/95th percentiles shown in the source figures. - Most inundation is expected to occur along the southern central coastline. - Country coastal flooding hazard maps identify key households, infrastructure, and social services (health centers and schools) in five provinces that would be vulnerable to inundation by 2100 if action is not taken. - Without adaptation, estimates show that the economic cost of sea level rise for PNG could reach USD 700 million annually by 2090, about 2 percent of GDP. - Figure and model notes: Estimated economic cost of sea level rise – No Adaptation is based on the Coastal Impact and Adaptation model (Diaz 2016) under RCP 4.5. ### Ocean acidification and reef systems - Ocean acidification has been increasing in PNG’s waters and threatens coral reef ecosystems. - Approximately one-quarter of the carbon dioxide released by human activities annually is absorbed by the oceans; this additional CO2 reacts with seawater, leading to a slight increase in ocean acidity that adversely affects growth of corals and other carbonate-skeleton-building organisms. - Data indicate that ocean acidification has been gradually rising in the waters of PNG since the 18th century. - Reef ecosystem health, already threatened by increased acidification, could be further compromised by coral bleaching, storm damage, and fishing pressure. ### Socioeconomic context and climate impacts - In 2022, 40 percent of the population lived below the extreme poverty level. - In 2022, only 13-21 percent of the population had access to electricity. - Over 86 percent of the population lives rurally; the informal sector is predominantly subsistence farming. - Over two-thirds of PNG’s exports consist of liquefied natural gas (LNG), gold, and copper. - Since 2014 PNG faced low commodity prices, severe drought in 2015-16, and a major earthquake in 2018, weakening economic growth, causing foreign exchange shortages, and leading to a significant increase in public debt. - Under a high emissions scenario, the economy-wide impact of climate change could reach to 4 percent of GDP by 2050 and 15 percent by 2100. ### National adaptation policy and NAP quantitative targets (to 2030) - PNG has established legal and policy frameworks including the Climate Change Management Act (CCMA), the United Nations Paris Agreement Act, Vision 2050, Development Strategic Plan 2010-2030, StaRS, the National Climate Compatible Development Management Policy, and a National Adaptation Plan (NAP). - NAP quantitative adaptation targets to be achieved by 2030 include: - 10 percent of population having increased resilience with respect to food, water security, health and wellbeing; - 100 percent of population benefiting from improved health measures to respond to malaria and other climate-sensitive diseases; - US$1.2 billion of transport infrastructure built/rehabilitated to climate-resilient codes and standards; - 6 million people benefiting from improved early warning systems; - US$127 million of building and utility infrastructure assets built and rehabilitated to climate-resilient codes and standards. - Additional cross-cutting policy priorities in the NAP include climate and adaptation governance, information, capacity building and awareness building, and climate-resilient terrestrial, coastal and marine ecosystems. ### Water sector — current state, risks, and policy gaps - PNG is among the wettest countries in the world but has major constraints on access to clean water and sanitation and high risk of water-related disasters. - FAO AQUASTAT (2020) data: renewable surface water of 801 billion Cubic Meters (BCM) per year; renewable groundwater of 211.6 BCM/year. - Renewable water per capita in 2020: 89,527 cubic meter/inhabitant/year (global average 17,037 cubic meter/inhabitant/year). - Municipal sector accounts for 57 percent of water withdrawal; industrial sector 42.7 percent; agricultural sector 0.26 percent in 2020. - Given resource abundance, water stress level remains low even under climate change until the latter 21st century, but economic water scarcity is high due to lack of water infrastructure and erratic rainfall including increased extreme precipitation. - MTDP IV targets: improve safe drinking water access to 70 percent and improved sanitation to 60 percent by 2027, with estimated funding needs of K915 million (about 0.8 percent of GDP). - Key institutional and capacity gaps: - Fragmented legal and institutional framework across multiple laws (Environmental Act 2000, Water Supply and Sanitation Act 1996, Public Health Act 1973) and agencies (CEPA, Water PNG, Provincial/Local Governments, DoH, DAL, DoWH). - No national policy guiding integrated water resources management (IWRM); WaSH provision guided by PNG National Water, Sanitation, and Hygiene (WaSH) policy 2015-2030 that is not fully implemented. - CEPA collects limited water quality/quantity data; hydrological observation network is insufficient and non-operational; CEPA’s hydrological unit staffed with only three persons and lacks hydrological/hydraulic modeling capacity; flood monitoring and forecasting practices have been discontinued due to non-functioning observational network. - Urban water supply issues: - Water PNG supplies urban water across 14 provincial centers and 10 district towns; among service areas, 6 are profitable, remaining 18 are break-even or loss making. - Major water assets date from the 1960s and require urgent upgrading; Water PNG’s production capacity growing from 91,000 ML (2021) to 100,000 ML (2023 target) while the demand gap is projected to grow from 1,605 ML (2021) to 12,125 ML (2023 target). - Urban water tariff is set to recover financial costs plus annual permitting fee, but not reflective of full economic cost; regulated by ICCC with reviews every 5 years (last review completed in 2022). - Current tariff structure adopts an increasing block rate with 3 bands: - Band 1: 0.2 to 30 kiloliters — K1.45 per kiloliter (Water Supply); 0.1 to 30 kiloliters — K1.00 per kiloliter (Sewerage Service) - Band 2: 31-100 kiloliters — K2.00 per kiloliter (Water Supply); 31 to 100 kiloliters — K1.50 per kiloliter (Sewerage Service) - Band 3: Above 100 kiloliters — K5.85 per kiloliter (Water Supply); Above 100 kiloliters — K3.50 per kiloliter (Sewerage Service) - Volumetric abstraction charges (Environment Regulation 2002) include basic charges (Surface water K.001/cubic meter/yr; Groundwater K.005/cubic meter/yr) and use factors: Public water supply 1, Industrial activities with re-use of water 0.8, Sprinkle irrigation 0.3, non-consumptive use 0.1. Annual charge = volume (m^3/year) x use factor x basic charge. - NAP and MTDP IV priority actions in the water sector include: - Improve climate resilience of water and sanitation infrastructure led by Department of Works and Highways (DoWH). - Implement climate-resilient water management and conservation systems (protection of water resources, water/soil use management, water-efficient irrigation, rainwater harvesting, recycling of water) led by Department of Agriculture and Livestock (DAL). _Italic: Source — IMF Technical Assistance Report (excerpts provided in content unit)._ ### 16. Non-Revenue Water is estimated high with limited regulatory supervision for its ### 16. Non-Revenue Water is estimated high with limited regulatory supervision for its reduction. ### Non-Revenue Water (NRW) — current state and operational measures - NRW is currently estimated at approximately 30 percent loss due to physical loss, 20 pecent commercial loss, along with additional 20 percent loss due to non-payment by the government sector as the largest consumer. - The cumulative arrears by the government sector is estimated at K200 million. - Operational responses by Water PNG: - Replacement of faulty meters as part of the ongoing WB project. - Pilot projects to extend water connection in informal settlement and poorly connected peri-urban areas, testing concepts such as meter farming. - Institutional oversight: - ICCC and Water PNG recognize the importance of addressing NRW. - NRW is part of key business performance indicators of Water PNG corporate plan, but NRW is yet to be formally included as part of service level targets reviewed by the ICCC. - Climate resilience gap: - PNG Water has not conducted resilience assessments of its assets. - Inclusion of climate change aspects into key performance indicators (KPIs) is absent. ### Pricing approaches and economic valuation (Box 2 highlights) - Water economics encourage recovery of three cost components: - (a) financial costs (operation and maintenance, capital cost of new investments, depreciation and cost of capital), - (b) resources costs (opportunity costs; scarcity value), - (c) environmental costs (environmental damages such as saline intrusion, biological and chemical pollution). - Policy instruments: - Move from conventional full cost recovery via tariff as a single mechanism to combinations of fiscal instruments (tariff combined with tax to correct externalities and transfer to ensure affordability). - Broad cost recovery strategy aims to recover financial cost together with environmental and resources costs. - Source cited: OECD. ### Service level indicators and selected Water PNG corporate KPIs (ICCC review) - ICCC Service Level Indicators reviewed include: - Reliability Target (>90% of total hrs/month) - Unplanned Interruption per 100 km per month - Number of complaints per 1000/month - Response time to major/minor complains - Turbidity compliance - Chlorine Residual - Time to connect/re-connect new customer (days) - Sewerage overflows per 100 km of main and sewerage overviews to customer property per 1000 connection - Selected business-specific KPIs per Corporate Plan include: - Debt to equity ratio - Capital expenditure - # of water/sewerage connections - Plant availability - Non-revenue water - % compliance to all regulatory requirements - Timely completion and submission of audit report - % of technical staff trained by Water PNG - % of business staff trained by Water PNG - Staff turnover rate - Sources: ICCC 2022; KCH 2022. ### Rural water supply — funding and institutional gaps - Main funding mechanism: Provincial and District Service Improvement Programs (PSIP/DSIP) administered by Provincial Government and District Development Authorities (DDA). - PNG currently has no clear guidelines on how PSIP and DSIP should be used to promote WaSH sector investment and mainstream climate considerations. - World Bank support: - Building ward-level capacity across 225 wards; approximately 50 percent of financing is used to build rural water supply. - Proposed expansion to approximately 1,000 wards (prioritized among 6000+ wards in PNG) in next project phase under discussion. - Legal/institutional development: - A draft bill is under development to empower ward-level planning by the Department of Provincial and Local-level government Affairs (DPLGA). - Ward-level service planning and investment mechanism is yet to be formalized under the existing organic law. ### Recommendations (water resources, pricing, and sector coordination) - Strengthen water resources monitoring (surface and groundwater quantity/quality). - Build further: - (a) analytical capacities for integrated water resources management (IWRM), - (b) an inter-agency coordination mechanism, - (c) and develop an IWRM plan. - Operationalize volumetric water resources abstraction and sewerage charges per Environmental Act (Environmental Regulation 2002). - Review and update charges to appropriately internalize environmental externalities and reflect full economic value of water. - Incorporate NRW reduction and other climate relevant targets as part of service level indicators to be reviewed by ICCC, making an approval of 2027 tariff increase conditional on the successful achievement of revised service level indicators. - Update water tariff based on financial cost recovery and abstraction fees reflective of environmental/opportunity cost. Make complementary adjustments (such as through block rates and consumer segmentation) to account for distributional impacts. - Strengthen coordination and planning of rural WaSH sector, allowing for an effective mobilization of grant/concessional financing. ### Disaster Risk Management and Disaster Risk Financing — relevant figures and gaps - Hazard exposure and losses: - According to the INFORM Risk index, PNG ranks 16th most at-risk countries globally in terms of hazard, exposure and vulnerability related to natural and man-made disasters. - Based on the Global Infrastructure Resilience (GIRI) Index, the annual average losses (AAL) related to all disasters are estimated at US$ 290 million of which 76 percent is climate related hazards including floods, landslides, tropical cyclones. - With climate change, AAL is expected to increase from US$ 290 million to US$ 322 million (lower bound) and US$ 389 million (upper bound) with the impact of climate change alone. - Flood is identified as the costliest hazard in PNG. - Institutional and planning gaps: - Disaster Management Act (DMA) 1984 established National and Provincial Disaster Committees and National Disaster Center; limitations include lack of clarity on roles, predictability of financing, DRM structure below provincial level, emphasis on ex-ante DRM, and limited civil society/private sector engagement. - Multiple DRM planning documents exist (National Disaster Mitigation Policy 2004; National Disaster Risk Management Plan 2012; Emergency Operating Centres SOP Plan 2009; PNG Drought Response and Recovery Plan 2015; Draft Response and Recovery Plan 2023; National Disaster Risk Reduction Framework 2017-2030), many due for update. - Early warning systems and technical capacity: - National end-to-end early warning sub-plans envisioned in NDRMP 2012 (emergency warning plan, communication plan, relief plan, early recovery plan) have not been developed and operationalized. - CEPA’s flood monitoring has been discontinued due to lack of financing/staffing; CEPA has no prior experience producing flood forecasting. - Technical capacity is limited for landslides and droughts; development partner support is being received. - Communication channels for early warning are under-developed; primary means remain radio broadcasting. - Recommendation: strengthen people-centered end-user and last-mile delivery, use appropriate low-cost technology options, and involve civil society and private sector; build on national volunteer service and youth engagement. - Ex-ante DRM and critical infrastructure resilience: - Climate change and vulnerability assessments are conducted in selected provinces by CCDA. - National Disaster Centre: national and provincial contingency plans available; staff trained but community engagement limited due to insufficient funding. - PNGNFA: forest fire response plan available within jurisdiction; dissemination means to communities lacking. - PNG Power: no systematic climate risk assessments (incl dam safety assessments); operational contingency plan available. - Water PNG: no systematic climate risk assessments; operational contingency plan available. - Disaster risk financing and budgetary constraints: - DMA 1984 contains limited provisions on public financing for disaster relief. - PNG’s annual budget allocates approximately K2 million for National Disaster Center, of which three-quarters is used to fund 10 full time staff; remaining operational cost (K0.5 million) can be used for emergency response purposes. - National budget line of unforeseen payments related to natural disasters had 2023 appropriation of K3 million, which is significantly below annual response needs. - Provincial Disaster Centers typically hire on average 1 full-time (highlands provinces) and 2-3 staff (lowland provinces). - When additional funding is requested from the Department of Treasury, the process may require approximately 1 week before funds are made available or disbursed. *IMF Technical Assistance Report.* ### 24. PNG has legal/regulatory frameworks that define public resources allocation and budget ### 24. PNG has legal/regulatory frameworks that define public resources allocation and budget execution related to disasters including the Appropriation Act which defines the procedure and threshold for virement and the Public Finance Management Act 1995 which grants the Finance Minister, discretion to wave public tendering requirements in case of a disaster for an individual transaction below K500,000. ### Disaster legal/regulatory framework and procurement practices - The Appropriation Act defines the procedure and threshold for virement. - The Public Finance Management Act 1995 grants the Finance Minister discretion to waive public tendering requirements in case of a disaster for an individual transaction below K500,000. - Despite the public tender waiving option, National and Provincial Disaster Centers typically do not rely on this procedure. - Regular tendering involving at least 3 service providers is commonly used, delaying procurement of emergency response goods and services by approximately 1 week. ### Disaster risk financing posture and gaps - PNG lacks a strategic understanding of alternative ex-ante and ex-post options to strengthen financial resilience against disaster risk. - Existing instruments and arrangements: - National and Provincial Disaster Centre allocations. - Contingency budget line and virement options. - A single ex-ante disaster risk financing instrument taken: parametric earthquake insurance against submarine communication cables offered by the Pacific Catastrophe Risk Insurance Company. - PNG has not arranged other contingent instruments, including a contingent line of credit (Figure 11). - Discussions are ongoing to mobilize additional domestic revenue and foster financial sector instruments such as micro-finance and climate insurance in the context of the green finance policy. - Awareness regarding alternative ex-ante disaster risk financing options is limited among government stakeholders. - Standard practices to facilitate post-disaster budget execution, such as pre-arranged procurement, are limited or absent. - Channels to mainstream disaster risk reduction (DRR) exist (e.g., PSIP/DSIPs), but: - There is no clarity on how much is currently spent on DRR. - There is no clear technical guidance on how DRR mainstreaming can be done effectively. ### Emerging actions and recommended strategic response - The PNG government, with development partners, is beginning to evaluate mechanisms such as post-disaster cash transfer and anticipatory actions, but lacks an overarching strategic view on fostering public, private, and civil society-led channels to strengthen financial resilience. - Recommendation: - PNG would benefit from an in-depth technical diagnostic followed by the development of a Disaster Risk Financing Strategy (DRFS), modeled after approaches taken by other countries (Box 4). *IMF Technical Assistance Report | 33–35* --- ### Box 4. National Disaster Risk Financing Strategy to Foster Financial Resilience Against Disasters (Philippines example) ### Context and approach - The Philippines: located within the Pacific Ring of Fire, highly prone to natural hazards (estimated average of 20 typhoons each year; earthquakes common). - Estimated annual average loss of public and private assets due to typhoons and earthquakes: approximately US$3 billion. - Risk layering is a key element: mix of risk retention and risk transfer instruments to expand fiscal buffers and provide cost-effective coverage for disaster response. ### Recommendations drawn from the Philippines experience - Finalize the revision of Disaster Management Act 1984 clarifying roles and responsibilities across all phases of disaster risk management (prevention, preparedness, response, and recovery), and establish formal mechanisms for DRM coordination below district levels. - Operationalize the national end-to-end early warning system as outlined in the National Disaster Risk Management Plan 2012 with appropriate updates, and establish a clear mechanism to link early warning information with preparedness actions. - Integrate ongoing census information into DRM activities and decision making, including climate vulnerability/risk assessment, impact-based forecasting, post-disaster damage assessment, and funding prioritization. - Develop a disaster risk financing strategy, strengthening ex-ante budgetary planning and use of alternative risk financing instruments by public and private entities, building on the green finance initiative. *IMF Technical Assistance Report | 33–34* --- ### D. Climate Resilience of Agriculture ### Current state and importance - Agriculture accounts for 14 percent of GDP in PNG and offers livelihoods for an estimated 85 percent of the country’s population. - Agriculture is dominated by small-holder farming systems producing all rain-fed subsistence food crops and the majority of cash crops, including: - approximately 25 percent of oil palm, - 80 percent of coconuts, - 75 percent of coffee, - 70 percent of cocoa, - along with nearly all of spices. - MTDP IV target: enhance export values by 58 percent and increase sector contribution to GDP to reach 31.7 percent by 2027. ### Climate risks and projected impacts on agriculture - Agriculture and fishery activities are affected by sea level rise, ocean acidification, droughts, floods, El Niño–Southern Oscillation, and biological hazards such as pests and plant diseases. - Vulnerabilities stem from high reliance on rainfed agriculture and limited access to all-season resilient roads, weather information, extension, and financial services. - Historical trends: - Substantial gains in yield and overall production of major cereals since 1980 have stalled over recent decades (Figure 12). - Progress to alleviate undernourishment has stalled, with an increase in the absolute number of undernourished. - Projected yield changes under RCP 8.5 (2050): - Cassava: -9.3% (optimistic) and -11.5% (median) - Maize: -3.9% (optimistic) and -8.2% (median) - Rubber*: - -3.4% (median only) - Coffee*: - -5.8% (median only) - Cocoa*: - -4.5% (median only) - Note: *projected changes based on proxy values according to Global Agro-Ecological Zoning (GAEZ) for Indonesia; RCP 8.5 scenario is considered a very high emission scenario. ### Key policy gaps and institutional fragmentation - Legal, policy, and institutional fragmentation: - Sector laws include National Agricultural Research Institute Act 1996, National Development Bank Act 2007, and commodity-specific acts. - No comprehensive law detailing roles and responsibilities of agricultural sector administration. - Key institutions: - Department of Agriculture and Livestock (DAL) regulates the agricultural sector. - National Fisheries Authority (NFA) regulates fisheries. - Commodity-specific research institutes: National Agricultural Research Institute, Oil Palm Research Association, Cocoa Coconut Institute, Coffee Research Institute, Highlands Agricultural Technical Institute, Fisheries College. - Financial institutions: - National Development Bank (NDB) and other commercial banks provide financial services, primarily targeted at micro, small and medium sized enterprises in the agricultural sector. - Key planning document: Mid-Term Development Plan for the Agricultural Sector 2023-2027. ### Climate adaptation priorities and ongoing initiatives - PNG’s NAP prioritizes climate smart agriculture and climate resilient infrastructure access for agriculture, including: - R&D on resilient crop varieties, - promotion of indigenous coping mechanisms, - seed banks, - livelihood diversification. - Current development partner support areas include design of farm climate advisory services and promotion of climate adapted practices in cocoa, vanilla, and aquaculture. - Government subsidies exist to cover high transportation costs of agricultural production; no other identified fiscal incentives for adoption of climate smart agricultural practices. - Development of a climate smart agricultural policy is ongoing. ### Agricultural financial inclusion and risk management - Financial sector composition: - Regulators: Central Bank of PNG, Insurance Commission, Exchange Commission. - Financial institutions: 1 national development bank, 4 commercial banks, 12 non-bank licensed financial institutions (including micro banks operating on a for-profit basis), and 16 saving and loan societies. - Financial inclusion and credit: - The actual size of agricultural lending across the value chain is described as ‘unclear’ in the Inclusive Green Finance Strategy 2023. - 100 percent of farmers and agri-business owners surveyed in the Market for Village Farmers (MVF) Project indicated they are in need of credit. - An estimated 80 percent of PNG’s population remains unbanked. - 100 percent of farmers surveyed in the MVF lacked non-cash collaterals. - NAP priority actions include: - Establishment of farmer cooperatives and microcredit facilities. - Inclusion of agricultural risk insurance in all production supply and value added, transport/marketing systems. - Ongoing initiatives: - Green Finance Center conducting a technical needs assessment for expansion of green finance in agriculture. - DAL working on a technical feasibility study to evaluate index-based insurance options for the agricultural sector. - Related initiatives to strengthen financial inclusion via credit guarantees. ### Policy recommendations for agriculture - Finalize the adoption of climate smart agriculture policy with a clear M&E framework to strengthen sector coordination. - Evaluate alternative options to strengthen agricultural financial inclusion and risk management (shock-responsive lending/savings activities, index insurance, etc.) as part of the green finance initiative/disaster risk financing strategy. ### Box 5. Bundling risk management, credit, and agronomic inputs (Kenya example) - Example: Pula (Kenya-based provider) - Designs area-yield index and weather-index based insurance products bundled with agricultural inputs (seeds, fertilizers) and agronomic advisory. - Business model: insurance premium paid by private input producers seeking product differentiation; products under-written by third party insurers. - Applications: products for 14 food and cash crops and livestock; aims for customer-base of 8 million farmers by 2025. - Usage examples: Central Bank of Nigeria insured 543,000 farmers in 2020; World Food Programme supported insurance for 10,000 farmers in Kitu, Kenya. *IMF Technical Assistance Report | 35–38* --- ### III. Climate Mitigation Policy — Selected findings on emissions and energy ### GHG emissions context and estimates - Estimates vary across sources and over time: - Second Biennial update report (BUR, 2022): PNG went from a ‘net sink’ to a ‘net source’ in 2016 (around 7 MtCO2e) and returned to being a carbon sink in 2017 (around -2 MtCO2e); these changes are driven by the LULUCF sector. - FAO datasets: total GHG emissions in PNG reached 50 MtCO2e in 2021, with agriculture, forestry, and other land use (AFOLU) accounting for approximately 72 percent. - IMF estimates used in the report: around 45 MtCO2e in 2022. - Global Forest Watch: in 2023 forest loss led to emissions at 66 MtCO2e. - PNG accounts for approximately 0.08 percent of global emissions. - Emissions per capita and intensity: - PNG per capita emissions: 4.4 tCO2e per person. - Regional average per capita: 9.1 tCO2e per person. - Global average per capita: 6.8 tCO2e per person. - Emission intensity of GDP: 1.42 tCO2e per 1000 USD GDP in PNG. - Regional weighted average intensity: 0.54 tCO2e per 1000 USD GDP (global average cited as 0.54 tCO2e per 1000 USD GDP). ### Sectoral emissions breakdown (2022) - Total IMF estimate: 45 MtCO2e in 2022. - Sector shares: - LULUCF: 76% - Energy-related and other: 19% (which includes power, industry, fugitive, transport, buildings) - Power: 7% - Industry and fugitive emissions: 5% - Transport: 4% - Buildings: 3% - Agriculture: 2% - Waste: 3% ### Primary energy consumption and health impacts - Primary energy consumption composition (2022): - Biomass: 35% - Oil products: 40% - Together biomass and oil products account for three-quarters of primary energy consumption. - Access to clean fuels and technology for cooking is limited, at 10 to 15 percent of the population (range as stated). - Household air pollution was estimated to result in more than 10 thousand premature deaths in 2019. - Government electrification goals: - Expand access to electricity to 70 percent in 2030 and 100 percent in 2050. *IMF Technical Assistance Report | 38–40* ### 37. PNG is committed to mitigation action, including setting emission targets in the NDC. In ### PNG is committed to mitigation action, including setting emission targets in the NDC. ### Overview and projected emissions - In 2020, PNG submitted its enhanced NDC to the United Nations Framework Convention on Climate Change (UNFCCC) and sets several mitigation targets. - Energy-sector high-level targets in the NDC include: - reducing energy demand, - increasing share of renewables in installed capacity to 78 percent, - establishing a framework for fossil fuel emissions offsetting, - enhancing data collection. - LULUCF targets in the NDC include: - reduce GHG emissions by 10 MtCO2e against 2015 levels, - 25 percent reduction of annual deforestation relative to 2015 levels, - 25 percent reduction of forest degradation relative to 2015 levels. - IMF staff projections using Climate Policy Assessment Tool (CPAT) estimate PNG’s total GHG emissions in 2030 would reach 41 MtCO2e in the baseline scenario. - Baseline scenario assumptions for this report: - no changes in existing taxes and tariffs and no adding new taxes and levies in the energy sector, - implementing planned and proposed renewable energy projects in accordance with the NDC, - for the forestry sector, baseline emissions from the NDC were used. ### AFOLU — Current state and challenges - Forests account for 77.9 percent of land in PNG; three-quarters of forests are undisturbed. - The LULUCF sector has historically acted as a net, yet decreasing, sink, temporarily became a net source in 2011, 2013 and 2014-2015, and became a net sink again in 2017. - Compared to LULUCF emissions, direct emissions from agriculture historically are almost negligible; deforestation historically accounted for approximately 17 percent of LULUCF emissions. - Commercial logging drives forest degradation, accounting for more than 80 percent of emissions in LULUCF. - Between 2000-2018: - 8.88 million hectares (ha) was disturbed by human activities (almost 8 percent of total forest area), averaging 150 thousand ha a year. - Peak disturbance occurred in 2010 and 2011 at 200 thousand ha each. - Commercial logging was responsible for 46 percent of forest degradation and disturbance, mostly at low-altitude forests. - Deforestation 2000-2018: - more than 340 thousand ha deforested at an average annual rate of 0.05 percent. - Pace of deforestation: about 100 thousand ha in 2000-2010; 150 thousand ha in 2010-2015; and 100 thousand ha in 2015-2018. - Main drivers of deforestation: shifting cultivation (63 percent) and oil palm development (29 percent). - In terms of emissions, impact of forest degradation (partial loss of tree cover) is almost five times higher than deforestation (complete removal of forest). - Institutional and resource constraints: - PNG Forest Authority (PNGFA) resources are limited to track reforestation efforts by logging companies. - Reforestation levy from timber industry most of the time does not cover reforestation costs. - 8.4 million ha of forest land (almost one quarter of forest land) is under current timber concessions, including 4 million ha under Special Agricultural Business Leases (SABL) which allow logs to be harvested and exported under Forest Clearance Authorities (FCA). ### AFOLU — NDC targets, supporting plans, and implementation instruments - AFOLU sector main NDC quantitative target: - achieve net GHG sink of 8.284 MtCO2e in 2030, or 10 MtCO2e reduction in emissions from 2015 levels. - Non-GHG quantitative targets in NDC AFOLU: - reduction by 25 percent each of areas of annual deforestation and forest degradation relative to 2015 levels, equivalent to reduction of 8,300 ha and 43,300 ha, respectively, - increase area of planted forest and forest restoration set at 220,000 ha by 2030 in the NDC Implementation Plan. - NDC action-based targets for AFOLU include: - enhanced land use planning, - promoting climate-friendly agriculture, - enhancing value chain of climate-friendly agriculture products, - strengthening monitoring of FCA permits, - enhancement of timber legality, - promoting REDD+ (Reducing emissions from deforestation and forest degradation in developing countries framework), - promoting downstream processing. - Supporting documents: - NDC Implementation Plan (2021-2030) sets actions/activities, targets for 2025 and 2030, allocated budget, potential/existing funding sources, and implementing agencies. - AFOLU mitigation plan (2022-2025) clarifies means of implementation (funding, capacity building, technology, and R&D) and time frames for each activity/action. ### AFOLU — Fiscal and market instruments, risks, and design considerations - Carbon levy on forest degradation and deforestation: - PNGNFA is reviewing the Forestry Act (1991), providing opportunity to impose carbon levy on forest degradation and deforestation. - Initial carbon levy could be imposed on logging companies and commercial plantation agriculture using emission factors from 2nd FRL (deforestation of primary forest, deforestation of degraded forest, and forest degradation). - Later use of National Forestry Monitoring System (NFMS) is envisaged. - Forest monitoring capacity using remote sensing has improved with technical support and funding from FAO under REDD+, National Forest Inventory project funded by the EU, and JICA. - Design features and administrative considerations: - Regulations under Forestry Act currently have 19 different levies payable by logging companies; levels and applicability vary across concessions. - Adding carbon levy should consider administrative capacity of PNGFA and/or CCDA to collect the levy and timber companies’ ability to pay, given high levels of tax burden imposed on timber exports (including 50 percent log export tax in 2024, returned to previous value from 70 percent in 2023). - Increase in forest cover, based on NFMS data, can be credited against carbon levy payments to support reforestation. - Review of existing royalties, taxes, and levies in the logging sector is recommended to identify appropriate tax policy measures and necessary recalibration. - Payment for Environmental Services (PES): - PES schemes would pay landowners for services standing forests provide (biodiversity, carbon sequestration, soil conservation, preventing floods and land degradation, etc.). - Payments in PES are calculated based on ecosystem value or opportunity cost (roughly the opportunity costs of switching to different economic activities for households whose livelihoods depend on the forest). - Evidence on PES effectiveness: - Uganda randomized controlled trial: reduction in deforestation rates in treatment villages decreased to 2-5 percent compared to 7-10 percent in non-participating villages. - Study of 40 REDD+ projects in nine countries showed payment schemes can reduce deforestation by 47 percent in the first five years, with effect smaller for 8-10 year projects. - Institutional and financial prerequisites for PES: - Land rights (97 percent of land is customarily owned), leasing possibilities, and land use planning are prerequisites. - Implementation of land use plans helps contain leakage. - Financial support needed from donors, general budget (Costa Rica example: fiscal cost of PES is 0.2 percent of GDP), or levies applied in forest sector (earmarking). - NFMS required for monitoring forest cover. - Carbon Transaction Law and carbon markets: - Implementation should be cautious due to international challenges on additionality, permanence, reporting, measurement and verification credibility. - CCMA positioned PNG to engage in carbon trading, but rigorous governance mechanisms remain absent. - PNG had an adverse experience with voluntary schemes and imposed a moratorium to create regulatory framework for future and existing deals. - International concerns include ensuring rewards are for efforts beyond business-as-usual, maintaining permanence (risks: forest fires, disease), developing meaningful baselines and reliable measurement tools, and avoiding social and environmental harms. ### AFOLU — Recommendations (from source) - Impose carbon levy on forest degradation and deforestation starting with commercial logging and commercial plantation agriculture, while considering exemptions/deductions for companies that meet certain sustainability standards/criteria. - Consider introducing payment for environmental services (PES) schemes on a pilot basis to support conservation efforts. ### Energy sector — Current state and challenges - Industry, transport, and buildings: - In 2022, industry, transport, and buildings combined, including fugitive emissions, accounted for around 5.4 MtCO2e, or 65 percent of energy-related emissions (12 percent of total GHG emissions). - The remaining 35 percent of energy-related emissions is due to fuel combustion in the power sector. - In 2019, industry, transport, and buildings consumed about 70 percent of total energy in PNG. - Oil and gas production and trade: - In 2022, PNG produced 382.7 billion cubic feet (bcf) of natural gas and 34.4 million barrel per day (Mb/d) of crude oil and liquids. - Mid- and downstream petroleum industry is underdeveloped; more than 90 percent of natural gas and crude oil is exported. - PNG imports about 85 percent of its final consumption of oil and oil products (Enerdata: import of petroleum products was about 1.08 Mtoe in 2021). - Domestic market obligations under the Oil and Gas Act are negotiated between GoPNG and developers and are not being fully operationalized. - Example: 58 MW Port Moresby Power Station (first grid-connected station operated by NiuPower IPP) uses domestic gas and started operation in 2020. - Electricity access and supply structure: - Electricity access estimates vary but all below 20 percent: - ADB estimates access at 13 percent. - World Bank estimates access at 19 percent (14 percent for rural population). - USAID estimates access at 15 percent. - Government objective: achieve 70 percent electricity access by 2030 and universal access by 2050. - Population is highly dispersed and terrain is rugged, making transmission lines to remote areas costly. - Development partners (ADB, Australia’s DFAT, JICA, New Zealand’s MFAT, UNDP, USAID, World Bank, others) focus on off-grid expansion via solar home kits and mini-grids. - PNG Power Limited (PPL) is state-owned utility responsible for generation, transmission, distribution; acts as single buyer to IPPs and has monopoly on transmission and distribution. - PPL plans medium- and long-term on-grid expansion mostly through large-scale hydro. - Electricity generation and capacity: - Different sources report different installed electricity capacity values: - National Energy Policy 2017-2027 cites 797 MW for 2016 and 580 MW for 2013. - Updated NDC uses 580 MW (without specifying the year). - EIA estimates capacity at 1,263 MW in 2022. - Based on EIA data (used in this report, cross-checked with Enerdata): - Hydro capacity share between 40 and 54 percent. - Diesel capacity share between 27 and 37 percent. - Natural gas share 11-14 percent. - Geothermal share 7-9 percent. - Official data on electricity generation is lacking. - Electricity tariffs and regulation: - Regulatory change: NEA (National Energy Authority), established under National Energy Authority Act 2021, has taken over economic and technical regulation and licensing; ICCC previously responsible. - In August 2023, PPL and NEA announced adjustments of electricity tariffs that had been frozen since 2013 by GoPNG. - ICCC stated the tariff increase was inappropriate and lacked transparency and that NEA did not follow proper legislative process. - Tariff rate adjustments are supposed to be administered through regulatory instrument such as five-year regulatory contract. - PPL financial and operational challenges: - Frozen electricity tariffs for over 10 years led to inability to cover operational and capital costs and limited ability to invest in new projects and maintain infrastructure. - Use of expensive imported diesel increases operational costs. - Frequent power outages due to inadequate generation capacity and fuel shortages. - PPL reports technical losses around 8-10 percent and non-technical/commercial losses estimated at 20 percent. - PPL pays significant capacity charges to existing IPPs. - Electricity tariff table (as presented in source): - Customer — Tariff — Share in on-grid demand - Industrial — 63.31 toea/kWh — ~50 percent - Commercial — 96.27 toea/kWh — ~30 percent - Residential — 69.68 toea/kWh — 20 percent ### Energy sector — Key policy gaps and opportunities (from source) - Need for clear and transparent electricity tariff-setting framework and regulatory process. - Address PPL’s financial sustainability: tariffs, generation costs, technical and non-technical losses, reliance on imported diesel. - Expand off-grid solutions for dispersed population while planning on-grid expansion through hydro where feasible. - Improve official data on installed capacity and electricity generation. *IMF Technical Assistance Report | content unit as provided.* ### 56. PNG has multiple targets to achieve its mitigation goal in its updated NDC for the energy ### PNG has multiple targets to achieve its mitigation goal in its updated NDC for the energy sector ### NDC energy-sector targets and action-based measures - Enhanced NDC (2020): overall goal of achieving 50 percent carbon neutrality by 2030, and 100 percent by 2050. - Energy-sector headline target: reaching carbon neutrality within the energy sector by 2050. - Quantitative non-GHG target: achieve a share of 78 percent of renewables in the on-grid generation capacity by 2030, from 30 percent in 2015 (around 26 percent in 2022). - Non-GHG action-based targets: reducing energy demand through adoption of minimum energy performance standards and labeling (MEPSL), establishing a framework for fossil fuel emissions offsetting, and enhancing data collection capacities. - Transport measures proposed: reducing vehicle-miles, encouraging efficiency in the transport sector, encouraging the introduction of hybrid and electric vehicles (EVs). ### Implementation plans and planned/proposed renewable projects - NDC Implementation Plan: outlines actions and projects in the energy sector to achieve the main targets and supporting activities in renewable energy and transport. - Energy Mitigation Plan (2022-2025): sets out means of implementation for activities and actions from the NDC Implementation Plan; complemented by the Implementation Roadmap for the electricity sector. - Both documents list 37 planned and proposed projects with total capacity of more than 470 MW. - Planned and proposed projects (MW) — summarized totals as presented: - Planned — Hydro: 159 (Short-term) + 31 (Medium-term) + 190 (Long-term) = 380 (Total Planned Hydro) - Planned — Solar: 17 (Short-term) = 17 (Total Planned Solar) - Proposed — Hydro: 2 (Medium-term) + 21 (Long-term) = 24 (Total Proposed Hydro) - Proposed — Solar: 15 (Short-term) + 4 (Medium-term) = 20 (Total Proposed Solar) - Proposed — Biomass: 2 (Medium-term) = 2 (Total Proposed Biomass) - Total across stages and technologies: 191 (Short-term) + 38 (Medium-term) + 213 (Long-term) = 472 (Total) ### Benefits of renewable deployment and electricity tariff issues - Adding at least 470 MW of renewable electricity projects to the grid will over time lower generation costs. - Given the frozen electricity tariff, PPL would not still recover its total costs. - NEA is working on regulation to establish a cost-recovery tariff mechanism. - Removal of the tariff freeze will increase electricity bills for households; additional measures or exemptions should be taken to protect low-income households. - The analysis later in the report evaluates the impact of gradual removal of electricity tariff freeze. ### Off-grid electrification necessity and barriers - National Electrification Roll-Out Plan: to reach 70 percent electricity access target by 2030, over 630 thousand households, or 27 percent of population, will need to be served by off-grid generation. - USAID-PEP estimates: total accessible market for mini-grids and solar home systems in PNG is around $71 million per year, potentially serving more than 850 thousand households. - Current limitations to off-grid expansion: - Lack of regulatory framework for off-grid projects, creating investor uncertainty. - High distribution and transportation costs to remote areas, adding 20 percent to overall costs. - Low available skills for maintenance and payment collection in remote locations. - NEA is drafting regulations for renewable energy (hydro, solar, wind) to address licensing, tariffs, and land rights; opportunity to include incentives (feed-in tariffs, renewable subsidies) and training requirements for mini-grid locations. ### Key policy gaps and opportunities: Petroleum fuels and fuel taxation - 2023 amendment of the CCMA introduces carbon levies on imported and locally produced fuels (regardless of consumption sector) and a nitrogen levy on imports of synthetic fertilizers; implementation currently suspended due to inconsistency with section 209 of PNG’s Constitution and because the level of the levy is relatively low. - Excise tax erosion: effective tax rates on fuels are declining as excise rates are infrequently adjusted, reducing revenue collections and externality-correcting benefits. - CPAT estimates: revenues from gasoline and diesel will decline by almost 20 percent in 2030 relative to 2020 in the baseline, despite 18 percent increase in consumption. - Proposed Carbon Levy (as presented): - Motor spirit (gasoline) including aviation spirit: 5 toea per kg of carbon; Fuel levy rate 1 toea per liter - Jet A1: 5 toea per kg of carbon; Fuel levy rate 1 toea per liter - Kerosene: 5 toea per kg of carbon; Fuel levy rate 1 toea per liter - Diesel: 5 toea per kg of carbon; Fuel levy rate 1 toea per liter - Heavy fuel, oils: 23 toea per kg of carbon; Fuel levy rate 5 toea per liter ### Recommendations (energy and fuels) - Implement carbon levy on liquid fuels according to the 2023 amendment to the CCMA. - Restore real value of fuel excises (adjust fossil fuel excises to inflation). - Establish a clear and transparent multi-year regulatory framework for tariff setting and review. - Adjust end-use electricity tariff to reach cost-recovery in PPL and promote electricity use efficiency, with measures protecting low-income households. - Adopt a regulatory framework for off-grid renewable electricity generation projects that include incentives such as feed-in-tariffs and capacity building. ### Methane: current state, mitigation options, and policy gaps - Methane emissions: about 3.8 MtCO2e in 2022, with 45 percent from oil and gas extraction and 35 percent from the waste sector. - No regulatory framework currently for methane emissions from waste and oil and gas sectors; venting and flaring reporting is required but no technical requirements or standards exist. - Waste management fragmentation: Environment Act manages industrial waste, Public Health Act manages medical waste, Trade Waste Policy restricts wastewater discharge; local governments theoretically can formulate waste policies but as of 2022 only two urban local level governments have solid waste management plans. - Mitigation options: - Technological measures: flaring or capturing methane for power generation or sale, electrifying extraction processes, replacing natural gas pumps, improving leak detection and repair systems, upgrading distribution infrastructure. - Fiscal instruments: methane fees integrated into existing fiscal regimes on oil and natural gas extraction, possibly scaled by default emission factors with rebates for low-emission firms; fees must consider existing contracts such as fiscal stability clauses and require improved monitoring. - Alternative instruments: emission rate regulations and technology requirements. - Fiscal instruments for waste lifecycle (upstream) could internalize negative externalities and finance waste management: - Advance disposal fees (ADFs) and advance recycling fees (ARFs) at customs for imported consumer durables and polluting products. - Deposit-refund system (DRS) at retail for single-use containers of recyclable materials; to minimize administrative costs, deposit could be collected at import stage while refunds issued at collection points. - Tipping fees and landfill taxes at disposal stage face practical limitations in PNG due to predominance of open dump sites lacking day-to-day management and monitoring. - Methane recommendations: - Consider introducing technical standard and/or fees on fugitive emissions from oil and gas production. - Adopt regulatory framework to promote waste management and consider introducing fees to internalize waste externalities. ### Evaluating the impact of mitigation policies — scenarios and modeling approach - Modeling tool: CPAT (see Annex II). - Three illustrative policy packages: - Planned policies package: gradual adjustment of electricity tariffs to be reflective of costs as envisioned by NEA over the 2025-2030 period, and introduction of the carbon levy proposed in the CCMA starting from 2025. - Planned policies+ package: includes adjustment of fuel excises to inflation starting from 2025, on top of the planned policies package. - Ambitious package: includes gradual adjustment of carbon levy from approximately $1/tCO2 in 2025 to $5/tCO2 in 2030, on top of the planned policies+ package (Assuming exchange rates of 4 kina/US$ in 2025, increasing to 4.4 kina/US$ in 2030). ### Fiscal, price, growth, and emissions impacts of the policy packages - Baseline revenues from petroleum products in 2030: estimated to about US$97 million (down from estimated US$125 million in 2020). - Losses in the electricity sector in baseline: around US$ 370 million. - Additional revenues and avoided losses in 2030 relative to baseline: - Planned policies package: US$407 million (equivalent to about 1.1 percent of GDP). - Planned policies+ package: US$428 million (equivalent to about 1.2 percent of GDP). - Ambitious package: US$ 447 million (equivalent to about 1.3 percent of GDP). - Energy price impacts (selected values preserved exactly as presented): - Electricity, industry $/kWh: 2023 = 0.16; Baseline, 2030 = 0.12; Planned policies, 2030 = 0.18; Planned policies+, 2030 = 0.18; Ambitious, 2030 = 0.19 - Electricity, commercial $/kWh: 2023 = 0.22; Baseline, 2030 = 0.16; Planned policies, 2030 = 0.23; Planned policies+, 2030 = 0.23; Ambitious, 2030 = 0.24 - Gasoline $/liter: 2023 = 1.02; Baseline, 2030 = 0.87; Planned policies, 2030 = 0.87; Planned policies+, 2030 = 0.90; Ambitious, 2030 = 0.91 - Diesel $/liter: 2023 = 0.93; Baseline, 2030 = 0.80; Planned policies, 2030 = 0.80; Planned policies+, 2030 = 0.82; Ambitious, 2030 = 0.83 - Kerosene $/liter: 2023 = 0.74; Baseline, 2030 = 0.64; Planned policies, 2030 = 0.65; Planned policies+, 2030 = 0.65; Ambitious, 2030 = 0.66 - Distributional considerations: electricity price increases (industry +0.02 US$/kWh, commercial/residential +0.01 US$/kWh) will require additional measures to address distributional impacts of reforms. - Growth impacts without revenue recycling: policies cause negative effects on economic growth. With appropriate recycling (productive public investment and increase in current spending), the 2025 growth impact can be offset, bringing net impact to positive 0.11-0.12 percentage points compared to baseline. - Emissions impacts: - Energy-related CO2 emissions reduction in 2030, % to baseline: Planned policies = 7.3; Planned policies+ = 7.8; Ambitious = 8.9 - Cumulative CO2 emissions reductions in 2024-2030, MtCO2: Planned policies = 1.4; Planned policies+ = 1.6; Ambitious = 1.8 - Fiscal revenues raised in 2030 relative to baseline, % of GDP: Planned policies = 1.1; Planned policies+ = 1.2; Ambitious = 1.3 - Cumulative fiscal revenues in 2024-2030, difference to baseline, bn USD: Planned policies = 1.36; Planned policies+ = 1.46; Ambitious = 1.52 - Impact on GDP growth in 2030, percentage points deviation from the BAU growth: Planned policies = 0.1; Planned policies+ = 0.1; Ambitious = 0.1 - Weighted average electricity prices in 2030, $/kWh: Planned policies = 0.2; Planned policies+ = 0.2; Ambitious = 0.2 - Overall emissions conclusion: because most emissions in PNG originate from non-energy sectors, total GHG emissions are not highly responsive to the policy packages; modeled policy packages bring between 7 to 9 percent of emissions reduction in 2030, or up to 2 MtCO2 cumulatively over five years. *Source: IMF Technical Assistance Report (excerpts provided).* ### 74. PNG was an early adopter of international climate change commitments and has ### tarea2025025-print-pdf - 74. PNG was an early adopter of international climate change commitments and has ### Legal and regulatory framework for climate action - PNG ratified key international conventions and agreements on climate change: UNFCCC, 1992; Paris Agreement, 2016. - CCMA (Climate Change Management Act) adopted by Parliament in 2015: - Regulatory framework objectives: (a) promote and manage climate-compatible development through climate change mitigation and adaptation activities; (b) establish the CCDA and the National Climate Change Board (NCCB) to coordinate climate change related policies and actions; (c) set up administrative procedures related to funding arrangements, Measurement Reporting, and Verification (MRV) and benefit sharing. - CCMA amendments in 2021 and 2023: strengthen revenue mobilization through introduction of carbon levy and enhance the mandate of the CCDA to ensure transparency and accountability for the Authority. - CCMA regulated sectors (Section 53 of CCMA 2015): agriculture and livestock; energy sector; transport sector; works & infrastructure sector; forestry and land use sector (LULUCF); mining sector; fisheries and marine resources sector; waste management sector. - 2022 regulation to support 2021 NDC implementation: - Creation of a Technical Advisory Committee and Sub-Technical Working Committees. - Formal recognition of NDC targets, development of an implementation plan, implementation measures, and MRV protocols. - Existing sectoral and cross-cutting legislation providing initial basis: energy, water, environmental management, land use planning. - Resource mobilization and financial management governed by PFM and revenue legislation: Public Financial Management Act (1995), Audit Act (1989), National Procurement Act (2018), Non-Tax Revenue Administration (NTRA) Act (2023). ### Gaps and opportunities in legislation and implementation - Carbon levy implementation challenges: - CCMA introduces collection of a carbon levy on liquid fuels to be paid to the Climate Change and Green Growth Trust Fund. - CCDA had to stop the application of the levy after a year due to its non-compliance with Section 209 of the Constitution. - NTRA assigns the responsibility of levy collection and management to the Department of Treasury. - CCDA and Treasury discussions ongoing to address inconsistencies between CCMA, Non-Tax Revenue Administration Act (NTRAA) and the Excise Tariff Act. - Missing or delayed complementary sector legislation undermines NDC implementation: - Pilot sustainable land use plan for Enga province prepared with EU support to inform a National Sustainable Land Use Plan, but needs legal foundation to govern land resources and incorporate climate mitigation and adaptation. - Agriculture Administration Law progress is slow, delaying sector coordination improvements. - Subnational climate coordination, planning and reporting lack legal foundation despite provisions for consultation on GHG impacts. - Several CCMA provisions need supporting regulations: Article 42 (incentives for promotion of climate change initiatives), Article 24 (deforestation levy), Article 14 A (establishment of the Climate Finance Steering Committee, CFSC). - Most NDC sectors lack implementing regulations or require updated regulations. - Sector-specific regulatory gaps: - Water regulations for abstraction and wastewater discharge not updated since 2002; regulations for efficient water use and against depletion of water resources are lacking. - Absence of regulations for renewable energy generation (solar and wind) hampers PNG’s target of meeting 70 percent renewable energy in generation capacity by 2030. - Lack of regulations for waste management contributes to increased GHG emissions and lost opportunities for waste minimization and recycling. - Methane and fugitive emissions are not regulated, contributing to emissions in the extractive industry. - Disaster risk management (DRM) law limitations: - DRM governed by DRM law 1984, centralized and emergency-response focused. - Lack of formalized local coordination leads to fragmented, inefficient responses and greater economic and social losses. - Need to move beyond emergency response to resilience-focused DRM integrating ex-ante disaster risk reduction with community development efforts and engaging civil society and private sector actors. ### Climate policy framework, planning, and finance - Policy documents and reporting: - PNG submitted First and Second National Communication (2002, 2014), NDCs (2016 and 2020), First and Second Biennial Update Report (2019 and 2022), and the SDG 13 climate action roadmap (2020). - CCDA’s role has boosted mitigation strategies, adaptation plans, emissions reduction and energy transition frameworks. - Policies in drafting: EV policy, blue carbon policy, forest policy. - NAP (National Adaptation Plan) identifies sectoral adaptation actions for agriculture, health, transport, and infrastructure and incentivizes adaptation planning at national and provincial level. - Coordination and resource constraints: - Multiple climate policy documents strain coordination and resources; climate sector documents sometimes prepared in silos and largely donor-funded. - Key stakeholders (Treasury and National Planning) do not play a leading role in climate policy development despite crucial fiscal and investment oversight roles. - Implementing numerous plans is challenging in a tight fiscal setting; PNG faces limited resources, institutional and capacity constraints, and competing development priorities. - MTDP IV integration: - MTDP IV includes climate change as Strategic Priority Area SPA10. - Three programs to implement SPA10: (i) climate change mitigation and adaptation, (ii) environmental protection, (iii) natural disaster management. - These programs costed at K499.5 million for the five-year period of the MTDP IV, equivalent to 1 percent of the total investment cost. - MTDP objectives include growing the PNG economy and creating one million additional jobs by 2030; potential exists to integrate climate policy responses across SPAs to drive growth and job creation. - Green finance developments: - Inclusive Green Finance Policy (IGFP) launched in 2023: - Aims to address environmental and climate change challenges via inclusive climate finance and green investment mechanisms in the financial and banking sector. - Includes a green taxonomy to identify, monitor, and demonstrate scope and volume of investors’ inclusive and green financial flows. - Requires disclosure of green activities through key performance indicators to the public and investors. - Accompanied by an implementation roadmap; current efforts focus on development of technical screening criteria, bankable green projects and mobilizing funding. - Long-term strategy gap: - No long-term low emissions development strategy (LT-LEDS) exists; CCDA seeking funding to prepare such a long-term strategy. - Absence of LT-LEDS risks inconsistent and insufficient investments in renewable energy, resilient infrastructure, and sustainable practices; long-term strategies recommended to have legal backing, link to national development policies, stakeholder engagement, and monitoring/revision plans. ### Institutional architecture and operational status - Institutional bodies established or mandated under CCMA and 2021 NDC Regulation: - Climate Change and Development Authority (CCDA): - Initially an office within the Department of the Prime Minister; became a regulatory agency under the CCMA. - Central coordinating agency for climate-related policy development, regulations and all NDC implementation activities and projects that contribute to NDC target achievement. - National Climate Change Board (NCCB): - Responsible for policies and oversight of CCDA, regulation related to trading schemes, and administration of adaptation and REDD+ programs. - 2023 CCMA amendment clarified arrangements governing the Board; PNG in the process of appointing members to the NCCB, which is expected to become operational this year. - Climate Finance Steering Committee (CFSC): - Will oversee coordination of climate finance at the national level and identify accredited climate finance entities to facilitate development of project proposals consistent with national laws and policies. - CCDA plans to establish CFSC as a subcommittee to the Board, comprising high-level representatives across government. - Technical Advisory Committee (TAC): - Mandated to advise the CCDA or the Board on NDC monitoring and implementation, monitor implementation of NDC targets, and coordinate data collection and activities from sub-committee. - Timing for operationalizing the TAC has not yet been determined. - Sector coordination: - Only a few departments have institutionalized climate planning (e.g., DAL has a climate focal point; Department of Works and Highways has set up a climate unit). - CCDA created several working groups for mitigation, low carbon, MRV, REDD+ and adaptation that are operational and support sector-specific engagement and coordination. - NDC 2022 regulation provides for establishment of additional sectoral committees depending on future NDC targets. *Source: IMF Technical Assistance Report (excerpt provided).* ### 85. While subnational engagement is critical to effectively address climate change at the ### tarea2025025-print-pdf - 85. While subnational engagement is critical to effectively address climate change at the ### Subnational engagement and coordination - CCDA deployment and pilots: - Provincial Climate Change Coordinators deployed in five provinces: East Sepik, Madang, Morobe, Northern, and New Ireland. - Piloted creation of Provincial Climate Change Committees to serve as the interface between national and subnational governments and other stakeholders and to develop locally relevant climate plans for adoption at the provincial level. - Gaps: - Climate resilience has yet to be systematically integrated into regular provincial government planning and budgeting processes. - Significant differences in fiscal capacity to adapt exist across provinces, with some having greater access to resource royalties than others. - Recommendation highlight: - Consider regulations assigning responsibilities for policy, coordination, planning and reporting for climate change to provincial governments. ### Institutional arrangements: units and mandates - New and planned units: - Green Finance Centre (GFC) to be created under the auspice of the Central Bank to spearhead and coordinate inclusive and/or green finance initiatives; mission to lead transformation of PNG’s financial sector into inclusive, resilient and green financial products and services. - Climate Finance Unit to be established within CCDA, supported by Australian Climate Finance Initiative for Resilience and a Sustainable Transition project, to manage and report on climate finance in accordance with UNFCCC reporting regulations. - Treasury and CCDA institutional gaps: - Need for a climate unit within the Department of Treasury to serve as the interface between various coordination mechanisms. - CCDA institutional set up remains aligned with its initial office structure rather than the structure needed for implementing the CCMA as an Authority; effective transformation requires increased staffing and resources. - Coordination mechanisms: - Operationalizing the NCCB, the CFSC and the TAC (in line with the CCMA) would strengthen sectoral coordination, pooling of resources and consistency of climate data and reporting. - Risk of multiple coordination mechanisms (e.g., Climate Change and Environmental Protection Coordination Committee, NDC National Climate Change Committee) draining staff resources if synergies and mandates are not well mapped out. - Recommendation highlight: - Operationalize the CCMA's provision to establish the National Climate Change Board, Technical Advisory Committee, and the Climate Finance Steering Committee. ### Climate finance needs, gaps, and opportunities - Funding needs and current financing: - PNG’s financial requirements for NDC implementation are detailed in the Enhanced NDC Implementation Plan (2021-2030), the NDC Implementation Road Map for the Electricity Sector, and the NDC Implementation Road Map for the AFOLU Sector. - It is estimated that over US$1 billion will be needed over a 10-year period to achieve the Enhanced NDC targets. - PNG has benefited from a total of 25 largely grant funded projects since 2017. - Public expenditures on climate action are difficult to track but suggest being small as evidenced by the small share of the total public investment. - International climate finance access and performance: - Available data indicates PNG received only 9 percent (approximately US$260 million) of the total international climate finance allocated to the Pacific region since 2015, significantly less than other countries on a per-capita basis. - PNG does not have an accredited entity to access the Green Climate Fund and must use regional organizations to submit proposals, competing with other countries in the region. - Key areas for reform to scale up climate finance: - (i) building climate finance readiness (strengthening capacity to prepare and implement projects), - (ii) creating a pipeline of bankable projects, - (iii) leading coordination of development partners on funding opportunities and streamlining different climate financing sources, - (iv) enhancing climate finance tracking and oversight under the leadership of the Department of Treasury in close coordination with CCDA and the CFSC. - Recommendation highlights: - Develop and adopt a long-term strategy that can guide NDCs, transition and climate finance. - Ensure consistency between the Climate Change Management Act, the Non-Tax Revenue Administration Act (NTRAA) and the Excise Tariff Act and foster close collaboration with the Department of Treasury on climate policy and climate finance mobilization. - Establish a Climate Unit at the Treasury department to enhance climate informed policy development and resource mobilization for climate actions. - Strengthen governance arrangements for climate finance reporting. ### Private sector mobilization and investment environment - Current state: - The private sector has yet to play a significant role in meeting PNG’s investment or finance needs; most green capital flows come from public and donor finance, with only a small portion from private sources. - Opportunities: - Set up of the Green Finance Window and a recently developed green taxonomy as opportunities to mobilize private sector funding. - Investment Promotion Act can be instrumental in stimulating green and resilient investment activities (examples: energy efficiency, renewable energy, data driven digital systems). - Climate policies that reduce macro critical risks associated with climate change can catalyze green foreign direct investment. - Recommendation highlight: - Incentivize private investments in adaptation and mitigation by (i) elaborating regulations for promotion of climate change initiatives under the CCMA, (ii) provisions of incentives for green/climate investments in the Investment Promotion Act 2023, and (iii) elaborating regulations related to the development of green financial products and services as part of the Inclusive Green Finance Policy. ### Fiscal policy instruments and private finance (Box 8 & Box 9 references) - Roles for Ministries of Finance (Box 7 summary): - Mainstream climate into economic strategy and vision, fiscal policies and budget management, and financial policy and regulation and oversight of the financial system. - Critical capabilities: leadership capability, coordination capability, human and analytical capability. - Fiscal policies to incentivize private investment (Box 8 summary): - Mix of policies needed: strong climate policies and commitments; carbon pricing complemented by social safety nets; environmental regulations and green subsidies; structural reforms to deepen financial markets; transition taxonomies; financial sector policies (disclosure, taxonomies, standards); green and resilient public investment to create predictable pipelines; public-private risk sharing; expanded use of guarantees by MDBs and donors; strengthening climate information architecture (data, disclosures, alignment approaches). - Recommendation highlight: - Strengthen regulatory framework related to agricultural sector financial inclusion (building on ongoing needs assessment and feasibility studies conducted). ### Disaster response spending (Annex I — explicit disbursements in 2024) - Recorded government support through the National Disaster Centre to Provincial Disaster Committees in 2024: - East New Britain: K500,000 (Flood). - Oro Province: K1.0 million (Flood). - East Sepik: logistics support (Flood & Earthquake). - Morobe Province: K2.0 million (Flood). - Eastern Highlands: K500,000 (Flood). - Simbu Province: K1.0 million (Flood). - Madang Province: K1.0 million (Ramu flood). - Jiwaka Province: K1.0 million (Flood). - Western Highlands: K1.0 million (Flood). - Central Province: K500,000 (Flood and drought). - Gulf Province: K2.0 million (Flood/King Tide). - Western Province: K1.0 million (Flood) through National Disaster Centre; K10.0 million through the Prime Minister; K20.0 million from Ok Tedi Ltd. - Milne Bay Province: K200,000 paid to a supplier in Alotau (Drought). - Enga Province – Wapanamanda: K250,000 (Flood/landslide). - Enga – Mulitaka Landslide: K1.0 million through National Disaster Centre and K20.0 million through Prime Minister; other funding support from other provincial and international donors are kept by Enga Provincial Disaster Committee. ### Tools and analytical instruments (Annex II and Annex III) - CPAT (Climate Policy Assessment Tool) — features and capabilities: - Spreadsheet-based ‘model of models’ for rapid estimation of mitigation policy effects for over 200 countries. - Quantifies impacts on energy production, consumption, trade, prices; emissions including reductions needed to achieve NDCs; GDP and economic welfare; revenues; industry and household incidence (across deciles, urban vs. rural); development co-benefits (local air pollution and health impacts). - Evaluates mitigation policies including carbon taxes, ETSs, fossil fuel subsidy reform, energy price liberalization, electricity and fuel taxes, removals of preferential VAT rates for fuels, energy efficiency and emission rate regulations, feebates, clean technology subsidies, and policy mixes. - Covers over 200 countries accounting for more than 95 percent of global GHG emissions; input data is complete with no need for external data inputs. - Emphasizes ‘just transition’ impacts on poverty, equity, and welfare across income groups and urban/rural households. - CPAT is parametrized broadly in the mid-range of ex ante models and parameterized to ex post empirical literature; transparent parameters and sensitivity analysis capability. - CPAT converts NDCs to a single comparable metric (required emissions reductions vs. BAU) and supports cross-country comparisons, including all signatories of the 2015 Paris Agreement (194 countries). - CPAT contains and contributes new global datasets (energy consumption and prices; GHGs; local air pollutants; price and income elasticities; environmental costs; NDCs) and includes decile-level household consumption data for 84 countries. - Options for recycling carbon tax revenues (Annex III summary of instruments and trade-offs): - General Revenue Uses / Environmental investment: May disproportionately benefit low-income households; may be less efficient than broader uses; Modest administrative burden. - Universal transfers: Highly progressive; forgone efficiency benefits; New capacity needed (but should be manageable). - Payroll tax: Benefits largely proportional across working households; improves incentives for formal work effort; Minimal administrative burden. - Personal income tax: Benefits skewed to higher-income groups; improves incentives for formal work effort and saving; Minimal administrative burden. - Consumption tax: Largely proportional to households' consumption; Some improvements in incentives for formal work effort; Minimal administrative burden. - Corporate income tax: Benefits skewed to higher-income groups; Improves incentives for investment; Minimal administrative burden. - Deficit reduction: Benefits accrue to future generations; Significant economic efficiency impact (lowers future tax burdens and macro-financial risk); Minimal administrative burden. - Targeted assistance (means-tested cash, in-kind transfers): Effective for low-income groups if safety nets are comprehensive; Efficiency impacts unclear but likely modest; Low administrative burden if builds on existing capacity, otherwise significant. - Assistance for household energy bills: Provides partial relief for all households; Modest reduction in environmental effectiveness; Low administrative burden if builds on existing capacity, otherwise significant. - Source: IMF staff. *Source: IMF Technical Assistance Report (excerpts).* --- _Source: https://www.imf.org/-/media/files/publications/tar/2025/english/tarea2025025-print-pdf.pdf_