Transitioning to a Greener Growth Path in FYR Macedonia

Challenge

FYR Macedonia’s momentum towards Europe is already requiring it to focus more on environmental issues, including climate action, even while it faces urgent needs to reduce high unemployment and accelerate income growth. In the short-run, the country needs to address the many inefficiencies that keep it off its best possible growth path by pursuing reforms and investments to improve the overall performance of key sectors.  Policymakers need, at the same time, to keep the long-term in mind, both the likely impact of a changing climate on water, agriculture, and infrastructure and the growing obligations to mitigate greenhouse gas emissions. As meeting European Union (EU) requirements on climate and promoting efficient use of natural resources seem, at first glance, at odds with maintaining competitiveness and catching up with EU income levels, the country needs to develop an effective framework for planning and implementing sustainable development policies and strategies across various sectors.

Solution

The Green Growth Country Assessment, a three-year program of collaborative analytical work and technical assistance, evaluated the economic costs and benefits of a shift to greener growth and built local capacity to integrate analytic tools into policy decisions. Macedonian policy makers need to choose adaptation actions to counter the damages that the hotter, dryer, more extreme climate of the future will wreak on water, agriculture, and infrastructure, as well as investing in the reduction of emissions to prevent further climate change. With aging infrastructure in the power supply, irrigation, water distribution, and sewerage sectors, large investments are needed in coming years, and policy makers need to be aware of the impact of long-lived infrastructure choices on the greenness of the country’s development path in future decades. The report’s pioneering interlinking of modeling tools across sectors generated new insights for overall sectoral planning, and the macroeconomic modeling merges the sector work into an economy-wide view. This innovative methodological approach assesses the impact of sectoral green growth action packages on national growth and employment, offering the Government a strong analytic foundation for considering public investment decisions and navigating the multiple trade-offs ahead. 

Results

The main findings of the report are:

• Mitigation measures enabling a 40–70 percent reduction in emissions by 2030 cost about 1–2 percent of GDP in incremental investments, while adaptation measures in the water and agriculture sectors are profitable even at a high discount rate.
• Competition for water between agriculture, power, and other users will pose difficult tradeoffs for policymakers by 2020.The greatest investment potential in the water and agriculture sectors is in optimizing agronomic inputs, rehabilitating drainage infrastructure, expanding irrigation systems, and promoting hydropower.
• Production in FYR Macedonia is energy-intensive, and energy is emissions-intensive due to lignite. The energy sector produces over 70 percent of total emissions, much higher than the EU average. Aggressive energy efficiency measures are critical to contain demand, while investments in new gas, hydro, and nuclear capacity are the most cost-efficient supply-side technologies.
• Recommended priority areas for urban intervention include investing in public transportation, rehabilitating water and wastewater networks, and expanding energy efficiency programs.
• Local co-benefits of mitigation are substantial, particularly cleaner air in urban areas, where air pollution is currently high due to the widespread use of wood for heat.

To help determine a detailed growth path to 2050, a suite of modeling, data-collection, and decision-making tools was used for analyses in the water, agriculture, power, transport, and urban sectors. Exposure-response functions and participatory tools were built for the air pollution analysis and social participation approach, respectively. The many analytic findings were filtered into a near-term action plan and informed the Government’s operationalization of the NSSD.

Bank Group Contribution

The World Bank led the technical work and produced the synthesis report, in collaboration with local and international experts and in close cooperation with government technical experts and policy makers. Innovative tools were developed to carry out the analysis, which were then transferred to the government. Training and capacity building were embedded into the process. The World Bank contributed about US$680,000 to finance the Economic and Sector Work (ESW) component.

Partners

In close partnership with the Office of the Deputy Prime Minister, there were extensive consultations with government agencies, donors, nongovernmental organizations (NGOs), academics, and local businesses. The Technical Assistance (TA) and part of the ESW component were supported by a Trust Fund from the Government of Sweden and a financial contribution from the Government of Norway.

Moving Forward

The report provided an analytic foundation for government policy decisions on the EU’s climate regulations and on action to counter local climate damage, as well as new analytic tools and enhanced local expertise for future use. The World Bank is also planning a peer-assisted learning network for senior technical specialists in governments across the Europe and Central Asia (ECA) region on the economics of climate change and green growth, as requests have been received from neighboring countries for similar analytic work on emissions reduction and adaptation. The tools are also being applied to a World Bank analytics and advisory (AAA) program on green growth in Romania.

Beneficiaries

The immediate beneficiary of this work is the client: the Office of the Deputy Prime Minister for Economic Affairs of FYR Macedonia and other parts of the government, which will make use of the report’s findings and key tools to improve their decision making on policy areas related to climate change (such as their NSSD). Moreover, since lowering greenhouse gas emissions is a global public good, the ultimate beneficiaries are the world’s population and in particular, future generations.