Achieving the Paris Agreement’s 2 degree target in Nepal: the potential role of a carbon tax

The 2015 Paris Agreement aims to limit global temperature rise in this century to well below 2°C above the pre-industrial level, and pursue efforts to limit further the temperature rise below 1.5°C. All parties ratifying the Paris Agreement have submitted Nationally Determined Contributions (NDCs), many stating emission reduction targets. The international climate research community has designed five different Shared Socioeconomic pathways (SSPs) to characterize various possibilities in demographic and economic changes over the next century. These SSPs were implemented by six integrated assessment model (IAM) teams, which also determined the carbon price trajectory required to limit the temperature rise below 2°C in respective SSPs. In SSP5, also termed the fossil-fueled development scenario, only three IAMs identified that the 2°C target would be feasible, with carbon prices ranging from 220 to 518 US$/tCO2e in 2050. This study aims to analyse the effects of these carbon prices on energy and emissions during 2015–2050 in Nepal. It does so using a long-term energy system model using the framework of the Asia-Pacific Integrated Model/Enduse (AIM/Enduse) modelling tool. The base case scenario and three carbon price scenarios are developed. Primary energy supply, energy security, energy technology-mix (especially renewable energy usage and hydropower development), emissions of greenhouse gases (GHGs) and local pollutants, and local/regional environmental co-benefits are compared between the base case scenario and carbon price scenarios. The study finds that the implementation of a carbon tax would promote domestic hydropower, improve energy-efficiency and reduce imports of fossil fuels when compared to the base case. Hydropower-based electricity would have a major role in reducing emissions.Key policy insights The carbon prices in SSP5 determined by IAMs to achieve the 2°C target would be sufficient to achieve Nepal’s targets under its NDC in the energy sector.The industry and transport sectors would offer the highest GHG emission reduction.Hydropower and biomass would have major roles in decarbonizing the energy system.