Expert for a study to evaluate the modalities, opportunities and risks of introducing fees or levies on mitigation outcome units in Lao PDR

Terms of Reference for Framework of Support (Consultancy)

Expert for a study to evaluate the modalities, opportunities and risks of introducing fees or levies on mitigation outcome units in Lao PDR

– Collaborative Instruments for Ambitious Climate Action Initiative (CIACA) –

08/2024

The CIACA initiative

Carbon pricing is a straightforward approach for addressing GHG emissions as it puts a price on carbon, creating an incentive for investments into more climate-friendly solutions. A growing number of Parties are considering carbon pricing instruments as an approach for implementing their climate action under the Paris Agreement, even among those which did not mention carbon pricing instruments in their NDCs. The Paris Agreement explicitly recognizes the important role of carbon pricing (decision CP21/1 para. 136).

In addition, as the Paris Agreement enables cooperative action, jurisdictions are also considering putting in place carbon pricing/market approaches to enable future participation in regional and global carbon markets for a variety of reasons: selling mitigation units, attracting funding for their mitigation actions, and achieving their targets more flexibly and more cost-effectively.

The CIACA initiative was announced during COP22 in Marrakesh, with the objective to support Parties in the development of carbon pricing approaches for implementing their NDC under the Paris Agreement while fostering collaboration. The initiative is jointly managed by the UNFCCC Secretariat and its regional collaboration centres (RCCs). Under the CIACA initiative, one of the countries supported by the UNFCCC/IGES Regional Collaboration Centre for Asia and the Pacific (RCC Asia Pacific) is Lao PDR.

National context

Supported by GGGI, with funding from the Australian government, Lao PDR is drafting a Decree on Carbon Crediting Trading and is developing a strategy for carbon credit projects. The Decree also establishes a National Steering Committee on Climate Change to oversee carbon market-related activities. After the Decree on Carbon Crediting Trading is finalized, which is expected to happen in the middle 2024 (including consultations), additional subsequent regulation will be needed to make it work.

Against this background, the Department of Climate Change, Ministry of Natural Resources and Environment, Lao PDR, has requested RCC Asia Pacific to provide support through the CIACA initiative for assessing whether to impose fees or levies on activities that generate carbon credits.

Progress of the CIACA initiative in Lao PDR

Lao PDR has shown great interest in participating in the CIACA programme to support the country on various pricing and mitigation outcomes instruments. As an initial step, the CIACA team conducted a “Capacity Building Workshop on Carbon Pricing for the Ministry of Natural Recourses and Environment of Lao PDR” on 31 October 2023 in Vang Vieng, Lao PDR. The main objective of the workshop was to raise awareness among representatives of MONRE and other line ministries about the potential of economic instruments, such as carbon pricing and the carbon market, which can be explored both at national and regional levels, to curb emissions along the goals defined in the Paris Agreement. Based on the needs expressed by Lao PDR and follow-up consultations with the Department of Climate Change, the CIACA programme will continue its support and plans to conduct the following activities in 2024:

• A study to evaluate the modalities, opportunities, and risks for putting various forms of fees or levies on the generation of various forms of mitigation outcome units in Lao PDR
• A validation workshop for this study report.
• RCC Asia Pacific will offer capacity building sessions on dedicated topics and will aim to include local governments and the private sector.

Objectives and scope of work

The study is to evaluate the relevant domestic context, look at the international experience, and consider the pros and cons of levies on the generation of various forms of mitigation outcome units for Lao PDR:

• National context
• National circumstances, i.e. emission trends, regulatory landscape, programs and initiatives to support emission reductions and investments, and significant ongoing and planned developments in key sectors (among which forestry and energy)
• Key feature of the current NDC relevant to Article 6 and the use of carbon credits
• The potential for carbon credit generation in Lao PDR, for Art.6 and VCM without corresponding adjustments.
• Provide a comprehensive overview of the current financial landscape in Lao PDR, including existing fees and levies, revenue sources, and budget allocations.
• Current taxation regime and its applicability to credited mitigation outcomes.
  • Already applicable taxes (and tax exemptions, e.g. in economic zones with such exemptions)
  • Risks of tax avoidance (e.g., credits are not generated towards a Lao PDR account)
  • Miscellaneous risks of fraud, if applicable
• Overview of international experiences
• Examples of current and emerging fees or levies on the generation of various forms of mitigation outcome units around the world
• Analyze how different pricing and sharing tools under Article 6 are being used internationally.
• Research and discussion
• Benefits of carbon credits
  • SD co-benefits
  • Equitable revenue sharing
  • Mitigation contribution
  • Domestic decarbonization
• Fees: rationales and approaches
• Identify key stakeholders and their roles in the study, including government agencies, private sector entities, and civil society organizations.
• Approaches for capturing benefits for the host country.
  • Direct taxation
  • Share of proceed
  • Corresponding adjustment fee
  • Benefit-sharing under various models
  • Others
• Pros and cons of introducing fees and levies on credit generation
  • PROs: Possible revenue uses
    • Towards mitigation
    • Towards adaptation
    • Others
  • CONs: Disincentivizing project developers (no. of projects)
• Recommendations
  • Elaborate on possibilities of how to determine the size of fees and levies, e.g., available tools
  • Possible administrative arrangements for fees and levies

Expected results

The study to be conducted is expected to map out the following elements:

• Describe key elements of the domestic context to be considered when assessing the options of introducing fees and levies on carbon credit projects in Lao PDR;
• Assessing the possible range of such fees and levies and the possible (quantitative) impacts in the context of Lao PDR.

As such, the study outcomes, in the form of a report, will play an important role in further considerations of subsequent regulations that deal with the introduction of fees and levies on carbon crediting projects.

A validation workshop needs to be organized to collect feedback and comments on the final draft of the study. The organization of the workshop, in close coordination with the Department of Climate Change, Ministry of Natural Resources and Environment, Lao PDR, and the RCC Asia Pacific, is part of the work to be delivered by the (team) of consultant(s), which includes agenda development, a list of participants, and a short workshop report.

Duration and timeline

The (team) of consultant(s) will have 17 weeks to deliver the work.

An annotated outline of the study will be submitted 3 weeks after signing the contract. A first draft will have to be submitted 9 weeks after signing the contract. Upon receiving comments within 1 week, the team will have another 4 weeks to prepare a final draft, which will be presented at the validation workshop. The final draft, including comments received at the workshop, should be submitted 2 weeks after the conclusion of the workshop. The (team of) consultant(s) is strongly encouraged to provide regular updates and share sections already drafted in order to ensure that the drafting of the study is performed in a satisfactory manner.

Duty station and work modalities

The (team) of consultant(s) will work from his/her place of residence, ideally in Lao PDR. If the place of residence is not Lao PDR, the (team) of consultant(s) may travel on missions to interview relevant stakeholders and present interim results to the Ministry of Natural Recourses and Environment, Department of Climate Change, GHG Mitigation Division and relevant line ministries, and undertake capacity building activities. The (team) of consultant(s) will work closely with the RCC Asia-Pacific; activities such as interviews and interim results presentations can be conducted by the RCC Asia-Pacific team and supported remotely by the consultant, if necessary, to save costs and reduce travel.

Implementation and reporting

The assignment shall be implemented based on a timeline agreed by RCC Asia-Pacific and the Lao PDR Department of Climate Change. The consultant or team of consultants is expected to work closely with the regional expert on carbon pricing and Article 6 based at the UNFCCC Regional Collaboration Centre for Asia and the Pacific and report regularly on progress.

All deliverables shall be submitted to RCC Asia-Pacific as well as focal persons within the Lao PDR Department of Climate Change.

Qualifications

• The key expert(s) should have an academic background and professional experience with relevance to carbon markets, carbon pricing, economics (ideally environmental economics and/or energy economics), policy and legal framework and green finance/climate finance, with proven qualifications;
• Profound knowledge of the UNFCCC framework, and particularly the Paris Agreement (including Article 6 & NDC Implementation);
• Experience working with government and non-state stakeholders in national and/or regional policy development;
• Expertise in economics, finance, public policy, and Lao PDR’s regulatory environment.
• Familiarity with the major climate change players with proven networks within the government, private sector, and civil societies in Lao PDR is an asset;
• Strong analytical and critical thinking abilities;
• Fluency in English and strong drafting skills;
• Desired: good communication and presentation skills (able to communicate on complex matters with clear and simple messages).