Rob Bailey of Chatham House reports on how Ethiopia is partnering with China and the EU to develop Low Carbon Zones designed to spur low carbon investment and establish hubs for innovation and technology transfer.

Ethiopia is transforming itself. Recent GDP growth averages 10 per cent, poverty is falling rapidly, investment is rising. The capital, Addis Ababa, is a hive of activity and construction.

By 2025 Ethiopia, currently one of the world’s least developed countries, plans to have become a middle-income country. But it intends to do so following a radically different pathway to those others have taken: with no increase in its net greenhouse gas emissions. This scale of ambition cannot be understated. This has never been done before; there are no blueprints.

In pursuit of this goal, the Government of Ethiopia developed a Climate-Resilient Green Economy strategy. The Strategy sets out the rationale and plan for following a green growth path that fosters development and sustainability, and it also recognises that achieving this will require strong partnerships and foreign investment. The EU and China are obvious partners for Ethiopia given existing trade links and investment and as donors supporting the government in areas such as food security, agricultural development, climate adaptation and renewable energy. In addition, both have knowledge and expertise to offer from their own efforts to reduce emissions.

In a project funded by CDKN, Chatham House is working with its Ethiopian partner the Horn of Africa Regional Environment Centre & Network to scope the opportunities for trilateral cooperation between the Ethiopian government, European and Chinese partners to establish Low Carbon Zones (LCZs).

On the basis of a recent roundtable at Chatham House with stakeholders from Europe, China and Ethiopia, and a subsequent visit to Ethiopia where the team held meetings with government officials, business representatives, and various European and Chinese representatives, we believe the opportunities are significant. But so are the challenges.

Despite its ambition and commitment, Ethiopia faces significant hurdles in achieving its vision. The Climate-Resilient Green Economy strategy identifies emission reduction opportunities across seven sectors – the task now is to translate this into specific investment plans and project proposals.

This means extending the plan from the Environment Ministry into other federal ministries – such as Transport, Agriculture and Industry. If broad-based green growth is to be achieved, plans must be ‘joined-up’ and embedded in a coherent economy-wide strategy that is far more than the sum of seven sectoral emissions reduction plans and is sensitive to the different regions within Ethiopia. Secondly, it means cascading the plan down to regional and district governments, where much of the implementation will take place.

Finally, Ethiopia must create an enabling environment for green private sector investment. Ethiopian policymakers now face a myriad of complex decisions about how to balance liberalisation, regulation and incentives to stimulate private sector development whilst ensuring environmental objectives are achieved.

The Potential of Low Carbon Zones

LCZs could help the Ethiopian government start to overcome these hurdles. Analogous in some respects to more traditional special economic zones, these would be particular areas with distinct institutional, regulatory and investment regimes designed to spur low carbon investment, develop value addition in green goods and services and establish hubs for innovation and technology transfer. Our conversations with Ethiopian officials identified a number of attractions of this approach, including:

• The opportunity to test and experiment with different institutional and regulatory arrangements, to identify appropriate policies that can be rolled out nationwide. Appropriate incentives for investment and innovation could be provided in the zones, but in return investors would be expected to meet tougher rules for environmental and social performance.
• The ability to build from the bottom-up, designing a localised green economy strategy that integrates regional development priorities with national objectives. A LCZ in a rural area might focus on decentralised energy, forestry, climate smart agriculture and efficient livestock production. A zone in an urban area might focus on manufacturing, green jobs and clean transport.
• Zones can provide a manageable space in which to foster cross-sectoral linkages and ‘move-up’ the green value chain. Efficient livestock production in a rural zone could be linked to leather production and manufacturing in a low carbon industrial zone; the two connected by a green transport corridor utilising low carbon transport and green logistics.
• Zones could act as beacons for low carbon development not only in Ethiopia, but across Africa: demonstrating success and providing a target for green investment.

Our meetings also identified plenty that EU and Chinese partners can bring to the table, drawing on their own knowledge and experience. For example, the Ethiopian government is currently examining options to reduce emissions from transport, including vehicle emissions standards, electric transport, biofuels and taxation – strategies pursued in Europe and China. In addition EU and Chinese partners can bring capital to a zone – China is already Ethiopia’s biggest investor, investing in the energy, transport and manufacturing sectors that will help drive Ethiopia’s future growth. The form of this investment will be crucial in determining whether or not this growth is green. The EU is a potential source of climate finance, needed to help meet upfront capital costs, unlock private capital and, crucially, support capacity building.

The question now is whether Europe and China are willing to shape their agendas in Ethiopia to fit with this opportunity and work together with the Ethiopian government in a mode of trilateral cooperation. It is an ambitious proposal. But ambition is precisely what is needed if Ethiopia is to achieve its goals.