Co-benefits of a carbon tax in Nepal

This paper analyzes the co-benefits of introducing a time variant carbon (C) tax scheme in Nepal, a hydropower resourceful country, by using a bottom up integrated energy system model based on the MARKet ALlocation (MARKAL) framework with time horizon of 2005–2050. It discusses the effects of C tax on energy mix, environmental emissions, energy supply security, energy efficiency, energy system cost, and employment benefit. The study shows that the C tax (that gradually increases from US$ 13/tCO₂e in 2015 to US$ 200/tCO₂e by 2050) results in a reduction of the cumulative emission of greenhouse gases by 83.9 million tons CO₂e (12%) as compared to that in the base case. With the introduction of the C tax, there would be a need for additional hydropower capacity of 945 MW by 2050 as compared to the capacity in the base case. The emission of local pollutants consisting of sulphur dioxide (SO₂), nitrogen oxides (NO_x) and non-methane volatile organic compound (NMVOC) in 2050 would be reduced by 12%, 7% and 1% respectively under the C tax scenario. Total amount of imported energy would decrease by 13%, which corresponds to a reduction in discounted net fuel import cost by 5% during the study period. Furthermore, the C tax would result in new employment generation of 151 thousand man-years associated with the additional hydropower capacity requirement.