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Steep decline in nuclear power would threaten energy security and climate goals

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With nuclear power facing an uncertain future in many countries, the world risks a steep decline in its use in advanced economies that could result in billions of tonnes of additional carbon emissions, according to a new report by the International Energy Agency.

Nuclear is the second-largest low-carbon power source in the world today, accounting for 10% of global electricity generation. It is second only to hydropower at 16%. For advanced economies – including the United States, Canada, the European Union and Japan – nuclear has been the biggest low-carbon source of electricity for more than 30 years and remains so today. It plays an important role in electricity security in several countries.

However, the future of nuclear power is uncertain as ageing plants are beginning to close in advanced economies, partly because of policies to phase them out but also as a result of economic and regulatory factors. Without policy changes, advanced economies could lose 25% of their nuclear capacity by 2025 and as much as two-thirds of it by 2040, according to the new report, Nuclear Power in a Clean Energy System.

The lack of further lifetime extensions of existing nuclear plants and new projects could result in an additional 4 billion tonnes of CO2 emissions.

Some countries have opted out of nuclear power in light of concerns about safety and other issues. Many others, however, still see a role for nuclear in their energy transitions but are not doing enough to meet their goals, according to the report.

With its mission to cover all fuels and technologies, the IEA hopes that the publication of its first report addressing nuclear power in nearly two decades will help bring the topic back into the global energy debate. The report is being released during the 10th Clean Energy Ministerial in Vancouver, Canada.

“Without an important contribution from nuclear power, the global energy transition will be that much harder,” said Dr Fatih Birol, the IEA’s Executive Director. “Alongside renewables, energy efficiency and other innovative technologies, nuclear can make a significant contribution to achieving sustainable energy goals and enhancing energy security. But unless the barriers it faces are overcome, its role will soon be on a steep decline worldwide, particularly in the United States, Europe and Japan.”

The new report finds that extending the operational life of existing nuclear plants requires substantial capital investment. But its cost is competitive with other electricity generation technologies, including new solar and wind projects, and can lead to a more secure, less disruptive energy transition.

Market conditions remain unfavourable, however, for lengthening the lifetimes of nuclear plants. An extended period of low wholesale electricity prices in most advanced economies has sharply reduced or eliminated profit margins for many technologies, putting nuclear plants at risk of shutting down early.

In the United States, for example, some 90 reactors have 60-year operating licenses, yet several have already retired early and many more are at risk. In Europe, Japan and other advanced economies, extensions of plants’ lifetimes also face uncertain prospects.

Investment in new nuclear projects in advanced economies is even more difficult. New projects planned in Finland, France and the United States are not yet in service and have faced major cost overruns. Korea has been an important exception, with a record of completing construction of new projects on time and on budget, though government policy aims to end new nuclear construction.

A sharp decline in nuclear power capacity in advanced economies would have major implications. Without additional lifetime extensions and new builds, achieving key sustainable energy goals, including international climate targets, would become more difficult and expensive.

If other low-carbon sources, namely wind and solar PV, are to fill the shortfall in nuclear, their deployment would have to accelerate to an unprecedented level. In the past 20 years, wind and solar PV capacity has increased by about 580 gigawatts in advanced economies. But over the next 20 years, nearly five times that amount would need to be added. Such a drastic increase in renewable power generation would create serious challenges in integrating the new sources into the broader energy system. Clean energy transitions in advanced economies would also require $1.6 trillion in additional investment over the same period, which would end up hurting consumers through higher electricity bills.

“Policy makers hold the key to nuclear power’s future,” Dr Birol said. “Electricity market design must value the environmental and energy security attributes of nuclear power and other clean energy sources. Governments should recognise the cost-competitiveness of safely extending the lifetimes of existing nuclear plants. ”

As governments and industry address these challenges, the IEA is ready to provide support with data, analysis and real-world solutions.

IEA

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Emerging and Developing Economies Less Prepared Now for a Deeper Downturn

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Emerging and developing economies are less well positioned today to withstand a deeper global downturn, should it occur, than they were before the 2009 global recession, although they now have more resilient policy frameworks to respond, a new World Bank Group study of the global recession and its aftermath finds.

With multiple risks to global growth clouding the outlook, there is concern whether emerging and developing economies can effectively respond to a deeper economic slowdown as they were able to do during the 2009 global recession. The new study by the World Bank Group, A Decade after the Global Recession, compares emerging market and developing economies’ preparedness then and now, and finds reason both for concern and for optimism.

“The big lesson of the past decade is clear, you need to be prepared for the unexpected,” said World Bank Group Vice President for Equitable Growth, Finance and Institutions, Ceyla Pazarbasioglu. “Developing countries need to urgently boost resilience and growth, by building human and physical capital, streamlining business regulations, and strengthening institutions.”

Since the 2009 global recession, emerging and developing economies have become more vulnerable to external shocks in an environment of mounting debt and weakening long-term growth prospects, the study finds.

However, at the same time, many emerging market and developing economies now have stronger policy frameworks, such as fiscal rules and inflation targeting monetary policy regimes, than during earlier financial crises and global recessions. Meanwhile, international financial sector regulation has strengthened.

“Policy frameworks in many emerging and developing economies have become more resilient, for example through inflation targeting regimes and fiscal rules,” said World Bank Prospects Group Director Ayhan Kose. “However, in light of downside risks and elevated vulnerabilities, policymakers should prepare their economies to mitigate the impact of adverse shocks and ensure that policy space is available to act when such shocks occur, as they inevitably will.”

The World Bank Group’s response to the global recession was unprecedent in both financing volume and country coverage, and prioritized the areas of finance, infrastructure, fiscal management, and social protection. The Bank introduced new crisis response facilities to improve its assistance to developing economies and improved its monitoring of global macroeconomic developments to more effectively flag risks.

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Africa: Urgent action needed to mobilise domestic resources as tax revenues plateau

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The average tax-to-GDP ratio for the 26 countries participating in the new edition of Revenue Statistics in Africa was unchanged at 17.2% for the third consecutive year in 2017. This was lower than the averages for Latin America and the Caribbean (LAC) at 22.8% and for the OECD at 34.2%, underlining the need for urgent action to enhance domestic revenue mobilisation in Africa.

The 26 countries covered in Revenue Statistics in Africa 2019, released today in Tunis at the African Union’s 13th Session of the Committee of Directors-General of National Statistics Offices, represent nearly three-quarters of Africa’s GDP. The report shows that tax-to-GDP ratios varied widely across these countries in 2017, ranging from 5.7% in Nigeria to 31.5% in the Seychelles. This fourth edition has grown from 21 to 26 countries and includes Equatorial Guinea, Madagascar, Mauritania, Nigeria and the Seychelles for the first time.

While tax revenues plateaued as a percentage of GDP for the Africa (26) in 2017, non-tax revenues (primarily rents and royalties from natural resources, as well as grants) continued to decline and were lower than tax revenues in all but three of the 26 countries: Botswana, the Republic of the Congo and Equatorial Guinea. Between 2010 and 2017, an increase in tax revenues equivalent to 1.9% of GDP on average was offset by a decline in non-tax revenues from 7.5% of GDP to 5.7% of GDP.

African economies continue to rely heavily on taxes on goods and services, which accounted for 53.7% of total tax revenues across the 26 countries. Within this category, value-added taxes (VAT) accounted for 29.4% of total tax revenues. Meanwhile, corporate income taxes (CIT) generated 18.6% of total tax revenues – a higher proportion than in LAC and in the OECD – and were equivalent to 2.8% of GDP in 2017. This is the same level as in 2016, halting the decline in CIT as a percentage of GDP since 2013.

Overall, the tax structure across participating countries has evolved over the past decade, with VAT and personal income tax (PIT) accounting for a higher proportion of revenue generation in 2017 relative to 2008, on average. However, PIT (15.4% of total tax revenues) and social security contributions (8.1% of total tax revenues) remain low in Africa. Reforms to broaden the personal tax base, remove harmful and regressive subsidies, and expand social insurance coverage can assist in domestic resource mobilisation efforts while contributing to inclusive growth.

Enhancing the efficiency of VAT systems can also provide higher and more sustainable revenues, and improve distributional or environmental outcomes. Environmental taxes are found to represent a small but increasing share of tax revenues in Africa and can have an important role in raising revenues and encouraging the transition to a low-carbon economy. Property taxes are shown to be much lower in Africa than in LAC and in the OECD but have the potential to play a key role in funding better local services. Equally, improvements in governance and spending may also lead to higher revenues by improving tax morale and making citizens more willing to pay taxes.

A special feature assesses the potential impact of the African Continental Free Trade Area (AfCFTA) on the level and structure of tax revenues, drawing on the detailed data on these revenues in this report. While AfCFTA is likely to strengthen Africa’s economic growth and increase tax revenues in the medium-to-long term, the elimination of taxes on trade within the region will likely reduce revenues in the short term. Trade taxes accounted for 11.8% of total taxation on average in 2017 across the 26 countries in this report.  Low-income and least developed countries in the region tend to rely more on trade taxes and are more vulnerable to the short-term impact of reduced trade taxes, underlining the importance of the flexibility mechanisms envisaged by the AfCFTA.

Revenue Statistics in Africa is a joint initiative between the African Tax Administration Forum (ATAF), the African Union Commission (AUC) and the Organisation for Economic Co-operation and Development (OECD) and its Development Centre, with the technical support of the African Development Bank (AfDB), the World Customs Organisation (WCO) and the Cercle de Réflexion et d’Échange des Dirigeants des Administrations fiscales (CREDAF) and the financial support of the European Union.

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Brazil must immediately end threats to independence and capacity of law enforcement to fight corruption

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The OECD Working Group on Bribery urges Brazil, one of the founding Parties to the Anti-Bribery Convention since 1997, to preserve the full capacity and independence of law enforcement authorities to investigate and prosecute foreign bribery and corruption. Despite being recognised by the Working Group for its significant anti-corruption enforcement efforts following its previous evaluation in 2014, there are now concerns that Brazil, due to recent action taken by the legislative and judiciary branches, risks backsliding on progress achieved, that could seriously jeopardise Brazil’s ability to meet its obligations under the Anti-Bribery Convention.

The Working Group has continuously alerted Brazil since 2016 of risks posed by attempts to broaden the definition of what constitutes abuses of authority by judges and prosecutors. Despite these warnings, a Law on abuses of authority (13. 869/2019) characterised by vague concepts will enter into force in January 2020. The Working Group has also expressed concerns that, following injunctions of the Supreme Court, limitations on the use of reports by Financial Intelligence Unit, Federal Revenues and other administrative agencies in criminal investigations might seriously hamper Brazil’s ability to detect and effectively fight corruption. This, combined with other actions by the Supreme Court and the Federal Auditor’s Court that are likely to have an effect on concluded foreign bribery cases, could constitute a serious push back in Brazil’s exemplary fight against corruption.

On 12-13 November 2019, a High-Level Mission of the OECD Working Group on Bribery discussed these issues in Brasilia with Minister of the Office of the Comptroller General Wagner de Campos Rosário, Minister of Justice Sérgio Moro, Attorney General André Mendonça, Deputy Prosecutor General of the Republic Hindemburgo Chateaubriand, President of the Supreme Court José Antonio Dias Toffoli, Senator Marcos do Val, as well as with the Chair of Brazil-OECD Parliamentary Group and Leader of the Government Deputy Vitor Hugo along with members of this Group. However, the High-Level Mission could not meet as scheduled with Prosecutor General of the Republic Augusto Aras, and with the Presidents of the Commission of Constitution and Justice of both the Chamber of Deputies and the Senate.

“Despite disappointing last minute cancellations of key high level representatives, we appreciate the readiness of the Brazilian authorities to meet with us to discuss outstanding issues related to law enforcement capacity and independence in foreign bribery cases,” said Drago Kos, Chair of the Working Group on Bribery. “However, we are quite alarmed that what Brazil had managed to achieve in recent years in the fight against corruption may now be seriously jeopardised. Brazil must strive toward reinforcing its framework and legal tools to fight foreign bribery, not weaken them.”

“The OECD high-level mission is a relevant initiative, as it brings a comprehensive analysis of the landscape of the fight against corruption in the country” said Minister of the Office of the Comptroller General Wagner de Campos Rosário. “Brazil has evolved considerably in recent years in the fight against corruption. The enactment of the corporate liability law (Law 12.846/2013), the establishment of leniency agreements, and the adoption of integrity plans in federal agencies and entities are important progresses. Nonetheless, this is a continuous process of improvement and we will always be seeking to improve our controls and mechanisms to combat the evil of corruption, thereby ensuring the delivery of better quality public services to citizens.”

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