Climate change is set to cost Egypt some 2-6% of its GDP by 2060, further exacerbating the country’s development challenges, according to a report (pdf) from the World Bank, the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA). This figure is based on the impact climate change is expected to have on “water resources, tourism revenue, coastal resources, agriculture and human health,” according to the report.

Egypt’s biggest challenges? Impending water scarcity, a rapidly-increasing population and the current strong relationship between economic growth and rising emissions are all areas of particular concern, the report notes.

Sobering stats show the road ahead without reform: Without increasing agricultural water efficiency, “water scarcity will increase net virtual water imports by 15% by 2030, reaching 45% in drought periods,” the report says. And though Egypt is on track to meet emissions-reduction targets in its Nationally Determined Contribution (NDC) commitments by 2030, projected annual power sector emissions are later expected to grow — reaching 121 metric tons (MT) of CO2 equivalent in 2050, up from a current estimated 78 MT, unless policies change.

An alternative vision: Low-carbon growth and increased global competitiveness. The report identifies key short- and medium-term policies and investments to mitigate climate change impact and improve resource allocation efficiency and global competitiveness.

Egypt’s taken important policy steps to address climate change… The country’s overall climate change policy has shifted to a long-term strategy linked to its aspirations to be a regional green leader, the report notes. Updating its NDCs, issuing green bonds, and launching its National Climate Change Strategy 2050 (NCCS) and Nexus of Water, Food and Energy (NWFE) Program were all key developments, it notes.

…But lags on implementation: Climate action has so far been fragmented, regulation needs to be more comprehensive and applicable — rather than a series of decrees — and governance, institutional and human capacity needs to be built, the report says.

Key action recommendations outlined in the report:

1- Build resilience to prepare for future uncertainty — especially stemming from water shortages: Climate change resilience needs to be built through targeted strategies, focusing on coastal areas, ports and logistics, cities and infrastructure, and transport. Overall risk can be managed through better information sharing, early warning systems, population behavior change, and resource allocation. In rural areas, investing in storage infrastructure for strategic grains will be essential. Drought management and other information systems should be made use of. Investment and innovation in “key adaptation sectors” — water, agriculture, urban development and environmental management — needs to be streamlined. All of this needs to be underpinned by effective policy.

2- Move to a “low-carbon trajectory” to enhance export competitiveness and avoid carbon-intensive lock-in… Egypt should move full steam ahead towards decarbonization, particularly in energy, transport and industry. Renewable energy should be scaled up and integrated further into the national grid, which could “reduce exposure to external price shocks, shift domestic use of surplus gas production to value chains with higher value added, and potentially expand exports.” Egypt’s “significant” potential in blue hydrogen, and carbon capture utilization and storage (CCUS) should also be leveraged.

…through targeted investment and regulatory reform: Transitioning to a low-carbon economy requires more private investment, underpinned by more scope for competition in the energy sector and regulatory reforms, such as setting decarbonization and carbon-intensity targets, measurement standards, and reporting requirements. It would also require better strategic use of public funds.

3- Reduce energy inefficiency in electricity and industry: Egypt needs to remove or reduce the “sizable explicit subsidies” in the electricity sector (standing at some USD 8 bn) and diesel for transport (around USD 4 bn). “This USD 12 bn total (about 3% of GDP) would alone finance most of the annualized adaptation investment needs for cities,” the report says. Egypt should also remove non-tariff barriers — including price controls and technical barriers to trade — which affect renewable energy, waste management and recycling product imports.

4- Bring the private sector on board, strengthen green finance, and use policy instruments to reduce investment needs: Egypt could boost green public investment by ensuring better coordination between public sector bodies through public-private partnerships, and using more innovative green financial instruments. More private investment could be spurred by “leveling the playing field for private sector participation” and ensuring more transparency in emissions reporting. Various policy instruments should be used to help reduce investment needs, including carbon pricing, regulation and taxation. And financing sources — including taxes, debts and reprioritization — should be balanced.