83 MARTINDALE CENTER FOR THE STUDY OF PRIVATE ENTERPRISE ry electricity from Morocco to the UK, where it will deliver enough power to meet approximately 6% of British electricity demand (Boulakhbar et al., 2020). Financing Morocco’s power transition Establishing the power generation, transmission, and distribution infrastructure needed to place Morocco on a low-carbon path by the 2050s will require a substantial $46B in additional investments by 2050 (IMF, October 27, 2023). Thus far, Morocco’s primary mechanisms for funding renewables projects have been to acquire grants or concessional loans from aid agencies or multilateral development banks and, increasingly, to raise private investments from domestic and foreign investors through PPAs coordinated through the MASEN. These approaches have been successful in raising funds to expand the nation’s renewable generation capacity, but their scalability is questionable. Massive public expenditures on electricity purchased at above-market rates from renewable energy providers through long-term PPAs have led to ballooning state debts and may not be sustainable for the long term, particularly at the scale that Morocco would need to execute them to significantly grow its renewable generation capacity (Moustakbal, 2021). To achieve its investment targets, Morocco needs to pursue additional financing from a combination of multilateral and private sources. In addition to proceeding with planned reforms to increase the attractiveness of external investments, such as the liberalization of the state-controlled national electricity market, Morocco should consider a reform of fossil fuel tax exemptions, participation in global carbon markets, market regulatory reforms, and implementation of a domestic carbon pricing scheme as potential auxiliary avenues by which to secure funding for its power transition. Leveraging existing sources of climate finance Multilateral funders, such as the World Bank, IMF, and Green Climate Fund, have already played a key role in funding major Moroccan renewables projects, primarily through low-interest concessional loans. In 2019, the country was the third-largest beneficiary of climate finance in the world (Driss & Naima, 2019). These entities are likely to remain a viable source of funding in the future––Morocco’s central government debt has been assessed as sustainable by the IMF (March 16, 2023), making it a relatively safe bet for future investment. Regional development banks, such as the African Development Bank Group, have also provided substantial funding for Moroccan energy infrastructure projects in the past. That group contributed $158M for the second electrical interconnection between Morocco and Spain as well as $500M for phase I of the Noor Ouarzazate solar complex (Power Sector Transition in Morocco, 2023). The African Development Bank Group, along with other regional development banks, like the Islamic Development Bank and Asian Infrastructure Investment Bank, are likely to remain major sources of financing. Foreign direct investment without the support of state-sponsored PPAs is projected to be a viable source of financing for renewables projects if a domestic carbon pricing system is introduced (Berahab et al., 2021c). In 2021, Morocco attracted the ninth largest amount of foreign direct investment in Africa, reaching a total of $2.2B. France, the United Arab Emirates, and Spain hold most of Morocco’s foreign direct investment stocks. However, a few systemic challenges have hindered foreign investment, including weak intellectual property rights enforcement, corruption, and sluggish regulatory reform. In 2021, Morocco was placed on the Financial Action Task Force “grey list” of countries subjected to increased monitoring because of poor anti–money laundering and terrorist financing compliance but was removed from the list in February 2023 after a series of reforms (U.S. Department of State, 2023). Reform of fossil fuel tax exemptions An additional step that Morocco is considering in order to encourage investment in renewables is the phaseout of excise tax exemptions on fossil fuels (Berahab et al., 2021c). Currently, heavy fuel oil, coal, and petroleum coke, which are imported for power generation, are exempt from import tariffs. Removing this exemption could reduce fossil-based power producers’ profitability relative to renewable energy producers and create a stronger incentive for them to diversify into renewables. It would also recoup about $54M annually in foregone tax revenues for the state, funds that could be used to subsidize renewables development or grid infrastructure investments (IMF, October 27, 2023). This change in tax policy, proposed in late 2023, seems likely to be implemented in the near future. Tapping into international carbon markets The reasons for foreign investment in Moroccan renewables go beyond the direct financial returns. Under Article 6 of the Paris Climate Agreement, countries are permitted to trade carbon credits earned from the reduction of greenhouse gas emissions with
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