“We are running the most dangerous experiment in history right now, which is to see how much carbon dioxide the atmosphere can handle before there is an environmental catastrophe.” – Elon Musk, CEO of Tesla & SpaceX.
The effects of climate change in Nigeria and Africa are no longer abstract but a lived reality. Sea levels are rising, inundating their banks and destroying lives and properties, and intense droughts are leading to widespread food insecurity across the continent. These events are predominantly unnatural, and at the core of this climate crisis are human activities. Industrialization, for instance, has been a major contributor to the rapid warming of the earth’s surface through the emission of greenhouse gases.
To tackle climate change, the idea of putting a price on carbon dioxide emissions – Carbon tax came into existence globally. The innovative trend has been slowly spreading across the world over the past two decades, and Africa is one of its nascent markets.
What is the Carbon Tax policy?
A carbon tax is a government policy that sets a price on carbon emissions generated by burning fossil fuels such as coal, oil, and gas. It aims to reduce greenhouse gas emissions, which contribute to climate change, by creating a financial incentive for individuals and businesses to reduce their carbon footprint.
Under a carbon tax, companies and individuals are charged a fee for each tonne of carbon dioxide (or equivalent greenhouse gas) they emit. The tax rate can be set to increase over time, which encourages a gradual shift towards renewable energy sources.
Carbon taxes are typically paid to governments and are oft not earmarked for specific projects. The revenue collected from carbon taxes is usually used to support a variety of government programs, such as funding for renewable energy projects, energy efficiency initiatives, and other climate change mitigation and adaptation measures.
A new carbon sheriff is in town.
As earlier stated, Carbon Tax in Africa is not pervasive yet. One of the logical arguments for this could be that carbon taxes validate there is carbon to be taxed in the first place – but Sub-Saharan Africa is not a significant source of GHG, accounting for a mere 3.8% of global emissions. However, little carbon emission is still emission, and with the meteoric industrial development and increased human activities witnessed on the continent, the wide adoption of Carbon Tax in Africa is an imperative climate-smart move.
Presently, South Africa is the only African country to have implemented a carbon tax through Carbon Tax Act No 15 of 2019. The tax is paid by carbon emitters, while tax-free allowances incentivise companies to embrace cleaner and greener technologies. Now, Nigeria is on its way to implementing it.
Earlier in the week, Nigeria announced the launch of a Carbon Tax policy, in line with its recently approved Energy Transition Plan to reduce overall carbon or greenhouse gas emissions and raise revenue generation in the country.
This policy will provide allowances for every entity – government or private sector, in terms of how much emissions it may be allowed, and exceeding those emissions could also attract penalties. While the nature of these penalties is undecided, the tax would be used in undertaking projects that will help Nigeria fulfil all its obligations under the nationally determined contributions, as well as the net zero target of 2060.
Benefits to Nigeria.
Adopting the Carbon tax in Nigeria comes with a host of environmental and economic benefits. One of the noticeable impacts after full adoption would be the wider tax base and revenue for the Nigerian government. The country has a debt problem majorly ascribed to poor spending, but also has a revenue problem, and Nigeria’s revenue-to-GDP ratio is one of the lowest in the world.
Between April and November 2021, South Africa generated an estimated R1.3 billion in carbon tax revenues. Over time the country has reviewed its carbon pricing, starting from an initial price of 120 rands ($6.9) per tonne of CO2 equivalent in 2019 to ZAR 144 (around $ 8.3) per tonne of CO2 equivalent in 2022. In line with South Africa’s commitments at COP26, the carbon tax rate is to progressively increase annually to reach $ 20 per tonne by 2025 and $30 by 2030.
While these still compare poorly with international standards of $40 to $80 a ton as of 2020, South Africa’s progress is commendable. It is still a loner in the carbon tax space on the continent, and no country with similar climate realities can be used to rate its performance. Sweden charges one of the highest carbon taxes in the world at around €112 per tonne of CO2.
As an oil-dependent country and host to many fossil-burning industries, Nigeria’s carbon tax for their emission would significantly strengthen its revenue portfolio. This generated revenue can be used for investment in renewable energy and other low-carbon technologies or support other public services.
The adoption of the carbon tax in Africa’s largest economy would also encourage s a shift towards renewable energy sources. By paying for carbon emissions, which may not be pocket friendly to companies and individuals, they are compelled to shift towards cleaner, more sustainable energy sources like wind, solar, and hydropower.
Lastly, the development could foster strong ties with foreign bodies and countries. Since Nigeria will now be a player in the global Carbon tax system, the country is contributing its needed quota in promoting international cooperation on climate change. With this, Nigeria becomes attractive to foreign investors interested in investing in low-carbon projects, leading to increased foreign investment in its clean energy and acceleration of the country’s energy transition plan.
However, all these benefits may not be a reality if the tax system lacks a strong framework for monitoring and reporting carbon emissions. Many Nigerians evade tax, and many others, are not captured under the government’s punctured tax net. In 2021, Nigeria reportedly lost $178 billion to tax evasion by multinationals in a decade. Execution and implementation of policies have always been one of Nigeria’s kryptonite post-policy approval. But it is important to note that successful carbon taxation could offer Nigeria a way to achieve economic growth while meeting its environmental obligations.
