Carbon taxes can fuel green economic recovery and reduce income inequalities

The COVID-19 pandemic triggered the first recession in a quarter of a century on the African continent, but many experts believe the economic shock offers an unprecedented opportunity to implement a green transformation policy that fosters an inclusive economic recovery and sustainable. In Chapter 1 of AGI’s Foresight Africa 2021, Gunnar Köhlin, Ira Dorband, Jan Christoph Steckel and Thomas Sterner discuss the merits of a carbon tax as an effective policy tool to generate substantial revenues, reduce income inequalities and encourage a green economic recovery.

According to the authors, due to the decline in global oil prices caused by the pandemic, policymakers have the option of introducing carbon pricing on fossil fuels without raising fuel prices beyond pre-crisis levels. pandemic. As such, the authors suggest that a carbon tax of $ 75 per tonne, the benchmark carbon tax, according to estimates by the International Monetary Fund, would be necessary to keep global warming below 2 degrees Celsius, would increase the price of fuel at the pump by $ 0.17 per liter. Multiplied by Africa’s current oil consumption – around 4 million barrels per day – the policy would generate $ 40 billion in additional annual tax revenue across the continent.

The authors also argue that although such a tax appears to have a negative effect on the poor, if the income is used for pro-poor redistributive policies, the result would in fact be gradual as the lowest income households consume much less fuel than the richest. Figure 1 illustrates the distribution of the carbon tax burden, where a value less than one indicates that the lowest income group pays less than the national average. Notably, it is only in South Africa that a carbon tax should be regressive and weigh more on poorer taxpayers than on richer taxpayers; however, the effects of income tax on the lowest income groups in Gabon, Cameroon and Morocco are also weaker than in the rest of the continent. Elsewhere on the continent, however, carbon taxes can directly reduce income inequalities through efficient redistribution.

Global carbon emissions from African countries have roughly doubled since 1990. Figure 2 illustrates the share of African carbon emissions by country over time, illustrating the magnitude of the region’s emissions growth since 1990. Significant increases pollution emissions are typical in the early stages of development – as characterized by the Environmental Kuznets curve—And eventually stabilize, then decline as GDP per capita increases. The composition of African emissions has been and continues to be dominated by South Africa, although its share of total emissions – just under half in 1990 – has been eclipsed by the rest of the continent since 1990. The Share of emissions from the rest of Africa countries has increased significantly. Therefore, the authors highlight the power of a carbon tax to transform consumption and production choices in carbon-intensive sectors, promoting the transition to a low-carbon economy.

Top 10 carbon emitting countries in Africa, 1990-2017

Carbon taxes have been a widely proposed policy solution to correct market failures and account for the true cost of emissions in developed and developing economies.

For more concrete ideas on achieving a low carbon economic transition in Africa, consider reading: “How Africa Can Show the World the Way to a Low Carbon Future: 10 Facts, 10 Actions.”

To learn more about the risks of climate change in Africa and the strategic responses to its challenges, consider reading “Dealing with Climate Change” and “Dealing with the Challenges of Climate Change in Africa’s Coastal Areas”.

For more on Africa’s shared efforts to tackle climate change, see “Even before the United States left the Paris Agreement, Africa took over on climate change.”

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