The brief stresses that African countries should apply carbon taxes to general significant revenues while mitigating the impacts of climate change on their populations on a continent where South Africa is currently the only country to levy that environmental tax. 

African countries will gain more than they will lose by applying carbon taxes, a  policy brief published last May by the African Tax Administration Forum (ATAF) finds.  

Entitled "Carbon taxation in Africa", the policy brief explains that carbon tax is an environmental tax whose amount is based on CO2 emissions resulting from the consumption of a good, service, or resource. This tax, whose primary aim is to encourage businesses and consumers to move towards low-carbon production and consumption patterns by increasing the cost for those who cause pollution, can be applied upstream or downstream of the fossil fuel value chain.

If applied upstream, i.e. at the time of extraction or import (depending on whether the country concerned is an extractive or non-extractive one), the tax authorities can choose a taxpayer who will collect and pay the tax applicable to the entire production chain (for example, players in the extractive industries or importers). By applying the tax as early as possible in the value chain, tax authorities can minimize the number of taxpayers, thus simplifying administrative management. The carbon tax rate is expressed in units of volume or weight (such as a liter of gasoline or a ton of coal) based on calculations of the average carbon content of the fuel concerned.

An upstream carbon tax application can impact both formal and informal economies, which is particularly important for middle- and low-income countries, where the weight of the informal sector is generally significant.

Establishing a sustainable economic growth trajectory

An alternative to a tax based on the carbon content of fossil fuels is a tax based on actual emissions. This tax is applied downstream of the value chain, i.e. at the processing or distribution level. It is calculated based on actual emissions from the facilities subject to the tax. To be accurately assessed, this approach relies heavily on the monitoring, examination, and verification of actual emissions. Downstream levies are rarely used, as they require complex accounting.

The brief also points out that carbon taxes are not yet widespread in Africa. South Africa is the only country on the continent that currently applies a carbon tax. It does so downstream.  

Meanwhile, it is in the remaining countries’ interest to implement carbon taxes as this "green tax" results in what is commonly referred to as a double dividend. Namely, the tax generates revenue for the government applying it and also provides a positive environmental outcome in the form of reduced emissions.

With the deadline for countries to achieve the 2030 Sustainable Development Goals (SDGs) fast approaching, and increasing evidence of extreme weather conditions stimulated by global warming, the implementation of national carbon taxes is a strategic issue for establishing a sustainable economic growth trajectory in Africa. Recent studies show that the continent is both the region least prepared to cope with the effects of climate change and the most vulnerable to its effects. According to the World Bank, climate disruption could force up to 86 million Africans to migrate within their country by 2050. Some of these migrations will occur as early as 2030, due to water scarcity, declining crop and ecosystem productivity, and rising sea levels.

Mobilizing the funds needed to adapt to climate change

The introduction of an effective carbon tax could also be an important instrument in helping African countries mobilize funds to adapt to this new climate environment while mitigating the impact of climate disruption on their populations and the environment in which they live.

It could also help countries meet their Nationally Determined Contributions (NDCs) set out in the Paris Climate Agreement. Some one hundred countries around the world, representing two-thirds of the NDCs submitted, are considering carbon pricing as a means of meeting their emission reduction targets. According to the United Nations, carbon pricing alone could reduce the cost of climate change mitigation by 32% by 2030, and reach its full potential when combined with other energy and environmental policies.

The ATAF policy brief also notes that the absence of a national carbon tax policy could allow other countries to apply a price or tax on behalf of African countries, through the implementation of a border carbon adjustment mechanism (BCAM), such as that recently adopted by the European Union (EU). The revenue-generating potential that would normally be due to Africa would thus be diverted to high-income countries administering more ambitious carbon pricing policies.

To maintain the competitiveness of their domestic industries on international markets and avoid carbon leakage -a situation that may occur if, for reasons of costs related to climate policies, businesses were to transfer production to other countries with laxer emission constraints, according to the European Union, African countries implementing the carbon tax could, in turn, resort to unilateral border tax adjustments.