Development Benefits of adopting a carbon Pricing Policy for Kenya

Fossil fuels such as natural gas, coal and oil generate about 80% of Africa’s energy demand contributing to greenhouse effects. Renewable sources of energy such as hydro, solar power, geothermal, wind and biofuel only contribute about 9% of total energy generation in Africa (World Economic Forum, 2022). Consequently, there is an opportunity for African countries to tap into renewable energy as a means of curbing emissions, while unlocking opportunities as envisioned by the Paris Agreement.

The drive to cleaner energy is not important only for bigger climate objectives, but also for immediate quality of life. The combustion of fossil fuels has a darkside to the human story due to the adverse effects on quality of local air. A good illustration would be the great smog of London in 1952 where coal was burned and in 5 days, approximately 12,000 deaths were recorded as a result of the smog. These deaths were easier to account for and necessitated immediate changes because it happened over a short period of time, however, there are deaths and other long term health complications that result from air pollution and quantifying these may not be as easy. In Kenya, approximately 22,100 deaths are reported annually due to household air pollution associated with fossil fuel combustion (State of Global air, 2020). Because of the Kenyan societal make-up, where a large percentage of the population live in informal settlements, this calls for immediate policy action that would see a reduction in household induced carbon emissions, while improving the quality of life for many.

Table 1: Number of deaths due to household air pollution

Source: World Health Organization (WHO)

The combustion of fossil fuel emits tiny particulates smaller than human hair that proliferate the lungs, bloodstream, and the brain. Such particulates increase the risk of contracting major diseases such as heart and lung diseases, stroke, lower respiratory infections, cancer, pneumonia. Annually, air pollution kills roughly 7 million people ranking it as the fourth highest mortality risk factor above alcohol consumption, drug addiction and obesity. Table 1 outlines 10 African countries with the highest recorded annual deaths as a result of air-pollution. A great concern is that, it mostly affects the most vulnerable in society, who might not have access to quality healthcare including the elderly and children. The adoption of carbon pricing could be one of the catalysts in the reduction air-pollution. Kenya could realize numerous benefits transcending climate-related ones while averting number of deaths from household air pollution.

The rationale for carbon pricing

Carbon pricing refers to charges on the carbon content of fossil fuel or emissions. The price charged on carbon redistributes the burden for the damage on the environment from the emissions to the those that are responsible (WHO, 2022). The formulation and implementation of carbon pricing and other environmental taxation could help reduce the consumption of fossil fuel while cutting air pollution costs. It has been argued that if all countries price fuels efficiently, then more than 1 million lives would be saved annually by 2025. While a number of countries have begun implementing carbon pricing systems, we note that there has not been enough evidence supporting the effectiveness of such a policy strategy, more especially in developing countries. However, an example of a country where a carbon pricing policy has been implemented is Mexico. Estimations showed that carbon pricing would aid in reducing particulate matter emissions for both rural and urban regions while avoiding roughly 12,000 premature deaths by 2030. Since the adoption of carbon policy measures, Mexico was making progress towards its objectives but the interference of politics has halted such progress (IMF, 2021).

Carbon pricing has the potential of contributing to achieving some of the 17 Sustainable Development Goals if implemented efficiently. This will be accomplished by curbing environmental externalities and secondly by being a vital source of revenue for government. On matters regarding monetizing the local benefits of improved air quality, it seems carbon pricing appears to serve countries’ own interests despite them not caring about issues related to the climate. Despite carbon policy pricing incurring economic costs, in the form of deadweight losses or transitional costs, the welfare gains stemming from improvements in local air quality, reduced congestion, and improved road safety dwarf the costs.

One may argue that an implementation of carbon pricing in Kenya may prove to be more disadvantageous for households, where taxes reduce disposable incomes without necessarily leading to a change in behaviour. Two costs may emerge; the first being a potential fall in consumer demand, slowing growth and pushing many into extreme poverty, and secondly, an increase in externalities from pollution as a result of a lack of affordable energy substitutes.

Feebates as an alternative to carbon pricing

Due to the substantial burden of high energy prices on households and firms, there are limits on the acceptability of carbon pricing. A more novel approach is to use feebates. Feebates are a fiscal analogue of regulations which reward "energy efficient or environmentally friendly practices" while penalizing any practice that does not adhere to this standard. The challenge is that feebates may not be effective without alternative energy sources for a lower middle income economy such as Kenya. Although not a key point of the discussion, there are opportunities both in the medium and long term.

According to International Energy Agency (IEA), Kenya is considered one of the world leaders in clean energy generation. Over the past decade, Kenya’s wind energy increased almost a thousand-fold from 18 GWh in 2010 to 1156 GWh in 2019. Within the same timeframe, Solar PV also increased significantly from 3 GWh to 110GWh. This indicates prospects for investments in green energy sources such as solar PV which have the potential of scaling down Greenhouse gas emissions (GHGs) significantly.

For long term consideration; the rapid expansion of Kenyan towns and cities will require massive investment in key infrastructure. With a large share of Kenyan population depending on public transport, the government could invest in massive expansion of transport infrastructure comprising mass transit framework such as the use of buses and minibuses that operate on battery technology.To conclude, carbon pricing policies such as carbon taxes can be good for Kenya’s development despite there being growth-environment tradeoffs. A proper design and implementation of carbon taxes and other environmental tax reforms can result in development by minimizing the massive costs from environmental externalities such as premature deaths from local air pollution, while amassing revenues that can be utilized to invest or reduce more distortionary taxes. Such policy direction also reduces future costs that may result from climate conditions deteriorating. We believe that feebates provide a cushion for households as higher net polluters will bear the largest costs. In the medium to long term however, more robust solutions aimed at reducing the use of fossil fuels will results in greater dividends for the Kenyan economy.