Green taxes boost production but hurt renewable energy access in Africa

The policy recommendations highlight the importance of institutional reform as a foundation for effective environmental taxation. The authors stress that strengthening governance is essential to ensure that environmental tax revenues are used for clean-energy infrastructure rather than lost through corruption or inefficiencies. They argue that transparency in the management of environmental tax revenues is crucial for public trust and long-term sustainability. Without clear and accountable use of funds, environmental taxes can easily become politically unpopular and economically damaging.

A new economic assessment has raised concerns that environmental taxes across Sub-Saharan Africa may be undermining rather than accelerating the region’s transition to renewable energy. The study, titled “Environmental Tax Effect on Renewable Energy in Sub-Saharan Africa” and published in Arthaniti: Journal of Economic Theory and Practice, examines whether environmental tax revenues are effectively stimulating clean-energy production and consumption in a region facing severe energy poverty, rising emissions, and chronic governance challenges. The findings show a fragmented policy landscape in which environmental taxes help renewable energy supply only modestly while actively discouraging renewable energy use among households and industries.

The research leverages panel data covering twenty-two Sub-Saharan African economies from 2000 to 2023 and applies a Dynamic Common Correlated Effects model that captures cross-country interdependence and structural differences. Environmental tax revenue, treated as a broad fiscal effort rather than a specific carbon levy, is tested against two outcomes: renewable energy production and renewable energy consumption. The authors also integrate corruption as a central moderating variable and run causality tests to determine whether changes in taxes predict changes in clean-energy trends. This approach allows the analysis to reflect the region’s institutional constraints, ranging from misallocation of public funds to weak enforcement systems.

The study found that environmental taxes have a mixed impact across the renewable energy value chain. On the production side, environmental taxes do not produce a clear long-run effect unless corruption is included in the analysis. When corruption is accounted for, environmental taxes show a supportive relationship with renewable energy production over time. This means producers may respond positively to environmental tax structures when governance conditions are properly captured, suggesting that environmental tax revenue can contribute to building generation capacity if institutional conditions are factored into modelling. However, the same analysis shows that rising carbon emissions significantly reduce renewable energy production both immediately and over the long run, indicating that fossil-fuel reliance still crowds out the growth of clean-energy technologies.

Across all model configurations, environmental taxes consistently reduce renewable energy uptake. Lagged environmental tax revenue, intended to signal a future shift toward cleaner consumption behaviour, is found to push the region even further from renewable energy use. The authors attribute this outcome to a structural imbalance in which taxes raise overall energy prices without providing affordable renewable alternatives. Given the limited availability of modern renewable technologies in many Sub-Saharan African countries, higher taxes may inadvertently steer citizens and firms toward cheaper but dirtier energy sources. The study highlights this disconnect as a critical failure point, suggesting that environmental taxes are being implemented without the necessary complementary policies that make renewable energy accessible.

The role of corruption emerges as one of the most influential factors in shaping energy outcomes. The analysis shows that corruption not only disrupts the intended impact of environmental taxes but also deepens inefficiencies along the entire renewable energy value chain. The interaction between environmental taxes and corruption produces negative effects on renewable energy consumption and weakens the long-run benefits for renewable energy production. The authors argue that corruption can divert tax revenues away from renewable-energy investments, weaken compliance with environmental policies, and enable tax evasion by high-emitting industries. This results in a fiscal cycle in which environmental taxes fail to reach the sectors where they are expected to catalyse renewable uptake.

Beyond the direct effects, the study also explores causal linkages. Using panel Granger causality tests, the authors find that environmental taxes help forecast future changes in renewable energy production but do not predict renewable energy consumption. This distinction indicates that environmental taxes may support investment decisions among energy producers—who often operate within formal, regulated frameworks—but fail to shift consumption behaviour among households and industries. The research further notes that renewable energy production and renewable energy consumption do not causally reinforce one another. This means that increased production does not automatically translate into higher consumption, and rising consumption does not trigger increased production. The authors interpret this as evidence of significant structural bottlenecks across the sector, including poor energy infrastructure, limited access to clean-energy markets, and policy fragmentation.

The findings are reinforced by a series of robustness checks using broader governance indicators such as government effectiveness, regulatory quality, rule of law, political stability, and voice and accountability. These tests confirm that environmental taxes continue to have a negative impact on renewable energy consumption regardless of shifts in governance specifications. Meanwhile, the effects on renewable energy production vary depending on which governance measures are included. Corruption stands out as the most consistent and detrimental force, shaping outcomes more strongly than other institutional variables. This highlights its central role in constraining the region’s clean-energy transition.

Environmental taxes in their current form fall short of delivering the theoretical “double dividend” expected in environmental economics. The double dividend theory predicts that environmental taxes can reduce pollution while improving economic efficiency when the revenue is used to stimulate green investments or reduce other distortionary taxes. The authors find little evidence of such gains in Sub-Saharan Africa. Instead, environmental taxes risk becoming regressive instruments that raise energy costs for already vulnerable populations without accelerating clean-energy adoption. This mismatch between theory and practice exposes structural weaknesses in how tax policy is designed and implemented across the region.

The policy recommendations highlight the importance of institutional reform as a foundation for effective environmental taxation. The authors stress that strengthening governance is essential to ensure that environmental tax revenues are used for clean-energy infrastructure rather than lost through corruption or inefficiencies. They argue that transparency in the management of environmental tax revenues is crucial for public trust and long-term sustainability. Without clear and accountable use of funds, environmental taxes can easily become politically unpopular and economically damaging.

Another recommendation involves aligning environmental taxes with targeted incentives. The authors suggest that tax revenues should be used to subsidize renewable-energy technologies, expand off-grid solar markets, and fund infrastructure upgrades that facilitate renewable access. This includes connecting rural communities to decentralized renewable systems, supporting grid modernization, and investing in energy-efficiency programs. The study implies that environmental taxes cannot operate in isolation; they must be paired with practical, accessible renewable energy options for households and businesses.

Financial inclusion also plays a key role in the authors’ recommendations. Since many citizens in Sub-Saharan Africa lack access to credit, clean-energy financing mechanisms, such as microloans, pay-as-you-go solar models, and green investment funds, could increase renewable uptake. The study suggests that environmental taxation policy will only succeed in shifting energy behaviour when renewable alternatives become affordable and widely available.

The authors also call for coherent energy governance across the region. Fragmented regulatory frameworks and inconsistent enforcement are common obstacles. The study argues that harmonizing policies, improving regulatory clarity, and strengthening institutions are necessary steps to build investor confidence and reduce the barriers that currently limit renewable energy expansion.