KAMPALA – As of today, Uganda does not have an explicit carbon tax system in place, meaning there are currently no direct carbon tax rebates available for manufacturers in the country though the government is developing climate finance policy framework. Uganda Revenue Authority must fast track carbon tax system to widen tax revenue base and as well save our environment. As any good economist will tell you, financial incentives are a strong motivator, and financial penalties are arguably strongerand carbon taxes use this principle to encourage businesses or consumers to reduce CO2 emissions by putting a price on activities or products that are carbon-intensive. Because businesses want to minimize the negative impact on their wallets, they have to reduce their carbon emitting activities by way of innovation and investing into new and clean technologies. However, finding an effective financial policy to discourage pollution is a complicated process based on political, social and economic factors. In comparison, carbon tax policies are implemented widely in Europe, and its totally a new model in the developing world. Toay 19 countries in Europe have carbon taxes and Sweden has a carbon tax that is by far the highest in the EU with a whopping €116.33 per tonne of carbon emission. According to the Global Carborn Budget (2024), Uganda has emitted 120 million tonnes of CO2 from 1950-2023 and in 2023 alone, Uganda emitted 6 million tonnes of carbon (CO2). Uganda’s CO2 emissions per capita stood at 0.14t in 2023.
For Uganda revenue Authority to attain carbon tax sustainability, it should adopt various scenarios for levying emission taxes at different points of the journey between production and consumption but for the start, it can implement penalty and carbon credit incentives scheme at production or manufacturing point. But the common and most effective approach is to charge industries based on an estimated amount of CO2 produced and this will reduce carbon footprint and promote climate protection through carbon pricing. Also, the government can incentivize investments in the green economy by allowing companies to quantify the amount of carbon dioxide sequestrated from the environment and using these units as tax credits to be offset against their tax liability. For effective implementation, measuring carbon emission requires specialized digital tools and systems to quantify the amount of carbon emitted by an industry or a company against its quarter. Levying environmental levy on cars and excise duty on fuel, plasticproducts and plastic granules being subject to excise duty perton is not as complex compared to measuring carbon emission.
For good performance, the carbon credit allowances should only be provided for a proportion of the companies’ emissions, and must be based on internationally recognized efficiency benchmarks where available, or the ambition and robustness of companies’ decarbonization plans and to be particular , the carbon tax would have to be paid in the year following the reporting year because of the time needed to compile the emissions data and independently verify the total emissions of the reporting year. But still companies can have the option to also offset up to 5% of their taxable emissions using international carbon credit – either bought or accumulated elsewhere in Uganda.
For easy monitoring , a set of eligibility criteria should be developed to ensure that the carbon credits used by companies to offset part of their taxable emissions are of high quality and companies can however, use international carbon credits to offset up to 5 percent of their taxable emissions. The international standard is that carbon tax applies to all facilities producing 25,000 tonnes or more of greenhouse gas emissions in a year and to ensure the chosen carbon credits are of “high environmental integrity”, the carbon tax body should developprinciples that each company must abide . In Uganda today, the only reporting about the carbon emission is on quality of air and water from different parts of the country but this does not createtax liability by penalizing the polluters and then lost carbon taxrevenue. In appreciating carbon tax, companies with high emission shall be held accountable and they will be motivated to use a precautionary approach which is an international principle in climate change and still carbon tax will put to the best use of the polluter and the producer pays principles.
Before I conclude, on receiving feedback from a reader of my previous article titled– Climate finance Expert Implores Ugandan banks to invest in carbon market, the reader wanted to know how carbon tax can be crucial in reducing emission and protecting the environment hence the basis for this article.
How will URA implement the carbon tax? using a radical approach a carbon emission thresh hold shall be set for eachmanufacturing unit and each company or manufacturer shall receive carbon emission quarter of (GHGs) per year based on its production capacity and a system to measure annual carbon emission shall be installed and monitored. The carbon tax shall come into force if a company has emitted CO2 above its thresh hold due to non-compliancy. The company shall be penalized through carbon tax on each metric ton of carbon emitted beyond the emission quarter and for a company which is complying and has emitted CO2 below the quarter shall receive carbon credits and tax incentives as well. Still companies under the carbon tax program shall enter into carbon market through cap and trade and for example if manufacturer {A} is not compliant and has emitted carbon beyond its quarter and to avoid a penalty, it will enter into carbon trade with manufacturer {B} which has emitted carbon below its quarter due to high compliance levels for an offset using carbon credits acquired due to low emissionand by comparison, it is cheaper to purchase or offset carboncredits from a company than paying hefty penalties by the tax body .
Still, a company with high carbon emission can gain a leverage from carbon credit off sets arising from its activities e.g. tree planting and carbon credit aggregation. Therefore, cap and trade or self-carbon credit offset are the best way(s) for companies to harness carbon tax and this means that, the tradeoff for URA shall be the difference between carbon credit tax incentives and penalties. The greatest significancy for carbon tax is to create responsible investment, tax sustainability and saving the planet for the next and unborn generations.
Recommendation; URA should develop a transition framework to support companies with emissions-intensive trade-exposed (EITE) sectors such as chemicals, electronics, cement, general manufacturing, construction and biomedical manufacturing for their energy transition. It should work with Uganda manufacturers ‘association to build capacity and prepare manufacturers for carbon tax transition and the duration of this transition framework shall depend on the development of carbon prices and the progress of decarbonization technologies. Further URA should constitute an advisory panel to support carbon tax transition framework. It should further push for carbon Pricing Act through the line Ministry and in addition to carbon tax, thereshould be additional climate change disclosure obligations imposed on companies in Uganda.
We should tax every company’s carbon footprint and carbon footprint for every building and home, to incentivize people to reduce their carbon footprint – Philipe Kotler.
Denis Tukahikaho PhD. is Carbon Credit Farmer, Ag. President, The Society for Environment and Climate Finance Professionals
