YAFO 2024 Policy Dialogue Series analyses effectiveness of Emissions Tax

As Ghana takes major steps to tackle climate change by imposing a Combustion Tax (Emissions Levy, Act 2023, (Act 112)) on vehicles and machinery in important sectors, there is a need to critically analyse the efficacy of such tax-based methods as a response to the climate crisis.

While taxation can induce behavioural change and fund environmental projects, it is critical to investigate whether it effectively tackles the core causes of climate change and promotes long-term solutions.

As part of its 2024 policy dialogue series, the YAFO Institute, on Thursday, March 21, attempted to examine the status quo, explore alternate options for climate mitigation, and widen perspectives on effective climate solutions that go beyond taxation and push for reinventing policy frameworks, innovation, and engaging communities.

Dubbed “Free Market in Climate Policy: How Effective is Ghana’s Emission Tax?” Nathaniel Dwamena, President of the YAFO Institute, hosted Dr. Julia Baum, a Conservation Economy Consultant; Asamoah Kwaku Jr., a Policy Scholar at the YAFO Institute; and Justine G. Kankpeyeng, also a Policy Scholar at the YAFO Institute.

Dr. Baum defined climate change as “a large-scale, long-term shift in the planet’s weather pattern and average temperatures, accelerated by human contributions since the mid-1800s through the release of carbon dioxide and other greenhouse gases,” citing the IPCC Report 2022.

Dr. Baum stated that historically, Africa has contributed least to climate crises but now bears a disproportionate burden of severe climate change impacts such as rising temperatures and health issues, which foster potential conflict and insecurity on the continent.

She stated that despite the advantages of the emission tax, including incentivizing reductions in emissions, raising awareness of climate challenges, altering consumer and producer behaviour, and generating government revenue and funds for climate change mitigation, it also has disadvantages.

Key among the demerits of the tax, according to her, are that it creates a financial burden on low-income populations, increases the risk of businesses relocating to other countries with laxer regulations, and has an impact on economic sectors due to the rising cost of production, where producers may have to lay off some workers.

“Overall, Africans need an energy transition towards more renewables. Climate change challenges and their causes are all interconnected, so we do need diversified mitigation and adaptation,” she said.

Dr. Baum advised that the government can create economic incentives for reducing emissions and investing in sustainable practices rather than relying solely on regulatory mandates.

“For example, you could implement a carbon cap and trade system—that means you offer a limited emission allowance, trade the allowance, and buy in when you emit more,” she added.

She also mentioned eco-labelling and consumer choice, where you can highlight on your packaging of products whether they are climate-friendly or not, while looking at other research and development incentives, where governments can provide incentives for companies creating innovative technologies for carbon reduction.

Justine G. Kankpeyeng (Policy Scholar, YAFO Institute) added that these emissions are considered carbon emissions, which can be hazardous to human health and also have an effect on the climate.

“In Ghana, the reason for the implementation of this tax was to put a levy on the carbon dioxide emission, which is calculated as the sum of a person’s greenhouse gas emissions, which is expressed as a carbon dioxide equivalent in Ghana. So in Ghana, the aim of implementing this levy is to reduce the emission of carbon dioxide, but the question is, is it meeting the intended purpose?” he quizzed.

Justine contended that it will be difficult for Ghanaians to trust the government to use proceeds from the emissions tax for its intended purpose.

He continued that “even looking at the way the tax is even passed and the way they mentioned measuring the emission of carbon dioxide, which is going to be a charge on either a person or a factory, though it is going to raise revenue for the government, it is going to be a burden on the citizens—factories and producers will push the burden of this tax on consumers, which will affect the poor citizens in the country.”

Dr. Baum further submitted that calculating the emissions of a vehicle has to go through a lot of processes, from the engine of the car to the type of diesel or fuel used.

For his part, Asamoah emphasised the importance of V5C documents, which provide information about a vehicle’s emissions before it goes on sale. These documents, which prove the registered keeper and vehicle details, help measure carbon dioxide emissions. 

However, he noted that many people are unaware of this information, leading to misconceptions about emissions.

He suggested education and awareness creation about the fact that vehicles emit emissions, even if they don’t see smoke from exhaust.

Justine asserted that the government indicated that it is going to calculate the emission tax based on green gas, and that is going to be expressed as the carbon dioxide equivalent of Ghana Cedi resulting in fuel combustion from industry processing or industrial processing and figurative emissions.

Dr. Baum said that the sudden introduction of the emission levy is quite novel to Ghanaians.

She therefore advised the government to “give reasons why you implement something—so, for example, if you have a technology that cuts down on carbon emissions but helps with health issues, explain that—and combine those reasons and relay them to the people to understand before implementation.”

Aside from the emission tax that is intended to curb the high level of emissions, Asamoah said there needs to be stakeholder involvement because “a lot of stakeholders, advocates, and other people are raising concerns that there was inadequate stakeholder engagement.”

“So going forward, they need to prioritise it and see if the generated revenue is used efficiently,” Asamoah remarked.

Justine stressed that “the government needs to have a rethink about what the national carbon pricing or emission trading scheme is; they should come out with it clearly for the public to know about it and how we can measure or isolate the impact of this levy on emission reduction,” adding that it would make Ghanaians appreciate more the payment of the levy.

Dr. Baum encouraged the youth to push harder for transparency and accountability in leading the implementation of the solutions raised in conversation.