Thursday, 2 March 2017

Potential for a carbon tax in Uganda

It is rare to post some of our conversations with cross-postings to TAX Agencies. But since Uganda is drafting her first National Climate Change Law and also reviewing the National Environment Act (1995). I am tempted to share some thoughts building from an expert exchange reflecting proposed "James Hansen-Carbon Tax" under the Trump Administration. 

Sometime back in 2012 during the formulation of the National Climate Change Policy, one colleague expressed concern on nascent legal and policy regime in Uganda with minimal contribution to tax base but gross utilization of small resources collected through difficult inequitable tax measures. This trickled my mind and tried to work out a process on resource mobilization under the Climate Change Policy, however it did not work out.

Recently, I was engaged in an expert online discussion for thinkers in global financing frameworks and pricing emissions. The basic fact for establishment of economic instruments in environment & natural resources since Rio(1992) was to influence behaviour i.e. consumption and production patterns. Over the years, Governments have established tax systems (always inequitable) and also followed a disturbing practice though surprising agreed on in Agenda 21 commonly known as 'Polluter Pay Principle' in otherwise a policy infused with a fee on the right to pollute.

For example, the duty on importation of second hand vehicles which have continued to be a source of severe environmental health problems with possible correlation to the current cancer issues. Interesting, the fees collected have always been consolidated in our beloved Consolidated Fund and appropriated through the budgeting process. This has ameliorated our environmental challenges. 

Going forward, every year MoFPED and her agencies such as URA develop new taxes to commensurate our budget needs (now taking of UGX 30 trillion). The question is would a carbon tax be a safe haven for MoFPED & URA to induce tax proposals? Noting that previous tax increments on selected products such as fuel have grossly affected low income earners who rely on public (un-regulated transport) with fares bouncing like a beam under Cathode ray oscilloscope. In US, Portland State University completed an economic study a couple of years ago (when gasoline was $4.00 / gallon) which determined that behavior change at that price point would require at least $100/ton, thus $1.00/gallon at the pump thus concluding that "elasticity" in spending behavior is relevant.
The second question is what tax level should induce behaviour shift of the magnitude to achieve low greenhouse gas emissions? But before responding, one legislator might shut you down that you are killing investments and making doing business in Uganda difficult. Hima Cement factory and others might come-up and use all tactics to offset you.

In US, an opinion survey was cited as a game changer on tax matters. Imagine we tested appetite for taxes and alternative means to reduce emissions by 22 percent by 2030 (Uganda Commitment under UN Convention on Climate Change). Sometime an opinion survey was ran on whether people should pay for some services in Mulago and a significant number was in favour. With the current extreme weather and climate shocks all over the country, I guess the public would support any instrument to address climate change in Uganda.

Therefore, for any new tax, MUST win public acceptance. Unfortunately, in the USA, there is limited support for the James Hansen style, who promotes a carbon tax and some analysts find the Republican proposal a calculated non-starter. Interesting a growing majority is supporting a 'cap, fee and invest' type of program.

I would rally for that too. Let me be exemplary, If the Public (currently) supports a definitive reduction of greenhouse gases, then administer an fee for emissions ascribed to top emitters (such as business contributing to GHG emission from sectors like Mining, Cement production, transport (road & aviation), construction) and design consumer protection measures, then invest  those fees in emission reducing public investment plans like 'SGR', afforestation, renewable energy projects and matching costs for electricity generation and consumption. 
Basing on simple projections while keeping other factors constant, we can mobilize the required USD 1.8 billion for green growth (see Economics of Green growth study done by MoFPED & GGGI) and attract at least USD 10 from international finance institutions for every USD 1 spent under the PFMA. 

What are your views???