Carbon Tax: Kenya to Charge Motorists ‘Traffic Jam Fee’ to Curb Emissions.

Motorists in Kenya will soon start paying a traffic congestion charge as part of the government's plan to reduce carbon emissions if a proposal from the treasury to protect the environment is adopted.

Manufacturers with production plants that emit carbon significantly are also targeted. Such units will be slapped with a new tax for every tonne of carbon emitted.

The move is part of government efforts to reduce air pollution and traffic jams amid rising global concerns about climate change, according to a policy document from the country's finance ministry.

Under the plan, the government seeks to introduce a 'traffic jam fee' on automobiles driven in zones marked as heavy traffic areas like Nairobi's Central Business District and other major cities and towns like Mombasa, Kisumu, Nakuru and Eldoret.

"The government is exploring and developing a congestion charging scheme in major cities in a bid to protect the environment and as a source of revenue for greening the energy sector, among others," read the document titled The National Green Fiscal Incentives Policy Framework.

In 2021, the World Health Organization (WHO) estimated 19,000 people die each year in Kenya due to air pollution. Some 70 percent of pollution levels are recorded in the capital city, Nairobi, noted United Nations Environment Programme (UNEP).

Besides exacerbating the climate crisis, nine out of 10 people in Kenya's major cities and key towns are exposed to air pollution beyond the global health standards set by WHO.

This trend threatens the global economy. It is slowly but surely reducing life expectancy through chronic diseases such as asthma and impacting the developmental potential of unborn babies.

Kenya's minister for energy committed to a carbon reduction of 32 per cent by 2030 at the 27th Conference of Parties (COP27) to the United Nations Framework Convention on Climate Change, promising a raft of measures to encourage clean energy transition.

The country is following in the footsteps of South Africa, developed countries and major cities across the globe that have introduced or are planning to unveil the traffic congestion charge.

New York City, which has the most congested traffic jams in the US, will become the first major global city to introduce the traffic jam charge after London, which introduced it in 2003.

New York plans to introduce a congestion charge of up to \(\$23\) per day, while London charges a fee of \(£15\) per day.

The move is coming amid environmental complaints that Kenya has been importing too many 'old' cars, which are now a major contributor to air pollution in major cities. Official data and statistics show the country's registered vehicles more than doubled in the last five years to 4.35 million in 2021.

The Kenyan government believes the carbon tax, which has been gaining traction worldwide, is a perfect catalyst for hastening the switch to clean energy.

This will also promote the 'polluter-pays-principle,' where polluters are made responsible for bearing the costs of managing or preventing resultant environmental damage.

Businesses must be responsible or be slapped with a carbon tax for excessive greenhouse gas emissions. Such tax will be levied per tonne of carbons emitted, stated the treasury document.

"We plan to explore the viability and design of a carbon tax because this will both cost-efficiently reduce greenhouse gas emissions, health complications and provide a revenue stream to help the government meet its broader financial objectives," the document added.

The ministry believes correct carbon pricing will send the right signal to markets and private investors and force them to go green in all their endeavours.

The initiative is at its final planning stages and what now remains is to design the carbon tax in the national budget and make decisions on the rates, who will pay and how to allocate the revenues raised in future.

Kenya plans to decrease carbon emissions, air pollution, and traffic congestion by implementing traffic jam fees in heavy traffic zones and carbon taxes for manufacturers. A traffic congestion charge is a fee imposed on vehicles to enter certain zones to reduce cars on the road. Carbon tax prices per unit of carbon emissions to incentivize firms to adopt more sustainable practices. Through this, Kenya strives to internalize the negative externalities, which are unintended harmful effects on third parties not reflected in the cost. Some of the negative externalities include environmental damage from carbon emissions and negative impacts on public health as the WHO estimated 19,000 people die each year from pollution in Kenya.

The negative externalities of cars, such as air pollution and traffic congestion, are not fully reflected in the market price and quantity of cars (\(\mathrm{Pe}, \mathrm{Qe}\)), causing a split between the private marginal benefit (MPB1) and the social marginal benefit (MSB). This results in a market failure where the good is over-consumed. The graph illustrates a significant growth in the demand from MPB1 to MPB2 for old cars in Kenya as the number of registered vehicles doubled. Thus, the market equilibrium point has shifted to P1, Q1 which is further away from the socially optimal level of output (PS, QS). To address this, the government plans to implement a traffic congestion charge, which will increase the cost of using cars. This charge aims to align the private cost more closely with the social cost. As a result, demand for cars decreases towards socially optimal output (MSB) at MPB3.

Motorists will be affected by the traffic congestion charge because their travel expenses increase, resulting in a more efficient transport system and less air pollution. However, congestion charges can discourage people from engaging in activities in certain areas leading to a decrease in economic activity in those places. Furthermore, Kenya is a developing country, so this tax may have adverse effects on lower-income households and restricting the imports of older vehicles may limit the transportation options available to them as Kenya is still investing in sustainable alternatives.

Furthermore, the government has planned to implement a carbon tax on manufacturers with production plants. Regarding Figure 2, the market equilibrium is \(\mathrm{Pe}, \mathrm{Qe}\) while the social optimum is P1, Q1. This occurs because these manufacturers generate negative externalities in the form of greenhouse gas emissions and pollution. The welfare loss in the graph points to the cost of production not borne by the manufacturers. When the tax is imposed, Kenya seeks to shift MPC to MSC1. This will increase the overall cost of production of the good as the external costs associated with it are internalized, leading to a higher price P1 and a lower quantity Q1. Through this, they hope to incentivize carbon-intensive producers to invest in greener energy sources to lower their carbon footprint, resulting in a shift from MSC1 to MSC2. This indicates the marginal social costs of producing an additional unit decrease due to the use of less polluting resources and changes in technology. As a result, the optimum quantity of output increases from Q1 to Q2 and a lower tax on pollutants for firms.

The implementation of a carbon tax and traffic congestion fees is likely to result in increased production and transportation costs for firms. To compensate for the additional cost, firms may pass on the cost to consumers in the form of higher prices for their goods, affecting the consumer's spending habits and purchasing power. For producers, the government aims to encourage investment in cleaner energy sources and practices through increasing their cost of production. Nonetheless, if the cost of investing in renewable energy exceeds the cost of paying the carbon tax, firms may choose to pay the tax instead of modifying their behaviour. Moreover, changes in carbon-intensive production are limited in the short term due to limited alternatives in Kenya, resistance to change, and high transition costs for businesses. As sustainable alternatives become available and the cost of transitioning decreases, carbon taxes can promote sustainable practices and reduce carbon emissions in the long run.

Since the carbon tax and the congestion charge are both cost-efficient, the government will benefit from increased revenue in the short run. The revenue generated from the traffic congestion charge and carbon tax can be used to finance other environmental initiatives, such as promoting cleaner energy sources and subsidizing the transition to more sustainable practices. However, at the right amount, the carbon tax and traffic fee revenue will decrease over time as companies and drivers transition to eco-friendly energy sources and reduce car usage.

These charges promote sustainability over the long run and reduce harmful environmental effects. This results in a cleaner environment, a potential reduction in diseases, and a decrease in air pollution for future generations.