ISS modelling shows that carbon taxing can have major benefits if all nations contribute based on their income status.

As the world faces a climate crisis driven by carbon emissions, the need for accountability, especially from major polluters, is paramount. Carbon pricing mechanisms that include carbon tax have been successfully used for decades by several European countries, and offer a promising solution.

Carbon taxing is a direct and transparent way to discourage pollution by imposing a fee on each tonne of emitted carbon. It reduces harmful emissions and provides revenue for renewable energy projects and mitigating climate change impacts.

Yet, despite the backing of global financial institutions and African leaders, few countries globally – including the major polluters – have adopted a carbon tax. The cost of not doing so will be high for developed and developing countries alike.

In 2023, the world recorded its highest atmospheric carbon dioxide (CO₂) levels yet, at 424 parts per-million (ppm). The Intergovernmental Panel on Climate Change Sixth Assessment Report states that atmospheric concentrations in 2050 should be around 330 to 400 ppm to keep the 1.5°C ambition alive. However, current estimations are that the world will see atmospheric levels of 515 ppm by 2050, well on track to a 3°C warmer world by the end of the century.

According to the International Institute for Applied Systems Analysis, to have a 50% chance of keeping global warming within 1.5°C, the world’s remaining carbon budget as of 2023 was 250 gigatonnes of CO₂. With the world’s current emission at 36.1-billion tonnes annually, this budget will be depleted before 2030.

Africa produces less than 5% of global fossil fuel emissions but suffers disproportionately from climate change impacts. This disparity must be recognised, and international responses must be guided by the principle of common but differentiated responsibilities advocated by the United Nations Framework Convention on Climate Change.

Africa needs room to pursue its development goals. Modelling done by the Institute for Security Studies’ (ISS) African Futures and Innovation (AFI) team estimates that Africa will produce up to 13% of global carbon emissions from fossil fuels in 2050, and 22% by 2063.

By comparison, the world’s top 10 emitters – China, the United States (US), India, Russia, Japan, Indonesia, Iran, Germany, Saudi Arabia, and South Korea – are responsible for 69% of global fossil fuel emissions and generate 60% of the world’s GDP.

Africa must be supported by those responsible for the crisis. Implementing a tax on carbon dioxide emissions when burning fossil fuels in major emitting countries could incentivise reductions, promote sustainable practices and generate revenue for adaptation and mitigation projects.

Institutions like the World Bank and International Monetary Fund have backed a global carbon tax framework. Last year the African Union also signed the Nairobi climate declaration that underscored the need for multilateral finance reforms. It proposed establishing a global carbon taxation regime to provide dedicated finance for climate-positive investments.

Yet despite international support, only 38 carbon tax initiatives have been implemented globally, covering a meagre 6% of global greenhouse gas emissions. Of the world’s top 10 emitters, only Japan has adopted a carbon tax. Significant emitters like the US, Russia, India, Iran, and Saudi Arabia remain cautious. While subnational emission trading systems exist in some US states, China has adopted the world’s most extensive systems.

Concerns abound that this fragmented approach could lead to carbon leakages, as industries have been known to relocate their production to regions with less stringent environmental regulations.

Chart 1: CO2 emissions per country, 2023-2063

The AFI team has modelled four distinct carbon tax scenarios, each offering valuable insights into potential approaches with varying impacts and implementation strategies (Chart 2).

In the first (Wealthy Pay), the responsibility lies solely with wealthy nations, which are held accountable for historical emissions. A second scenario (Polluters Pay) shifts the financial burden to the world’s top 20 polluters. In the third scenario (Everyone Pays), a single carbon price per tonne is uniformly applied to all countries. Last, Differentiated Pay shares responsibility by assigning countries differentiated responsibilities based on income status.

Of these scenarios, Differentiated Pay is particularly promising. Leveraging a carbon pricing mechanism ranging from US$25 to US$100 based on a country’s income and emission profile, this scenario promises to reduce emissions by 15% by 2050 and 25% by 2063, compared to the Current Path forecast.

Chart 2: CO2 emissions from fossil fuels in different carbon tax scenarios, 2023-2063

However, the AFI forecast shows that a carbon tax alone won’t be enough, as the atmospheric carbon concentration will still be above 500 ppm in 2050. Additional natural and artificial sequestration processes will be needed to capture accumulated atmospheric carbon dioxide.

While a carbon tax is just one of several necessary measures, its implementation globally by developed and developing countries is paramount. African countries must participate in a unified approach that applies equitable distribution and shared responsibility.

A global carbon tax framework offers several benefits. First, it provides a clear economic signal that internalises the actual cost of carbon emissions. Second, the revenue generated can be reinvested in global climate adaptation, mitigation and sustainable development.

Developing nations can use the revenue they generate to address pressing domestic needs. Contributions from developed countries can be directed towards climate action and sustainable development initiatives. This approach allows each nation to tailor its response according to its unique circumstances, fostering domestic progress and international cooperation.

The third benefit is enhanced transparency and predictability, facilitating international cooperation and emissions trading schemes.

Carbon pricing is a crucial tool in addressing climate change. However, it must be part of a comprehensive strategy that includes investments in renewable energy, sustainable infrastructure, and adaptation measures to build resilience to climate change's impacts.

Implementing a global carbon tax framework has its challenges. Potential social and economic effects on vulnerable communities of shifting to a low-carbon economy must be addressed. However, by embedding fairness and efficiency, a global carbon tax can become a cornerstone of effective climate governance – as long as Africa is active and the world’s top polluters pay their bills.

Written by Alize le Roux, Senior Researcher & Jakkie Cilliers, Head, African Futures and Innovation; ISS Pretoria

A version of this article was first published in Africa Tomorrow, the ISS African Futures and Innovation blog.