Paying for our Climate: Tax as a tool for mopping up finance & building resilience

By John Attah

Just some weeks back both traditional and new media went  agog with the news of Lekki, a high brow area of Lagos Island being flooded. There were different stories of people wailing and crying over their properties worth millions of naira, luckily no casualty was recorded. There was a popular story in the grapevine, of a certain white man, also affected but overcame the flood  by  paddling his way to dry land in a fancy canoe. Judging by this event, whether climate change is real or not cannot be debated  in any social strata of the Nigerian society.

Like every other country in the world experiencing climate variability, Nigeria is not an exception as there is prolonged dry spells leading to grave drought in the northern part of the country and chaotic floods ravaging the South of Nigeria. The effects of climate change are unbiased as it affects the rich, poor, young, old, women, children and men. It is then of utmost importance that we take urgent actions to combat climate change and its impact  as a nation if we are to ensure we live in sustainable cities and communities.

During a project tour in summer 2015, I met with some Danes working for the Danish ministry of environment and it was an exciting three hours of discussion. We sipped coffee as they walked me and my team members through their plans to build the resilience of cities in the country that were identified to be vulnerable to the effects of climate change. The projected budget for the projects left me in awe but surprisingly they had gone half way implementing these project as they hoped to achieve the sustainable development goals and agenda 2030.

The financing required for an orderly transition to a low carbon, climate resilient global economy can be counted in the trillions, not billions. The World Bank estimates that over the next 15 years, the world will require about $90 trillion in new infrastructure – most of it in developing and middle-income countries while the International Energy Agency estimates that limiting the rise in global temperature to below 2 degree Celsius by the end of the century will require an average of $3.5 trillion a year  in energy sector investments until 2050.

Estimates of the level of investment needed by developing countries varies considerably, it is suggested that these may lie between $180 – $450 billion per year for mitigation and $30 – $100 billion per year for adaptation.  Developed countries committed to a goal of mobilizing jointly $100 billion a year by 2020 to address the needs of developing countries, recognizing both that some countries have contributed to the causes of climate change more than others and that countries have different capacities to financially contribute towards climate objectives.

The resources required by developing countries is perhaps around four times that which developed countries are aiming to provide. Delivering on the Cancún Agreements’ goals for climate finance suggests that there will be need to significantly scale up today’s levels of support for climate action to address both adaptation and mitigation in developing countries between now and 2020. While estimates of the amount of incremental investment capital required vary widely, there is broad agreement that the majority of this capital will need to come from the private sector – World Economic Forum in collaboration with Bloomberg, New Energy Finance 2010.

According to the World bank, Nigeria needs approximately $140 billion to fight climate change and measures to adapt to climate change already built into the climate system could be $0.7 billion to $1.2 billion per year over the next 40years. The Overseas Development Institute stated that Nigeria has leveraged $63 million of multilateral funds for climate change projects. The costs of responding to climate change in Nigeria will be significant. Climate change could increase poverty headcount by 100 million in 2030 says the World Bank.

Making the right choices in favor of infrastructure that is climate resilient and locks in low carbon development is critical and urgent. Action now will avoid huge costs later. Climate finance can come from a wide range of both private and public sources and can flow domestically or internationally. There is and will continue to be competition for scarce international climate finance resources, international resources will need to be complemented by domestic resources.

Taking a look at Nigeria’s level of green house gas emissions, its vulnerability to the impacts of climate change and the amount of funding provided to developing countries as a whole, this is less than Nigeria might need to strengthen its resilience against climate change. Tax presents an excellent opportunity to increase the flow of climate finance for Nigeria in the long term and is a sustainable means of paying for our climate. Taxes contribute an average of 10% to 20% to the Gross Domestic Product (GDP) of countries in West Africa. Three countries in West Africa, Ghana, Nigeria and Senegal losses $5.8 billion to grant of corporate tax incentives.  Under the Nigerian Liquefied Natural Gas (NLNG) Act, the country lost $3.3 billion to tax incentives. This amount of money would have urgently met the need of a country where 110 million people live in extreme poverty and more than half of the population are vulnerable to the impacts of climate change.

In a country marked by massive inequalities, and more than 60% of the population living on less than one dollar a day, a massive tax break was enabled by a unique law passed in 1990. The tax holiday extension meant $2 billion of revenue was lost, and the rolled over allowances, where the same tax was effectively forgone twice, a further $1.3 billion. Addressing how much this tax breaks cost Nigeria is particularly necessary and overdue as there is a proposed bill to amend the country’s Companies Income Tax Act, LFN 2014. The new amendment to the tax law, if passed, would allow more companies to obtain 10 years tax holiday in Nigeria. The opportunity cost of tax incentives and restrictive tax treaty provisions in terms of government revenue, including its utilization for governance are enormous. Tax revenues may be preferable to borrowing as a means of raising public finance. For a nationally driven sustainable development, tax must be properly harnessed.

The government must subject treaty negotiation, ratification and impact assessments to far greater public scrutiny and also take a pro-development approach to the negotiation of tax treaties by adopting the UN model tax treaty as the minimum standard. Concessions and waivers should be stopped if due process is not followed and there is no proper identification of genuine businessmen and women through relevant associations. Multinational companies should be transparent about their interactions with governments of developing countries regarding treaty terms and refrain from lobbying governments to conclude tax treaties that are particularly advantageous to their own business interests, but are of limited or unclear benefit to the developing country concerned.

The period of tax holiday should be reduced from five years to three years for the twenty two Oil and Gas companies earlier granted pioneer status incentive. The Industrial Development (Income Tax Relief) Act which was last reviewed in 1971 should be reviewed in the light of changing economic circumstances. Climate change cannot be addressed unless developed and developing countries alike invest heavily in low-carbon technologies and climate-resilient practices. Access to finance has therefore become central to Climate Finance for limiting emissions and promoting sustainable green development.

 

About the  Author

Mr. John Attah is a food and climate justice activists studying climate change and food security at the post graduate level. He has years of experience working in development with both local and international development organizations.

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