Two birds and one Pigouvian stone
About the tax revenue problems in Nigeria, there seems to be something to look forward to. The government has announced a new policy, one that kills two birds. Two days ago, the Director General of the National Council on Climate Change disclosed the launch of the carbon tax policy in Nigeria, which would keep carbon emissions in check and raise government revenues.
The policy is in line with the recently approved Energy Transition Plan, which is simply a plan to use natural gas as a transition energy source to clean energy. The policy framework would look something like the government setting a price to be paid by carbon emitters for each ton of carbon emitted. Plans are also in place to establish a carbon budget, that is, in terms of how much carbon can be emitted by an entity. Exceeding this would attract penalties.
The carbon pricing system is based on an interesting economic concept called the Pigouvian tax. It is a tax levied on businesses to help pay for the effects of negative business practices like carbon emissions. The new policy in Nigeria is in accordance with the provisions of the climate change act of 2021 and serves as a financial tool to help stand against climate change.
So what?
The National Council on Climate Change would develop this policy’s framework. Not just that, but also a framework for carbon trading and a climate change fund. The carbon tax would help the government increase its revenue and reduce the damage done to the environment by providing a disincentive for using carbon-emitting products.
However, the biggest benefit the scheme will provide Nigeria, if implemented effectively, will be foreign exchange. African countries are the lowest carbon emitters in the world and yet are the most affected by it. So, the scheme’s development will allow high-emitting countries to offset their emissions by purchasing carbon credits (a tradable permit or certificate representing the right to emit a certain amount of greenhouse gas) from Nigeria while providing funds needed for Nigeria to achieve its 1.6 trillion US Dollar transition goal. It also positions Nigeria as a key player in the drive towards a sustainable future on the African continent.
What else?
Did the cash scarcity hold back your valentine celebrations? We hope not.
Over 200 million people in Nigeria struggle to hold cash. The recent policy by the Central Bank of Nigeria (CBN) of redesigning some naira notes intended to address counterfeiting, reduce money in circulation and make monetary policies more effective has been poorly implemented and caused more havoc for the people.
The Nigerian economy is largely informal, with many people in the low-income bracket. Many individuals rely heavily on cash, and many others do not even have access to banking facilities. The move by the CBN to reduce reliance on cash and foster digital banking hit people hard, especially because of how much of people's petty transactions and daily activities rely on cash.
Part of the havoc includes the slowed-down activities of businesses, including farming, as rural farmers wait longer to get the cash they need to facilitate the processes.
From our perspective, a huge hindrance in the implementation of the policy is the number of processes that go on without banking facilities and technology. To have these processes onboarded into the banking system or the use of technology would not take a few days especially because most people involved in these transactions are not financially literate or included.