The Nonlinear Effect of Environmental Taxes on Carbon Emissions in Kenya, Uganda, and Rwanda

Abstract The study examined whether environmental taxes reduce carbon dioxide emissions in Kenya, Uganda and Rwanda during 2001–2022. Sub‑Saharan Africa is highly vulnerable to climate change, and East Africa’s emissions have risen as growth, industrialisation and transport expansion increased reliance on fossil fuels. Pigouvian theory implies that taxes internalise pollution costs, but their effectiveness depends on the tax structure. Using STIRPAT‑based static panel models with OECD and World Bank data, total and disaggregated environmental taxes were analysed alongside GDP per capita, energy intensity and urbanisation as the control variables. The panel covers only three countries across a 22-year span. The results revealed nonlinear effects: total, energy, and transport taxes reduce emissions up to turning points near 3.45%, 2.1–2.4%, and 0.75–0.88% of GDP, respectively. Pollution taxes are ineffective until revenues exceed roughly 0.024–0.097% of GDP. Higher income, energy intensity and urbanisation were found to raise carbon emissions. Energy taxes comprise the largest share of environmental taxes, and Kenya has the highest tax share and CO2 emissions. The study concludes that well‑designed taxes can mitigate emissions but only up to category‑specific thresholds; beyond these thresholds, additional taxes yield diminishing or counterproductive effects. Thus, policymakers should consider specific environmental taxes rather than treating them as a whole. JEL: Q54; Q58; H23; C23; O55.