Draft Green Fiscal Incentives Policy Framework: What it means for the business ecosystem in Kenya

  • 3 Mar 2023
  • 3 Mins Read
  • 〜 by Abigael Ndanu

As sustainability becomes increasingly popular among business stakeholders (such as investors), countries are realizing that the sustainability position of their constituent companies has a direct effect on their socio-economic status. It is in their interest to provide policies and programmes that encourage the adoption of sustainability practices by businesses.

One of the ways that countries are doing this is through establishing Green Fiscal Incentives Policy Frameworks that provide subsidies and incentives to shape economic sectors and the activities of institutions, businesses, and individuals. 

Green fiscal policies, therefore, play a critical role in addressing global challenges and accelerating the transition to an inclusive green economy. The policies make use of fiscal and budgetary tools to address global challenges and environmental issues such as climate change, pollution, congestion, energy, waste, biodiversity protection, overfishing, agriculture, water, extractives and minerals, and sustainable forestry. 

According to the UN Environment Programme (UNEP), such policies can support several Sustainable Development Goals (SDGs) and the Paris Climate Agreement by reflecting externalities in prices, aligning government expenditures with environmental goals, raising revenues, and creating fiscal space for green investment and broader fiscal reforms.

There has been great progress in this area with more and more countries developing their Green Fiscal Incentives Policy Frameworks. In addition, UNEP, the International Monetary Fund (IMF), and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) partnered to establish the Green Fiscal Policy Network that was launched in 2014 to promote knowledge sharing and dialogue on green fiscal policies.

The Network works with several associated partners to enable wider outreach and knowledge development through regional and international conferences.

Kenya is the latest country to join this group of countries as the National Treasury and Planning ministry recently published a draft Green Fiscal Incentives Policy Framework to steer the economy toward a low-carbon climate-resilient green development pathway through diverse fiscal and economic mechanisms.

The policy framework addresses a wide array of areas including policy goals and guiding principles, situational analysis of green fiscal reforms across key sectors in Kenya, and green fiscal policy interventions. 

The framework proposes key policy tools that include the use of carbon tax, rebates, subsidies, tax exemptions, ecological fiscal transfers, research grants, concessional loans, guarantees, interest rate subsidies, and the creation of a green bank among others. 

In addition, it has also identified specific fiscal policies and actions required for specific sectors. Some of these include disaster risk management, water and the blue economy, manufacturing, waste management, electricity, and transport, among others. 

All these policies will have revenue implications and will shift production, investment, and consumption patterns toward low-carbon climate-resilient, and environmentally sustainable practices and trends. Businesses must, therefore, proactively position themselves to mitigate threats and earn the benefits that will arise during the implementation of the framework.

This requires that businesses should carry out sustainability assessments to identify gaps in their business operations and supply chains. Here are some sustainability assessment tools that businesses can leverage to achieve this:

  • Risk assessment – Classically, human health risk assessments involve: hazard identification, dose-response assessment, exposures assessment, and risk characterization (NRC 1983, 1994, 2009; EPA 2005). On the other hand, ecological risk assessments evaluate the likelihood that ecological effects result from environmental exposures to chemicals and other stressors (EPA 1998a). 

An important consideration in any sustainability action is whether environmental or human health will be better or worse off if an action is taken, both near term and long-term.

  • Life-cycle assessment – is the analysis of environmental impacts from the production, use, and eventual disposal of a product.
  • Benefit-cost analysis – seeks to assess the change in welfare for each individual affected by a change in policy. Welfare is measured in common monetary metrics and the welfare aggregate for a set of alternatives is compared in decision-making. 

This sustainability analysis is also keen on the weighting (discounting) of benefits and costs that accrue to future generations as compared with those that accrue to the current generation (intergenerational equity).

  • Sustainability impact assessment – analyse the probable effects of a particular project or proposal on the social, environmental, and economic pillars of sustainability. Companies should take full account of the three sustainable development dimensions and include any cross-cutting, intangible, and long-term considerations of their policies and programmes (OECD 2010).

Within the sustainability assessment, trade-off and synergy analyses are conducted to maximise synergies and minimise conflicts among the three sustainability pillars and/or the 17 SDGs. 

  • Environmental justice tools – analytic methods used to determine whether communities are experiencing unusually high environmental and health burdens and evaluate the sustainability of communities. 

After the analysis, map out the changes that you need to put in place and develop an action plan. As John C. Maxwell said, “If you’re proactive, you focus on preparing. If you’re reactive, you end up focusing on repairing.”

We encourage you to prepare!

P.S. – Please note that the list shared is not comprehensive and you are advised to seek the services of a Sustainability expert to help you. Oxygène will be happy to support you.