Green growth: Senegal studies the introduction of a carbon tax

In a forecast economic report, the Department of Forecasting and Economic Studies (Dpee) models the impact of climate change on the country’s activity. The results are clear: without an adaptation policy, GDP could fall by nearly 9% by 2050. The study explores ways to finance a green transition, recommending in particular the gradual introduction of a carbon tax and targeted subsidies for private investments.

Senegal, like many African countries, is bearing the brunt of the consequences of global warming, despite a marginal contribution (only 0.02%) to global greenhouse gas emissions. Extreme phenomena—recurring floods, advancing seas eroding the coastline, and persistent droughts—directly threaten the foundations of its economy, particularly the key sectors of agriculture, fishing, and tourism.

Faced with this increased vulnerability, the Directorate of Forecasting and Economic Studies (Dpee) has made public a major prospective study entitled “What strategies for mobilizing resources for green growth in Senegal”. It aims to precisely define the financing levers for growth that is both green and resilient.

Public investment and budget reallocation

The conclusions of this modeling work, based on a sophisticated economic model, known as “Megc Vert”, are particularly alarming.

According to the reference scenario, in the total absence of adaptation and mitigation policies, cumulative climate damage could lead, on average over the next 25 years, to a substantial drop in GDP of 8.66%, a contraction in household consumption of 9.33% and a decline in private investment of around 11.19%. The primary sector, more particularly agriculture, would pay the heaviest price, with a potential drop in production exceeding 18%, due to the drop in rainfall and heat stress.

Nevertheless, the study convincingly demonstrates that a reversal of the trend remains possible thanks to proactive public intervention. An alternative scenario, integrating a rigorous adaptation policy financed by a reallocation of current public expenditure, would not only make it possible to cancel these losses in the medium term, but also to generate, by 2050, a slight growth in GDP (+1.27%) and a rebound in private investment (+2.23%).

This approach, although effective, nevertheless requires the mobilization of considerable public funds, the collection of which inevitably comes up against the country’s structural budgetary constraints. It is precisely at this stage of the reflections that the report’s flagship and innovative proposal comes into play: the gradual and considered introduction of a carbon tax.

Calibrated to ultimately reach a reference price of 60 US dollars per tonne of CO2 and evolving gradually over a period of 10 years, this targeted environmental taxation could, in the long term, finance approximately 7.4% of the total climate needs identified by the country.

Economic simulations indicate that such a measure, if meticulously designed, can support overall economic activity by financing effective adaptation policies while limiting the inflationary impact on household purchasing power. Thanks to the public investments made possible by these new revenues, real GDP would increase by 1.17% on average over the period. At the same time, and in a complementary manner, to reduce greenhouse gas emissions at source, the study strongly argues in favor of direct and targeted incentive measures aimed at the private sector. A scenario testing the introduction of a 10% subsidy on the acquisition of green capital goods in the strategic sectors of transport and electricity production suggests particularly significant results.

Such an incentive policy could reduce the emission rate by almost seven percentage points by 2035 and at the same time boost private investment by more than 3%. The initial cost to public finances, although real and measurable, would be partially offset by the positive economic dynamics induced and the broadening of the tax base.

A regulatory and financial framework to be perfected

In addition, the report’s in-depth institutional diagnosis lucidly highlights the persistent obstacles hindering the development of robust green finance in Senegal. Among these obstacles are particularly the persistence of subsidies for fossil fuels, the prohibitive initial costs of renewable energy projects, a lack of technical expertise within financial institutions and the glaring absence of innovative market instruments, such as tradable carbon certificates. The success of a Senegalese green transition therefore requires a joint and coordinated effort: rationalizing counterproductive subsidies, sustainably strengthening the capacities of financial actors and diversifying dedicated fund mobilization instruments.

This forecast study delivers a clear and urgent message to Senegalese political and economic decision-makers. Climate inaction or an overly timid response would have a prohibitive economic and social cost, much higher than that of action. To remedy this and build a resilient development trajectory, a balanced combination of innovative public financing – such as a progressive carbon tax – and targeted incentives for the private sector appears not only necessary, but also economically virtuous and realistic.

Pathé NIANG