NAIROBI, Kenya — The World Bank is calling on the Kenyan government to introduce a carbon tax on imported fuel, a move it says could generate up to Sh40.5 billion annually while accelerating the country’s transition to a green economy.
The proposal is part of the Bank’s newly released 2025 Kenya Public Finance Review, which outlines fiscal reforms to support climate goals under the Paris Agreement and align with Kenya’s Medium-Term Revenue Strategy.
“Rather than implementing vehicle taxation, taxing fuels at the point of entry into the country would also achieve its intended objectives and could be adapted to Kenya’s current implementation challenges,” the report says.
Tax Design and Economic Impact
The World Bank recommends gradually introducing the tax, targeting $25 per tonne of CO₂ by 2030.
This would generate new revenue equivalent to 0.25% of Kenya’s GDP, or around Sh40.56 billion annually.
However, the Bank acknowledges that such a tax could raise fuel prices, driving up transport and basic goods costs, with the poorest households feeling the hardest pinch.
“Poorer households spend proportionately more on transport than wealthier households do,” the report notes.
To cushion the vulnerable, the Bank proposes a social safety net funded from the tax revenue.
Specifically, it recommends that 30% of the earnings be allocated to cash transfer programmes for low-income households.
These transfers would directly support families affected by higher living costs and ensure the reform does not derail poverty reduction goals.
Green Transition and Market Correction
Beyond revenue generation, the World Bank argues the carbon tax would improve economic efficiency by internalising the cost of carbon emissions, which currently make fossil fuels seem cheaper than they truly are.
By doing so, the tax would help correct market distortions and encourage firms and consumers to adopt sustainable energy practices.
The report also acknowledges some of Kenya’s recent steps, such as the reduction of VAT exemptions on fuel, as environmentally conscious policies. Still, it stresses that more decisive action is needed.
“A dedicated carbon tax presents a timely and strategic opportunity,” the Bank concludes.
