Kenya’s road to becoming a regional leader in climate action is marked by an ambitious new policy instrument: the carbon tax. As the country confronts the mounting challenges of climate change—from prolonged droughts to erratic rainfall and food insecurity—the government is looking to realign economic incentives and shift behavior by placing a price on carbon emissions. The proposed amendment to the Excise Duty Act paves the way for this transition, establishing a “Carbon Excise Duty” to be levied on all fossil fuel products entering or being refined in the country. However, enacting the law is only the first step. Implementation is where the vision is either realized or falters—and Kenya is crafting a bold, multi-stakeholder approach to make it work.
Once passed by Parliament, the legislation will hand the Kenya Revenue Authority (KRA) the authority to collect carbon taxes on fossil fuels. The process will begin at the port of entry—primarily the Port of Mombasa—where imported fuels will be subject to inspection and taxation. Oil marketing companies (OMCs) will need to declare the type and volume of fuel being imported, and the carbon content will be automatically assessed through the upgraded Kenya TradeNet System. The system will integrate seamlessly with customs and excise modules to ensure real-time tax calculation and collection. Any inconsistencies or misdeclarations will trigger an automated alert for customs officers to investigate.
Fuel that is refined domestically, such as at the Kenya Petroleum Refineries Limited (KPRL), will follow a parallel process. Refineries will calculate the carbon content based on output data and submit it to KRA officers stationed at the site. The tax will be collected before any fuel is released into the national distribution network. The Energy and Petroleum Regulatory Authority (EPRA) will issue movement permits to monitor the flow of fuel from refinery to depot, ensuring no product escapes taxation. This system of permits will also assist in reconciling the fuel volumes declared with the carbon excise paid, adding a layer of verification to the system.
To ensure consistent application, the National Environment Management Authority (NEMA) will certify the carbon content of different fuels. These certificates, grounded in internationally recognized emission factors and local scientific data, will provide the tax benchmarks for each type of fossil fuel—be it diesel, petrol, kerosene, or aviation fuel. The certificates will be publicly accessible through an online emissions database, enhancing transparency and allowing businesses to forecast their tax obligations with clarity.
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The carbon tax will be collected at multiple points along the supply chain. Beyond the point of import or refinery, oil marketers and fuel distributors will be required to submit monthly reports detailing the volumes of fuel sold and remit carbon tax accordingly. Compliance will be monitored using GPS tracking on fuel trucks and volumetric sensors at depots, offering real-time insights into the movement and sale of taxed products. These digital tools will help reduce opportunities for evasion and ensure integrity in reporting.
Recognizing that abrupt taxation could destabilize the economy, Kenya is opting for a phased approach. The carbon excise duty will start at a modest rate—likely around Sh2 per liter—before gradually increasing over a five-year period. This will give consumers, businesses, and industry players time to adjust their practices, upgrade technologies, and explore cleaner alternatives. During the transition, the government will offer targeted relief to sectors that are particularly vulnerable to rising fuel costs but are making credible efforts to decarbonize. These include the cement, manufacturing, and aviation sectors, which may apply for temporary exemptions or reduced rates subject to approval by a Carbon Relief Committee.
The revenue collected from the carbon tax will be channeled into a ring-fenced Green Transition Fund. Unlike traditional tax revenue that merges into the general budget, this fund will be strictly dedicated to climate and energy transition projects. A governing board comprising representatives from the National Treasury, civil society, private sector, and academia will oversee the fund’s allocation. Eligible initiatives will range from investing in public transport infrastructure and renewable energy to providing incentives for electric vehicles and funding cash transfers for low-income households affected by fuel price increases. For example, matatu operators shifting to electric mobility will qualify for rebates, while vulnerable communities may receive quarterly stipends to cushion against inflationary pressures caused by fuel taxation.
Public buy-in is critical for the success of the carbon tax. The Ministry of Environment, in collaboration with county governments and community-based organizations, will launch a nationwide awareness campaign. The campaign will explain what the carbon tax is, why it’s being implemented, and how the revenue will be used. Materials will be produced in Kiswahili and other local languages to ensure accessibility, and community forums will provide platforms for engagement and feedback. Building trust and clarity will help dispel misinformation and make the policy more socially acceptable.
An important pillar of the implementation plan is continuous monitoring and evaluation. A new Carbon Tax Monitoring and Evaluation Unit will be set up within the Ministry of Finance. This unit will analyze data on fuel use, carbon emissions, inflation, and economic impact, and produce quarterly reports. It will also make recommendations on whether tax rates need adjustment or whether new fuel types should be added to the tax base. The unit’s findings will be shared with Parliament and the public to ensure transparency and adaptability.
Recognizing the risk of cross-border smuggling and market distortion, Kenya is also engaging in dialogue with neighboring countries under the East African Community (EAC). These talks aim to harmonize carbon pricing frameworks and enforcement strategies to prevent fuel arbitrage. Should countries like Uganda and Tanzania adopt similar carbon tax structures, the region would move closer to a unified environmental fiscal policy, reducing opportunities for leakage and strengthening collective action against climate change.
In the end, implementing a carbon tax in Kenya is not just about raising revenue—it is about signaling a shift. It is a reimagining of how Kenya powers its economy, how it values its environment, and how it plans to grow sustainably. While challenges will certainly arise, from technical glitches to political resistance, the architecture being built reflects a serious commitment to equity, accountability, and long-term impact. If successful, Kenya’s carbon tax could become a model for the continent—proving that climate responsibility and economic development can move hand in hand.
