Taxing cooking gas rolls back gains in the energy sector

Kenya plays a leading role in Africa in fighting climate change by embracing renewable power sources be it wind, hydro, solar or geothermal. This is largely informed by increasing change in the energy sector where consumers, both at household and industrial levels, are conscious of climate change as well as the quality of energy they use.

Kenya’s international commitment under the Paris Agreement to lower carbon emissions by 32 percent by 2030, gives us a sense of urgency to shift to the forms of energy with low emissions. Use of traditional sources will not only increase carbon emissions but also aggravate deforestation and threaten Kenya’s ambitions to achieve 10 percent forest cover by next year.

Favourable government policies have also played a big role especially when it comes to fiscal interventions. A case in point is tax exemptions on solar, clean cooking stove products and cooking gas (liquefied petroleum gas).

In 2016, Kenya scrapped Value Added Tax (VAT) on cooking gas with the aim of encouraging more Kenyans to use LPG as a source of energy. The prices of LPG remained relatively affordable and consumption shot up resulting to improved health, educational and environmental outcomes.

Removal of VAT on LPG was one of the most successful environmental fiscal policies that has stimulated innovation and investment in the energy sector. Some of the effects of the policy is that use of LPG hit 320,000 tonnes in 2020. In 2012 for example, there were nine LPG filling plants in Kenya compared to about 105 plants today.

LPG is a fossil fuel whose net impact on climate change in settings where solid biomass fuel is the main alternative is neutral or beneficial. LPG use protects forests from being depleted for charcoal and firewood production and hence contributing to preserving the environment and capturing CO2 emissions. In addition, LPG combustion releases very low levels of short-lived climate pollutants (i.e. black-carbon and methane) in comparison to inefficient solid fuel stoves.

A 2020 report by the Kenya National Bureau of Statistics (KNBS) indicated that over a three-year period leading to 2019, use of LPG almost doubled from 151,700 tonnes to 312,000 tones. The 40 percent increase between 2018 and 2019 is an indicator of the effectiveness of the change in policy on LPG.

Reintroduction of VAT on cooking gas this financial year, therefore, poses a threat not only to livelihoods, but also to health, the environment and the energy sector. The move ignores internalisation of external costs of pollution and natural resource use at the same time reducing research and development in the sub-sector. In a country where over 70 percent of the population depend on wood and charcoal as sources of energy, reintroduction of VAT on LPG resulting to increased prices for consumers will lead to a natural fallback on wood, charcoal and kerosene because these are more affordable and accessible even in smaller quantities. The situation is compounded by a ravaging Covid-19 pandemic, which has depressed incomes for most households.

The International Energy Agency (IEA) and the World Health Organisation (WHO) have consistently recommended LPG as a solution to tackling household energy-related pollution.

LPG also has the potential to pull communities out of poverty as it improves the standards of living as well as creation on jobs. As a clean energy source, cooking gas had gained traction not only because of its potential for low emissions but also on account of being generally clean and decent. It lights instantaneously, burns cleanly, is odourless and it keeps people’s kitchens relatively clean in comparison to wood or kerosene. This is beneficial to one’s health as more common respiratory ailments are linked to the kind of energy used at the household level.

LPG is undoubtedly one of the few available and clean cooking options that can achieve significant scale and it is the fastest proven scalable solution presently available. To achieve global recommendations for rapid transition to clean cooking energy in accordance to SDG 7 and to reduce household air pollution, LPG is an essential step in the short-medium term on the way to even cleaner renewable energy for cooking (e.g. solar PV/renewable grid electricity), which is currently a long way from achieving sufficient scale especially when it comes to rural and peri urban areas.

The idea of re-introducing VAT should be reconsidered as it will reverse all the gains achieved in the clean cooking sector. Instead of increasing taxes, the government needs to take the lead in providing solutions to deliver clean energy that is affordable and attracts investments.

This article was first published in Business Daily

LEAVE A REPLY

Please enter your comment!
Please enter your name here