Environmental Tax Effect on Renewable Energy in Sub-Saharan Africa

The effectiveness of environmental tax (ET) in addressing environmental and climate-related challenges has been the most debatable issue among policymakers. Whether ET can effectively promote renewable energy remains an open question, especially in Africa, where most nations rely heavily on fossil fuel export revenues. This study, therefore, investigated the impact of ET on renewable energy production (REP) and consumption (REC) in Sub-Saharan Africa (SSA). To this end, the study implemented the dynamic common correlated effects (DCCE) model on panel data of 22 countries from 2000 to 2023. Considering the interconnection between REP and REC, the findings indicate that ET hinders REC but improves REP in the long term. In addition, the moderating effect of corruption is negative for both REC and production, possibly suggesting the driving role of corruption in misallocating tax revenues with detrimental effects on renewable energy producers and end users. Moreover, although there is evidence of Granger causality from ET to REP, the ET does not cause REC, while there is no predictive effect between REC and REP in either direction. Consequently, in order to boost accountability and transparency in the distribution of tax revenue and guarantee that funds adequately support investments in renewable energy, SSA governments and policymakers should concentrate on strengthening governance and anti-corruption measures. JEL: H23, Q4, D73, C23