Advancing Climate Action Through Environmental Tax: Exploring Economic Growth Mediation and SDG 13 Achievement in Africa

Abstract

The escalating levels of greenhouse gas (GHG) emissions pose a significant threat to environmental sustainability in Africa. In line with the Paris Agreement and the UN Sustainable Development Agenda, African economies aim to cut their GHG in half by 2030 and reach net zero emissions by 2050. To determine whether environmental tax can effectively lower GHG emissions in Africa, this study employs panel data from 23 African nations covering the period from 1994 to 2020. Using Method of Moments Quantile Regression (MMQR) techniques, the analysis fully accounts for the heterogeneity within the dataset. This study also examines the mediation mechanism between environmental tax and GHG emissions, utilizing bank credit as a proxy for economic growth. The study further employs the IV‐2SLS, PSM, and the DFE estimation approaches to account for endogeneity issues. The findings reveal that environmental tax increases economic growth (measured by bank credit) in nations with medium to high levels of GHG emissions. Furthermore, economic growth fully mediates the relationship between environmental tax and GHG emissions. These findings are specific to methane‐intensive sectors and may not fully generalize to CO 2 ‐dominated economies. To maximize the efficacy of environmental tax policies, governments must identify and mitigate barriers such as high levels of corruption that hinder the tax's impact on reducing emissions. Tailored strategies that address these challenges can enhance the effectiveness of environmental taxes, contributing significantly to the achievement of Sustainable Development Goal 13 (Climate Action) in Africa.