Financing Africa’s Climate Goals: The Role of Fossil Fuel Subsidies and Environmental Taxes

The document assesses the feasibility of using domestic fiscal tools—explicit fossil fuel subsidies (EFFS) and environmental taxes—to close Africa's climate finance gap, which is estimated at 5–10% of GDP. While these tools could contribute 1.7% and 1.1% of GDP respectively, the author argues they are insufficient to fully close the gap. The paper recommends establishing independent fuel reserve authorities to manage price volatility and suggests a gradual, long-term withdrawal of subsidies to avoid social unrest and inflation. It highlights that Africa's climate finance is heavily dependent on foreign sources and public funding compared to global averages.

• Africa's climate finance gap is estimated to be between 5% and 10% of GDP, and domestic fiscal tools such as explicit fossil fuel subsidies and environmental taxes can only partially address this, contributing the equivalent of 1.7% and 1.1% of GDP respectively.
• Climate finance in Africa differs from global trends by having a much higher dependence on foreign sources (over 87% compared to 15% globally), a greater reliance on public rather than private sector financing (over 88% compared to 51%), and a higher proportion of funds dedicated to adaptation (44%) than mitigation (7%).
• Explicit fossil fuel subsidies (EFFS) in Africa are more than three times the global average, driven largely by natural gas and petroleum subsidies in North Africa and coal-fired electricity subsidies in South Africa.
• The demand for climate finance reported in Nationally Determined Contributions (NDCs) often differs significantly from the International Monetary Fund's implicit fossil fuel subsidy (IFFS) models; most low- and lower-middle-income African nations overstate their needs relative to IFFS, except for South Africa and North African countries.
• Sudden 'big-bang' removals of petroleum subsidies, as seen in Kenya in 2022 and Nigeria in 2023, have led to social unrest and inflationary surges, prompting governments to temporarily reinstate subsidies.
• Redirecting EFFS and environmental taxes could increase the domestic share of climate finance for key economies: South Africa's domestic supply could potentially rise from 38% to 50.5%, Nigeria's from 19% to 32.4%, and Egypt's from 28% to 33.1%.

APA

VAN GASS, C. (2025). Financing Africa’s Climate Goals: The Role of Fossil Fuel Subsidies and Environmental Taxes. South African Institute of International Affairs. https://saiia.org.za/wp-content/uploads/2026/02/SAIIA_OP_361_FinancingAfricasClimateGoals.pdf

Chicago

VAN GASS, CONRAD. Financing Africa’s Climate Goals: The Role of Fossil Fuel Subsidies and Environmental Taxes. South African Institute of International Affairs, 2025. https://saiia.org.za/wp-content/uploads/2026/02/SAIIA_OP_361_FinancingAfricasClimateGoals.pdf.

Wikipedia

{{cite report |last1=VAN GASS |first1=CONRAD |title=Financing Africa’s Climate Goals: The Role of Fossil Fuel Subsidies and Environmental Taxes |publisher=South African Institute of International Affairs |date=December 2025 |url=https://saiia.org.za/wp-content/uploads/2026/02/SAIIA_OP_361_FinancingAfricasClimateGoals.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{vangass2025financing, author = {VAN GASS, CONRAD}, title = {{Financing Africa’s Climate Goals: The Role of Fossil Fuel Subsidies and Environmental Taxes}}, institution = {South African Institute of International Affairs}, year = {2025}, month = dec, url = {https://saiia.org.za/wp-content/uploads/2026/02/SAIIA_OP_361_FinancingAfricasClimateGoals.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }