Fuel prices in Kenya could soon rise if the government adopts a new carbon tax proposal backed by the World Bank. The international lender is recommending that Kenya introduce a tax on imported fuels at the point of entry, targeting carbon dioxide emissions as part of efforts to strengthen public finances and meet climate change commitments under the Paris Agreement.
According to the World Bank, the carbon tax could raise approximately Sh40.5 billion annually, about 0.25% of Kenya’s GDP, by 2030 if phased in gradually to a rate of $25 (Sh3,221.75) per tonne of CO₂ emissions. The proposal is part of a joint fiscal and environmental agenda to help Kenya manage public debt and reduce greenhouse gas emissions.
“Carbon taxation can help Kenya meet its commitments under the Paris Agreement and further curb climate change externalities,” the World Bank said in a recent report.
Fuel Tax Instead of Vehicle Tax
Unlike previous suggestions of increasing taxes on vehicles, the World Bank recommends taxing fuels directly. The report argues that fuel taxation more accurately captures the “true social cost” of emissions, including air pollution and health impacts, and is better suited to Kenya’s administrative capabilities.
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The tax would apply at the point of entry, such as ports or refineries, simplifying enforcement and improving transparency. This method is also expected to minimize loopholes in the current fuel taxation system.
Revenue and Emissions
Kenya is under pressure to implement fiscal consolidation measures due to rising public debt and widening budget deficits. The proposed carbon tax could help plug these fiscal gaps by offering a new, reliable revenue stream. It aligns with Kenya’s Medium-Term Revenue Strategy, which already points to carbon taxation as a viable tool. On the environmental front, the tax aims to reduce fossil fuel consumption, which would help lower Kenya’s carbon footprint.
Impact on Fuel Prices and Cost of Living
Fuel prices in Kenya are already high due to multiple taxes and levies. For example, as of early 2025, taxes account for more than Sh80 on every litre of petrol, which retails at around Sh176. A carbon tax would add another layer of cost, likely pushing pump prices higher.
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This could have a cascading effect on inflation. Diesel is widely used in transport, power generation, and agriculture, while kerosene is essential for household cooking and lighting. Any price increase would affect the cost of goods and services, disproportionately impacting low-income households.
To ease the burden, the World Bank suggests allocating up to 30% of the tax revenue to support vulnerable groups, although this recommendation remains speculative and would depend on Kenya’s implementation framework.
Paris Agreement
The Paris Agreement, adopted in 2015, commits nations to limit global warming to well below 2°C, with efforts to cap it at 1.5°C. Carbon pricing, including taxes and emissions trading systems (ETS), is a widely recognized tool for achieving these goals by incentivizing emission reductions.
Globally, carbon pricing mechanisms such as taxes and emissions trading schemes now cover about 24% of total emissions. However, most existing carbon prices are still below levels needed to meet climate goals. The High-Level Commission on Carbon Prices recommends prices of $50–$100 per tonne by 2030 (or $63–$127 when adjusted for inflation), meaning Kenya’s proposed rate is relatively modest by global standards.
Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.