Leveraging climate finance and environmental taxes for sustainable environmental outcomes in Africa

Abstract

Climate finance and environmental taxation are increasingly recognized as important policy instruments for advancing global sustainability objectives, particularly SDG 13 (Climate Action), SDG 12 (Responsible Consumption and Production), and SDG 7 (Affordable Clean Energy). However, despite Africa’s heightened vulnerability to climate change, growing ecological pressure, and continued dependence on natural resources, empirical evidence examining climate finance and environmental taxes within the same framework of environmental degradation remains limited and fragmented. To fill this gap, the present study investigates the relationship between climate finance, environmental taxes, and environmental degradation in 26 African countries over the period 2012–2021. Using both Driscoll and Kraay estimators and the two-step system Generalized Method of Moments approach, the study examines whether climate-related financial flows and environmental fiscal measures are associated with improved environmental outcomes. The findings reveal that increased climate finance inflows and stronger environmental tax effort are significantly associated with lower ecological stress across African economies, with the results remaining robust across alternative measures of environmental degradation and disaggregated policy indicators. By providing evidence on the links between financial and fiscal policy instruments and ecological outcomes, this study offers policy-relevant insights for supporting Africa’s transition toward a more sustainable and climate-resilient development trajectory.