Tanzania: Carbon Tax and Finance Aid Forest, Livelihoods

TANZANIA is endowed with approximately 48 million hectares of forests, covering about 51 per cent of its land area. This makes the country a critical player in the global fight against climate change.

These forests are a vital global asset sequestering millions of tonnes of carbon dioxide annually, supporting rich biodiversity and providing essential ecosystem services.

However, the country’s forest ecosystems face severe threats from deforestation, with an estimated 469,000 hectares lost each year. To combat this environmental degradation, the country has adopted a dual approach: carbon taxation and carbon finance. Carbon tax discourages environmentally harmful practices by making them more expensive, while carbon finance offers positive incentives by rewarding forest conservation and restoration.

Together, these tools support Tanzania’s commitments under its Nationally Determined Contributions (NDCs) to the Paris Agreement, aiming to reduce greenhouse gas emissions by 30-35 per cent by 2030.

Tanzania’s journey into carbon finance gained significant momentum with the adoption of the National Carbon Trading Guidelines (2022) and the amended Environmental Management (Control and Management of Carbon Trading) Regulations (2023).

These regulatory instruments established a solid framework for carbon trading, aligned with global standards under the Paris Agreement, enabling the country to attract climate financing and promote low-carbon investment. Through these efforts, the country has positioned itself as a regional leader in carbon markets, particularly within East Africa.

The National Carbon Monitoring Centre (NCMC) plays a central role in overseeing project registration, monitoring and verification. In practice, carbon finance works through conservation or reforestation activities that increase carbon sequestration.

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The amount of carbon stored is quantified as carbon credits, measured in tonnes of carbon dioxide equivalent (tCO e). These credits are independently verified and sold in voluntary carbon markets to corporations or climate funds seeking to offset emissions.

In Tanzania, the revenue from carbon credit sales is distributed in line with national regulations. Under Reducing Emissions from Deforestation and Forest Degradation (REDD+) projects, for instance, 61 per cent of the gross revenue is allocated to local communities, 31 per cent to project developers and 8.0 per cent to administrative bodies like the NCMC.

This benefit-sharing model ensures that communities are rewarded for their conservation efforts.

The beneficiaries of carbon finance in the country include forest cultivators, indigenous and local communities, private project developers and the government.

Small-scale farmers and indigenous groups benefit directly through payments for forest stewardship. A notable example is a carbon finance project in Kiteto and Mbulu districts, Manyara which in 2022 disbursed 4.7bn/-( 1.8 million US dollars) to local residents as compensation for their conservation activities creating a sustainable income stream.

The government also stands to gain significantly, with projections suggesting potential revenue of up to 2.4tri/- (about 900 million US dollars) from carbon credit projects. Organisations such as Carbon Tanzania and the Tanzania National Parks Authority (TANAPA) are instrumental in facilitating these projects and ensuring compliance with environmental and social safeguards.

Private sector participation is growing, with both local and international firms involved as project proponents. Although foreign firms currently dominate Tanzania’s carbon market, efforts are underway to enhance local capacity and ensure equitable participation across all stakeholders.

The country’s strategic adoption of carbon tax and carbon finance provides a transformative opportunity to conserve its forests while economically empowering its people. Discouraging deforestation and incentivising sustainable land use, these mechanisms align national environmental goals with socio-economic development.