Why clean energy push in budget is just pie in the sky
By Macharia Kamau | June 18th 2019
Whether by design or accident, the Government appears to be slowly shifting to policies that are friendly to the environment.
While there has been much talk among State officials on environmental protection, there has been little action to correspond with this talk.
Going by the Budget Statement that National Treasury Cabinet Secretary Henry Rotich delivered last week in Parliament, the tide could be changing.
CS Rotich has proposed measures aimed at popularising the use of electric cars in Kenya as well as encouraging the recycling of plastics in a bid to reduce the heavy toll that they have on the environment. A week earlier, his boss President Uhuru Kenyatta had banned single-use plastics in areas such as parks.
Rotich in his budget statement indicated a willingness by Government to push for more electric cars and lowered excise duty on these types of cars being brought into the country. This was while he pushed up the cost of fuel guzzlers, with vehicles with an engine capacity of over 3000cc will attract an excise duty of 35 per cent of their price.
Despite the seeming push for a greener country, Kenyans still have to grapple with dirty sources of electricity generation, including the high installed capacity for thermal plants and a planned coal plant.
Government agencies are also notorious for their preference for fuel guzzlers known for polluting the environment.
“Although currently there is low uptake of electric powered motor vehicles in the country, green energy technology is being embraced in many countries due to environmental benefits and renewability. Kenya too needs to promote the use of this clean type of energy in line with the sustainable development goal seven which can be achieved through lowering the cost of these vehicles through tax incentives,” said Rotich.
“This will encourage uptake of these vehicles as well as encourage investment in this area of technology. Further, it will support the policy on green energy thereby reducing carbon emission. In this regard, Mr Speaker, I propose to reduce the excise duty on motor vehicles that are fully powered by electricity to 10 per cent.”
It will be a big win for the one company that currently operates electric cars in Kenya.
Nopia Ride, run by Finnish firm Ekorent, recently launched its cab sharing operations in Nairobi and uses cars that are exclusively electric.
Though consumers will not be able to buy electric cars, they can hail cabs using a mobile application.
The firm expects to have imported about 200 cars into Kenya by the end of this year, each at a cost of Sh1.5 million.
Ekorent is open to local investors buying into the cars, which it will then operate as taxis.
In the local market, there are numerous hybrid cars running on electric batteries but switch to petrol when the battery is low on charge or operating at certain speeds that are a strain on batteries.
These will however not benefit from Rotich’s reduction in excise duty. In his Budget Statement, the CS also increased duty on cars that have a high engine capacity, a move likely to collect more taxes than promoting the green agenda.
In his 2018/19 budget statement, Rotich increased excise duty from 20 per cent to 35 per cent on private passenger vehicles whose engine capacity exceed 2500cc for diesel and 3,000cc for petrol powered vehicles.
However, cars with an engine capacity of between 1500cc and 3000cc will pay an excise duty of 25 per cent, while those with an engine capacity of over 3,000cc will pay 35 per cent from 30 per cent.
Initially, all vehicles, regardless of their engine rating, attracted a uniform excise levy of 20 per cent. But now, motor vehicles with a fuel capacity of more than 3000cc will attract high duties.
Treasury CS said the Government will incentivise firms that are recycling plastics in a bid to deal with the waste that has become an eyesore and choked the environment.
He noted while there is already a ban in place on the use of plastic bags, it has not effectively dealt with other forms of plastics.
He expects that incentives to firms that can mop up plastics and recycle them can help reduce such waste.
“To address this challenge, there is a need to promote plastic waste management by encouraging the recycling of plastic waste. In this regard Mr Speaker, I propose to exempt from VAT all services offered to plastic recycling plants and supply of machinery and equipment used in the construction of these plants. Further, to encourage investment in plastic recycling I propose to lower corporation tax to 15 per cent for the first five years for any investor operating a plastic recycling plant,” he said in Parliament.
The Finance Bill 2019, which the CS submitted in Parliament last Thursday, proposes to exempt recycling companies from paying VAT on equipment they use to set up their facilities.
“The Bill proposes to exempt plant, machinery, and equipment used in the construction of a plastic recycling plant. There are continued efforts by the Government to manage or minimise the use of plastics, as they are harmful to the environment. Some of these efforts include coming up with sustainable ways of disposing of plastics, which include recycling, hence the need to incentivise recycling activities,” reads the Bill.
“The proposed amendment will encourage the recycling of plastics and thus reduce the harmful effects that they have on the environment.”
The Bill proposes also empower the Minister of Energy to give VAT exemptions to firms buying equipment developing solar and wind energy plants. While such equipment has been defined as among the VAT exempt supplies by the VAT Act, the law was not clear on who could approve the exemptions and hence some companies might have missed out on these incentives.
The incentives come after the country banned use single-use plastics from protected areas such as national parks, beaches, and forests, which will take effect in June 2020.
President Uhuru Kenyatta announced the ban during this year World Environment Day and the Tourism and Wildlife Ministry said it would issue regulations to guide the process of eliminating plastics in parks.
“The Ministry commits to ensuring that the Kenya Wildlife Service and all stakeholders in the wildlife sector jointly work towards the full implementation of this ban on single-use plastics in all our protected areas. We will also organise for public consultation and participation on the drafting of regulations necessary for this implementation,” said the Ministry in a statement.
Despite the push for a greener country, Kenyans still have to grapple with dirty sources of electricity generation, with the installed capacity for thermal power at over 807 megawatts (MW) - about a third of Kenya’s installed power production capacity of 2,700MW.
The State has severally said it will retire thermal generators but the push and pull have seen them continue operating.
Their installed capacity has grown to 807MW last year form 801MW in 2017.
There are also plans to add another 981MW of coal power from the proposed Lamu plant. The diesel and coal power plants are costly to the consumer and the environment.
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