We express our gratitude in being commissioned by Policy Forum and Tax Justice Network Africa to conduct a research on “Domestic Resources Mobilization within Tanzania’s Extractive Sector for Climate Financing in Tanzania”.

The profound impact of climate change on Tanzanian society, evidenced by loss of life, infrastructural damage, housing destruction, and policy initiatives, has prompted a series of legislative measures. Tanzania has diligently formulated and implemented a range of climate-centric policies, notably the Nationally Determined Contributions, National Environmental Master Plan for Strategic Interventions, Five-Year Development Plan III, and the National Climate Change Strategy.

However, the conundrum of balancing climate change mitigation against economic growth is evident in some frameworks advocating investments in coal. The implementation of any legislative framework necessitates adequate funding, yet Tanzania heavily relies on external sources for climate action financing. While various global financial instruments like the $100 billion target, the New Green Deal, green bonds, carbon markets, debt for climate swap, and carbon border adjustment mechanisms exist, they remain largely inaccessible to developing nations, exacerbating the debt burden of financially distressed countries. Hence, a more sustainable approach to climate financing lies in Domestic Resource Mobilization (DRM). Encouragingly, fiscal revenues in Tanzania have shown steady growth alongside manageable debt-to-service ratios, paralleled by increased revenues from the extractive sector.

This potentially signifies an avenue for utilizing DRM sourced from the extractive industry to bolster climate action. Furthermore, Tanzania’s abundant green mineral resources offer potential for driving a green revolution both domestically and internationally. Nonetheless, the country’s efforts to mobilize domestic resources are impeded by Illicit Financial Flows (IFFs), despite the presence of transfer pricing regulations. Strengthening the legal framework to address IFFs becomes imperative. Drawing upon secondary authoritative literature such as policy documents and primary sources from 14 Key Informant Interviews, this study recommends the following strategies within Tanzania’s pursuit of enhancing DRM in the extractive sector for climate financing:

1. Cease granting detrimental tax incentives to the extractive sector.Foster more favorable and beneficial bilateral investment treaties.
2. Establish a carbon pricing mechanism to fund climate adaptation and resilience.
3. Introduce targeted incentives for companies employing renewable and efficient technologies.
4. Implement green taxes on carbon-intensive activities, products, and practices to internalize carbon emissions.
5. Allocate a portion of extractive sector revenues towards financing climate adaptation and resilience.
6. Encourage corporate investment in climate action within mining communities through Corporate Social Responsibility Initiatives.