By John Peter Okwi
As Uganda draws closer to produce it first oil, its bet to harness this resource coincides with a period of rising global carbon pricing, an economic reality that adds urgency to the case for a swift transition to clean energy.
According to the World Bank’s recent report on the State and Trends of Carbon Pricing 2026, the average global carbon price has risen to nearly $21 per tonne of carbon dioxide emission, a 7% increase from the previous year. The report also finds that carbon pricing mechanisms now cover over 29% of global greenhouse gas emissions, with revenues tripling over the past decade to exceed $107 billion annually.
Analysing this trajectory in the context of the East African Crude Oil Pipeline’s (EACOP) projected lifetime emissions of about 379 million tonnes of carbon dioxide over its 25-year operational life, as estimated by the Climate Accountability Institute, based on the pipeline’s full value chain, including international shipping, refining, and end-use combustion abroad, offer a useful and illustrative benchmark. At today’s global average carbon price of $21 per tonne, that volume of emissions would relatively approach $8 billion, a figure that exceeds the entire $5.65 billion cost of the pipeline project itself.
If the global average carbon price continues its upward trajectory, the window for profitably selling oil into international markets may be narrower than planners anticipate.
Despite the government’s commitment to carbon neutrality by 2050, funded in part by oil revenues channelled into renewables, other potential carbon mechanisms notably the European Union’s Carbon Border Adjustment Mechanism (CBAM), which is expected to expand its scope to target crude petroleum and refinery products by 2030. That would introduce direct and indirect compliance costs on exports to EU-linked value chains.
Nigeria offers an early preview of this dilemma. As Africa’s largest oil producer, a meaningful share of its crude and gas exports feed into EU-linked value chains that will come under CBAM’s scope, exposing producers to costs tied to the carbon intensity of what they ship. In response, Nigerian regulators have begun requiring oil and gas licensees to build decarbonisation and carbon-monetisation plans including gas flaring reduction, methane management, and carbon capture directly into upstream operations. Uganda has yet to take that step.
By 2030, this could expose Uganda’s crude oil exports to financial penalties that were not anticipated when the project’s contracts were signed, reducing the net value of its oil.
Further still, various research findings by the Natural Resource Governance Institute underscore that roughly one-fifth of the approximately $400 billion in anticipated global oil and gas investment could become economically unviable if warming is kept within or below 2°C.
In other words, profiting from a finite resource carries real fiscal risk and demands need to scale up balanced investments to other renewable energies technologies to cushion the unforeseen realities.
The Bank of Uganda Governor, Michael Atingi-Ego once advice that, “Oil revenues should be used to finance human capital, infrastructure, and institutions assets that endure long after the oil has been depleted.” This was indeed a foresight thought that these finite oil resources will get done with time and the need to transition to clean and sustainable renewable energy sources such as solar, geothermal and wind to leverage a sustainable, climate and carbon safe energy mix.
In same vein of thought, Uganda must treat its oil as merely a bridge, not a destination, prioritising channelling revenue into renewable energy infrastructure to leapfrog fossil-dependent grids, agro-industrialisation to reduce reliance on imported fertiliser, education and healthcare to build human capital for a post-oil economy, and regional connectivity to position Uganda as a trade hub beyond oil.
While the Ugandan government has also explored plans of using carbon credits from reforestation to offset oil-production emissions through the National Forestry Authority’s 10-year reafforestation programme which aims to restore forest and wetland loss, and become a source of carbon credits. Yes, these are welcome steps, but they should not be treated as a licence for expanded fossil fuel permitting.
Therefore, as the country counts down to production, it needs an honest conversation about the economics of a carbon-constrained world. The true value of an energy resource lies not just in extraction, but in its capacity to finance a future that is economically resilient, sustainably addresses energy poverty and prepares the country for a climate safe future.
The writer is the Programmes Coordinator Environment Governance Institute (EGI)
