SA’s proposed carbon tax is ‘token’

Forty-nine stakeholder comments on the long-awaited second draft of the Carbon Tax Bill were received by National Treasury by 9 March 2018, and a revised Bill is expected to be tabled before Parliament by mid-2018.

The proposed cost has been set at R120/t of CO2 equivalent, although the process of working out how much a polluter will be liable for is subject to complicated formulae outlined in the proposed Bill.

The World Wide Fund for Nature (WWF-SA) says that at R120/t of carbon, the proposed tax rate comes nowhere near Treasury’s well-researched recommendation of R162 to R433 per tonne (in today’s prices). Companies can also get from 60% to 95% tax exemptions, which will bring the cost down to between R48 and R6/t. This means that the top 10 emitting companies will pay from 0.1% to 0.5% of their turnover, calculated from information in the public realm.

“This leaves us with the worst possible outcome: An extra cost on companies which they pass on to their customers without doing anything serious about their emissions, because it is cheaper to pay the tax than to act. The public – and particularly the poor ‑ will not only continue to carry the burden of climate change impacts, it will receive an extra burden from the very instrument designed to deal with the climate problem. The solution is to turn this token tax into something with teeth, with an accompanying strategy by business, labour and government that buffers the poor and creates the jobs and livelihoods that a lower-carbon economy can deliver. Lest South Africa be stranded with a 20th Century economy that cannot compete with those who are grasping the opportunities,” says Louise Naudé, low-carbon programme manager at WWF.

In the February 2018 Budget speech, then Finance Minister Malusi Gigaba said government proposes to implement the tax from 1 January 2019 to meet its nationally determined contributions under the 2015 Paris Agreement of the United Nations Framework Convention on Climate Change.

Treasury previously said in a statement that the actual implementation date of the Carbon Tax will be decided at a later date, and this will either be made known by the Minister of Finance during 2018, or at the next Budget in February 2019.

National Treasury explained that when it announces the implementation date of the Carbon Tax, it would also announce a package of tax incentives and revenue recycling measures to “minimise the impact of the first phase of the policy (up to 2022) on the price of electricity and energy intensive sectors such as mining and iron and steel.” The impact of the tax in the first phase is thus designed to be revenue neutral in its aggregated impact.

National Treasury says that Carbon Tax is an integral part of a system for implementing government’s policy on climate change. In line with commitments made at international climate change conferences, South Africa’s greenhouse gas emissions must peak in 2020-2025, plateau to 2035, and then decline from 2036. (This will require a major shift to grow the economy with less carbon intensity – building houses using less carbon intensive cement, providing free basic electricity from renewable energy sources, providing transport alternatives to the current heavy fuel reliant options. This is possible, but thanks to South Africa’s ample coal resources, coal-fired power stations are the norm, which impacts the carbon footprint of every person and business in the country, unless you are independent of the Eskom power grid).

The ideal is that emission reductions are delivered while sustained economic growth is realised. Treasury said the tax is estimated to decrease emissions by 13%-14.5% by 2025, and reductions of 26%-33% by 2035 compared with a business as usual scenario.

To soften the impact of the Carbon Tax bill on the electricity price during the initial phase, “a credit for (or reduction in) the electricity generation levy and the renewable energy premium (built into the current price of electricity) will also be introduced,” said Treasury.

The long road to Carbon Tax in South Africa started in 2010 with the release of a discussion paper, a policy paper in 2013, the Carbon Offsets Paper in 2014, and the first Draft Carbon Tax Bill in 2015.

“Carbon Tax seeks to give effect to the polluter pays principle by ensuring that the real cost (*ed – see link below) of GHG emissions to the environment and society are explicitly incorporated into the prices of carbon intensive production activities,” said Treasury.

*A great article on ‘externalities’ here: https://www.nature.com/articles/d41586-017-07510-3

Why should we care?

If properly designed, the tax will drive changes in the economy over time says WWF. These include:

  • Investments and lending flowing to companies, products and services which don’t cause emissions or that help to reduce them.
  • Opening opportunities for such businesses, including innovators and small businesses.
  • Job creation in greener industries.
  • Slow shrinking of coal, oil, petrol and diesel sectors in South Africa, from mining through processing to combustion, with fewer jobs in these and related industries.
  • Price increases on products and services from high-emitting companies.

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