The only green reference in the budget was Finance Minister Trevor Manuel bemoaning the fact that it did not contain a pro-environment stance. He indicated that he was looking for his colleagues in the department of environmental affairs and tourism to play the lead role and promised that the next Budget would include a green component.
Since then a number of departments — including the Treasury, environmental affairs and tourism, minerals and energy, agriculture, water affairs, and trade and industry — have been putting their collective minds together to produce what is expected to be the country’s first green budget, to be tabled in February next year.
But what is unclear at present is whether the new pro-environment thrust will be just a statement of principles or whether it will include new incentives to put the economy on a greener footing.
These incentives include feed-in-tariffs (FITs) where a levy is placed, for instance, on all electricity consumption, the proceeds being used to subsidise the generation of new clean energy from renewable sources.
Many countries worldwide are using these tariffs to reduce their dependence on fossil fuels, diversity of energy inputs and increase energy security. Renewable energy can also be quicker in terms of time to market compared with the long lead times of large coal-fired and nuclear projects and allows for private capital to invest in energy provision.
An unexpected benefit of FITs in Europe has been the creation of new job-intensive industries.
Minerals and Energy Minister Buyelwa Sonjica told Parliament this week, in reply to a written question, that the Department of Minerals and Energy was working on a green power pilot study into FITs.
I-Net Bridge reported that Sonjica said: “We will be submitting a Cabinet memo before the end of this year in which we will report on activities already done towards the development of renewable energy technologies in the country.”
The national energy regulator, Nersa, and Eskom are known to be involved in separate investigations into FITs.
Some participants active in the green policy development process say they expect such initiatives to be announced when Manuel takes to his feet next February, but it is also clear that some work still has to be done to get all government departments singing from the same green song-sheet in time for some of the envisaged reforms to be included in the annual budget.
But, irrespective of the practical measures announced, it is clear that government is embracing a new approach to running the country’s finances, which seeks to make tax policy kinder to the environment.
The Treasury believes that environmentally related taxes could have an important role to play in South Africa’s future tax policy, says a draft Treasury document, A Framework for Considering Market-based Instruments to Support Environmental Fiscal Reform in South Africa.
“In combination with other measures, such as regulation and voluntary approaches, these instruments can play a role in meeting current and future environmental challenges. Environmentally related taxes could help to improve the efficiency and equity of the tax system,” the document says.
The 140-page document is wide-ranging, seeking to align tax policy with sound environmental practice by embracing such principles as the polluter pays. The Department of Environmental Affairs and Tourism’s Peter Lukey says the green initiative could be seen as an attempt to change the entire philosophical basis of the budget. At present there is no financial disincentive to harm the environment.
“Taxation can be a real instrument for change,” he says, adding that, too often, the taxpayer pays when the emitter should be bearing the cost.
“The idea of taxing bads [such as pollution] and reducing taxes on goods [such as labour] could potentially generate benefits often referred to as the double-dividend hypothesis,” the document says, explaining that lower taxes on labour could stimulate job creation.
Everything from lower taxes on ethanol to taxes on coal are discussed and evaluated, as are higher customs and licence fees on fuel-inefficient vehicles. Also evaluated are higher emission standards for cars and cleaner fuels.
One participant says it is probable that some initiatives in the policy pipeline will now be included as part of a package of green reforms in the next budget, but says that even if some measures appear to be “spin”, government would have signalled a new environmental policy thrust.
Mooted in the document is expanding the tax on plastic bags (the only specific environmentally related tax) to goods such as packaging, tyres, batteries, electronic equipment and white goods, fluorescent tubes, paper and cardboard.
New white goods might be sold with a refundable deposit to be collected at the end of their useful life.
A reform, which insiders say will be in the budget, is an initiative by the Department of Water Affairs and Forestry to charge large users for the waste water they produce, to encourage the re-use of water.
Lukey says that too often users do not pay for the cost of their activities. Where licences and inspection are required, the taxpayer, rather than the beneficiary, picks up the bill.
New taxes on fuel inputs such as coal could also impact on both electricity (Eskom) and fuel (Sasol) production, the idea being that South Africa, in part, uses energy inefficiently because it is too cheap.
The document says “a tax on the use of coal as an input into electricity generation will create incentives for improved fuel-conversion ratios in the long run and, other things being equal, indirectly reduce harmful emissions of carbon, sulphur and particulates into the atmosphere”.
Buy-in to a new green tax regime is envisaged across departments and municipalities. The document says that municipalities could be encouraged to design their rates policies “in a manner that encourages appropriate conservation measures”.
Another contributor to the green policy thrust says a challenge remains to get the key departments working together on the new initiative.
“Government employees and departments tend to work in silos, independent of one another and other departments,” the observer said.
Another emphasised that treasury should not see environmentally related revenues as an additional revenue source, adding to the total tax take. The Treasury is well known to resist ring-fencing revenues to dedicated expenditures, preferring to allocate resources on an ongoing basis according to need.
But new taxes will not fly if they are seen as just an additional way of shaking down taxpayers, the discussion document suggesting that “soft” earmarking might be the way forward where funds are understood to be made available for the development of new, green technologies rather than guaranteed to be used in this way.
The document notes that poor environmental policies often discriminate most against the poor and it acknowledges that green initiatives will have to be implemented as part of the country’s wider developmental challenges.
Sustainability means dealing with poverty and inequality, the document says. “It is important to appreciate that it’s not just the quantity of growth that matters, but also its quality.”
The framework document is expected to be tabled for discussion at an inter-governmental workshop next month before a position paper is forwarded to treasury for inclusion in the 2008 budget.
Greener tax
The Treasury’s current discussion document on a greener tax policy has its origins in a paper released in April 2006, A Framework for Considering Market-based Instruments to Support Environmental Fiscal Reform in South Africa, which set out possible avenues to align the tax code with desirable environmental outcomes.
The report found that present policies often contain high environmental costs, tariffs are often ad hoc, complex and non-transparent, that declining resources are not correctly priced and there are no disincentives to reduce waste, for instance.
It also said that current policies discourage donations for conservation purposes, favour agriculture over conservation use, encourage the use of harmful pesticides, penalise fuel-efficient cars and encourage the destruction of biodiversity.
The report said that only 2% of GDP was raised through taxes that had a desirable environmental impact, this being the general fuel levy that brought in about 10% of total tax revenue.