Taxing hot air

Fast forward the reporting of Sasol’s results this week to two year’s time and there could well be a new line item. Carbon tax: R7-billion. Sasol’s Secunda plant, the largest single source of emissions on the globe, emits 70-million tons of carbon dioxide annually.

In terms of new Cabinet-approved policy to bring down the country’s carbon emissions to levels required to avert catastrophic climate change, a new carbon tax of about R100 a ton could well be in place by 2010.

Eskom’s carbon bill would be even higher than Sasol’s. It emits 236-million tons of carbon dioxide a year, meaning that its carbon charge would be R23-billion, more than half its current R40-billion turnover.

This is calculated at R100 for each ton of carbon emitted. The figure of R100 a ton is suggested by the Cabinet-approved long-term mitigation scenario (LTMS) study. Currently carbon is priced at about twice this level on the international markets.

Sasol’s turnover for the year was R129-billion with operating profit of R34-billion. Tax paid was R10-billion. A carbon tax of R7-billion could make a hefty contribution to treasury’s take, but observers say that the new green tax code is not likely to increase the overall tax take to the authorities.

Increasing tax revenues from carbon will be accompanied by cutting taxes to ease the burden higher energy prices have on the poor. The new green-friendly tax regime could also favour lower taxes on jobs (income) and lower prices for public transport and, perhaps, Vat.

The WWF’s Peet du Plooy says a carbon tax priced at R100 a ton would raise the price of petrol by about 30c a litre for a 1600cc car. Emissions tax on conventional fuel refining would be lower, at about 20c a litre, but Sasol’s emissions-intensive process would probably raise the average cost to about 30c, says Du Plooy.

He says the carbon tax of R100 a ton would also raise electricity tariffs by about 10c a kilowatt hour, up from the present 40c to 50c.

Cabinet approved the LTMS report, completed by the Department of Environment Affairs and Tourism, at mid-year. Political backing for a new regime to move the economy to an environmentally sustainable footing has also come from a resolution adopted by the ANC in Polokwane in December.

A range of policy interventions are envisaged by the LTMS for South Africa to play its role in avoiding catastrophic climate change.

These include promoting energy efficiency, moving to renewable sources of energy and nuclear power, improved vehicle efficiencies, promoting public transport, using carbon capture, switching to electric vehicles and subsidising solar water heating and biofuels.

These interventions are seen as making important contributions to the whole, but the LTMS modelling shows they make relatively modest savings of carbon emissions, typically below 300-million tons a year.

The biggest single intervention, a carbon tax, makes by far the largest saving at 600-million tons saved a year.

Du Plooy says that the LTMS policy will follow a process where it will go to scheduled national and international conferences. He says he expects the new carbon taxes contained in the report to take effect in the 2010 Budget.

While South Africa emits a total 480-million tons of carbon dioxide annually, much of this is not taxable at source.

Du Plooy emphasises that the intention of the authorities will be to make the new regime revenue neutral and pro-poor.

”Our vote for the best, most strategic ways to make it pro-poor is through subsidising free basic electricity [both health and carbon benefit from avoided deforestation from firewood collection] and public transport [double whammy carbon savings through rationalising passenger transport].”

The envisaged carbon tax could start at the relatively low level of R100 a ton, according to the LTMS. This could escalate to R750 a ton by 2040/2050.

South Africa already has taxes that can be considered environmentally friendly, mainly the tax of R1,27 a litre on all fuel sold. This brought in R24-billion last year.

Finance Minister Trevor Manuel introduced a green tax this year in the budget, which raises the price of electricity by 2c a kilowatt hour. This tax, which is expected to raise R6-billion in three years, has drawn criticism as it has not been matched by incentives designed to encourage the use of energy production from renewable sources of energy.

The LTMS process began in 2006 when Cabinet commissioned a study to examine the potential for mitigation of the country’s greenhouse gases.

The policy is designed to give South African negotiators a clear and mandated position for their negotiations in terms of the United Nations Framework Convention for Climate Change.

The study claims the costs of emission reductions are high, but that the cost of inaction will be far higher. It also emphasises that the longer remedial action is delayed, the greater the challenge becomes.

The message is that mitigation is urgent. Even five years of delay can increase the risk of overshooting a two degree increase in average temperatures.

A statement on the LTMS issued by Cabinet in July said it has mandated a clear path for the future. ”Milestones include a national summit in February, the conclusion of international negotiations at the end of 2009 and a final domestic policy to be adopted by the end of 2010.

”The process will culminate in the introduction of a legislative, regulatory and fiscal package to give effect to the strategic direction and policy from now up to 2012.”

It is understood that some of the envisaged tax changes could be in the budget as early as 2010.

The finance ministry does not comment on tax issues outside of the annual budget. Approached to comment on green taxes, spokesperson Thoraya Pandy said what is being proposed with regard to the LTMS strategy appeared in the Environmental Fiscal Reform Study two years ago.

This study envisaged a radical reshaping of the tax landscape to move the economy to achieve sustainability.

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Kevin Davie

Kevin Davie is M&G's business editor. A journalist for more than 30 years, he has worked in senior positions at most major titles in the country. Davie is a Nieman Fellow (1995-1996) and cyberspace innovator, having co-founded SA's first online-only news portal, Woza, and the first online stockbroking operation. He is a lecturer at Wits Journalism. In his spare time he can be found riding a bicycle, usually somewhere remote.

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