While Finance Minister Trevor Manuel has postponed the implementation of the 2/kWh electricity levy until next July, his medium-term budget policy statement indicates that once in place it will be the first step into ”a more comprehensive emissions-based carbon tax”.
This move will be in line with government’s long-term mitigation scenario (LTMS) study, released mid-year, which aims to move South Africa’s economy towards becoming environmentally sustainable. In the LTMS a carbon tax of about R100 per ton of carbon emitted is mooted.
With this figure in mind the Mail & Guardian calculated in an earlier report that companies like Sasol could see massive payouts to the taxman.
Sasol’s Secunda plant, the largest single source of emissions on the globe, emits 70-million tons of carbon dioxide annually, taking the possible carbon tax to a total of R7-billion.
Meanwhile Eskom emits 236Âmillion tons of carbon dioxide a year, putting its carbon tax at R23-billion or more than half its current R40-billion Âturnover.
The budget statement also indicates that tax revenue from corporate profits, particularly in the coal and petroleum products sector, have continued to fall.
Coal and petroleum products sector contributions to total tax revenue have been in decline since the 2000/01 financial year. It dropped from 9,2% in 2000/01 to 5,2% in 2007/08.
”Given the weight of the resources sector in the South African economy, commodity price and exchange rate fluctuations can have a significant impact on corporate profits, making corporate income tax revenue less predictable than personal income tax and VAT revenues,” said the statement.
Where the tax is likely to be targeted and how it will be implemented is unclear at this stage.
”As a first step the tax will be imposed on all electricity generated from non-renewable resources, primarily fossil fuel [for example coal, oil, diesel] and nuclear energy,” said Treasury spokesperson Thoraya Pandy.
Further work on emissions in general and greenhouse gasses in particular are still to be undertaken, she said. She declined to comment further on implementation as the necessary processes are still under discussion.
Trade and investment adviser to the WWF Peet du Plooy says that levelling such a tax close to the source of carbon is attractive because it is simple to administer and fair. In this case the carbon price would be applied at the point where carbon, in the form of fossil fuel, enters the energy chain, for example when coal is sold to a powerstation or industrial coal user.
He says minimising the administrative load of such a tax would help make it easier and cheaper for government to implement and for companies to comply with.
”A carbon tax will have a far greater effect on the price of electricity, than that of liquid fuels, because the latter is already very expensive. The level of taxation will be raised gradually to prevent price shocks and the overall increase in electricity cost is not likely to exceed price increases we have already seen approved. The main effect of the carbon tax will be to encourage investment in more carbon-efficient ways of generating electricity.”
It is possible to design a carbon tax to be pro-poor, for example by feeding its revenues back into providing access to electricity and transport for the poor. As a tax on electricity, it could place a disproportionate burden on the poor, who spend a greater portion of their income on energy, than the wealthy.
But Du Plooy also said that a carbon tax cannot be divorced from other measures, such as feed-in tariffs, that ensure increased investment in renewable energy sources.