Carbon tax imminent, says treasury

A tax on carbon emissions could be im­posed as early as next year, says the national treasury. And while business claims that progress still has to be made before such a tax is implemented, some can hardly wait. Seventy-nine written comments on a discussion document released in December, entitled “Reducing Greenhouse Gas Emissions: The Carbon Tax Option”, were submitted to the treasury.

Cecil Morden, the chief director of the treasury’s economic tax analysis unit, was involved in producing the paper. He said that an emissions tax applied directly on measured carbon-dioxide emissions is the best option. This opinion is based on the country’s market structure, administrative capabilities and its distribution impact.

The treasury now plans to process all the comments and develop a carbon-tax policy paper. It hopes to resubmit the proposal to Cabinet in September and publish a draft policy paper in November. Should everything go according to plan, a carbon tax may be announced during the budget speech in February 2012. But Richard Worthington, manager of the climate change programme at the World Wide Fund for Nature South Africa (WWF), said the tax could not come soon enough and he would like to see the initiative taken up as quickly as possible.

Business is hiding behind practical objections but “they have made it quite clear that they do not want to pay this tax”, said Worthington. According to the discussion document, the two major emitters in South Africa are Sasol and Eskom, whose dependence on coal is unlikely to change in the near future. The total carbon dioxide emissions for the past year were estimated at more than 352,5-million tons. Eskom emitted 224,7-million tons, followed by Sasol, with 61,678-million tons.

In a statement Sasol said that it understands the need for action but believes that the design of appropriate policy requires careful consideration and analysis. “Sasol agrees that South Africa should make the transition to a lower carbon economy, while remaining cognisant of the urgent developmental needs of the country. The petroleum company set itself energy efficiency targets in 2007 and has since then been actively taking steps to reduce its carbon emissions and is seeking energy alternatives.”

‘Shock to industry’
The treasury said it understands the shock to industry, hence the phasing in of the tax. Morden said it will follow the “polluters pay policy”, meaning that those who emit carbon bear the cost. But in its commentary on the discussion document the school of economics at the University of Cape Town, which was commissioned by the WWF, speculates that while a carbon tax would fall heavily on Eskom, “in turn, it would seek to impose even higher price increases or obtain additional state largesse”.

Companies such as mining houses, construction firms and Sasol operate in a relatively competitive market and cannot pass on the tax burden entirely to the end consumer. “Being state owned, Eskom is likely to respond to changing relative process to a lesser degree than would a privately owned utility, especially if it is able to pass on a significant share of the tax to consumers. This creates a case for regulatory reform as an important complementary measure to effect change.”

Even if a large proportion of the tax is passed on to the end consumer, it will ultimately result in reduced demand for electricity and reduced emissions. The tax, the treasury said, will not be ring-fenced for green initiatives but will go directly into the fiscus. Government will then decide how it is allocated. Avis managing director Wayne Duvenage said this is a reason to challenge the tax. No ring-fencing for green initiatives was particularly problematic and totally out of line with the United Nations’s Clean Development Mechanism (CDM), he said in a press release.

“CDM is highly effective and enables carbon credit-trading revenues to be directed at making clean energy development viable.” If these “lucrative carbon-tax revenues” are not ring-fenced for green-energy development, they will “simply be lost in the general ‘tax pot'”, he said. As it stands, the carbon tax would simply increase business costs and output prices without effecting any change in the actual “greening” behaviour of business, said Duvenage.

Worthington said the WWF does not take issue with the carbon tax discussion document, but does take issue with other ideas stakeholders have put forward. Exemption from the tax is one such idea. In a response to the discussion document, the WWF said exemptions from the tax, which have been permitted in other countries, should not be allowed in South Africa.

“We recognise that the availability of low-carbon alternatives is highly uneven across the economy, but this does not justify outright exemption from a carbon tax. “The particular challenges or lack of options for certain industries or sub-sectors may require some special treatment, including through a tax rebate system, particularly in the short term and where required to protect jobs or provide time for retraining.” In its response the WWF also said that too many exemptions for energy-intensive industries could create distortions and uneven abatement costs which would undermine the objectives of a carbon tax.

Ismail Momoniat, the deputy director general of national treasury’s tax and financial sector policy, said that while tax is a way to raise funds, “it is also a powerful mechanism to change behaviour — it is a way to mitigate emissions”. But a carbon tax is not the only mitigating mechanism. Emissions tax on cars prevailed and, Momoniat said, there will be more actions to come. “Once the ground rules are clear, there are huge opportunities to innovate.”

Just how much revenue this tax will yield is apparently “secondary” to national treasury. “We have steered away from revenue assumptions,” Morden said. “It is a secondary consideration.” But Momoniat said that it is not likely to be in line with the tax in Norway, which is a whopping $50 per ton. Morden said a tax proposal will not be made known before next year’s budget speech.

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