Economists sound warning over carbon tax

South Africa's high dependency on fossil fuel-powered energy has earned it a place among the top 20 carbon emitting countries in the world. In this year's Budget Speech, Pravin Gordhan announced the implementation of a carbon tax for 2013-2014. A draft policy is being drawn up for public comment.  

Carbon pricing was the topic under panel discussion at the Mail & Guardian's Critical Thinking Forum on Tuesday, hosted by the M&G and BHP Billiton.  

Panellists drew a direct link between a carbon tax and rising electricity costs.

As Michael Rossouw, executive director of Xstrata Alloys, argued: "We have not learnt to decouple energy growth from carbon usage". So with energy intensive mining and manufacturing sectors – key drivers of the South African economy – the carbon tax will have a direct impact on the country's gross domestic product (GDP).

Rob Jeffrey, Econometrix managing director, cited a recent study that revealed a carbon tax would reduce GDP by 3% by 2021, a sum that would amount to R88-billion. Job growth would become retarded and the price of electricity would see a 20% rise.

Carbon tax
"South Africa makes up 1.1% of the world's carbon dioxide emissions," said Jeffrey. He argued a carbon tax would place South Africa on a global backfoot against other advanced and emerging economies without carbon penalties.

China, for example, has undertaken only to reduce the intensity of its carbon emissions and not its total emissions. Jeffrey said with South Africa's low technical capacity for alternative power sources, such as solar energy, the time was not propitious for a carbon tax.  

But Cecil Morden, chief director of Economic Tax Analysis at national treasury, asked: "What will be the cost of doing nothing?"

Richard Worthington, climate change manager at the World Wildlife Fund (WWF), said the damage wrought by carbon emissions included weather volatility, which in turn encouraged market volatility. "If we don't do it now," he said, "we know the impact on future citizens will be dire."

A question put to the panel was whether the carbon tax would actually encourage energy suppliers to seek cleaner energy sources. Morden affirmed the power of pricing mechanisms, considering Eskom's recent search for cleaner energy sources a move in anticipation of the carbon tax.

Systems-based approach
But Rossouw criticised the carbon tax as a piece meal approach to reducing carbon emissions. He advocated a "systems-based approach" that takes a holistic view of environmental protection coupled with economic growth.     

The shape of the future carbon tax still hangs in the balance. The manner in which the tax is designed and the revenues distributed will determine how adversely poor households are affected.

Morden considered two mechanisms currently considered. One is to redistribute revenue through normal budgetary processes and another to shift taxes, so lessening the load of others such as VAT's while imposing the carbon tax.

Despite misgivings, the panel broadly agreed that carbon emissions needed to decrease. "I don't think anyone in this room is denying the fact that we have to do something to reduce our carbon footprint," said Rossouw.

But the key questions of when and how a carbon tax is implemented will determine whether carbon pricing will do more harm than good.

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