Point for Pravin: Carbon tax critical in budget speech

Finance Minister Pravin Gordhan. (David Harrison, M&G)

Finance Minister Pravin Gordhan. (David Harrison, M&G)

In 2010, the treasury announced that South Africa’s bucket of solutions to move away from a carbon-intensive economy would include a carbon tax.

Its discussion paper, Reducing Greenhouse Gas Emissions: The Carbon Tax Option, was the culmination of several years' work, but also the start of many more. It set out the basics of an industry-wide carbon tax that would give incentives to companies for changing their behaviour. There would also be punishments for those that did not.

And while people hoped last year’s budget would launch the tax, Finance Minister Pravin Gordhan delayed the announcement, saying it would happen this year instead.

Alex McNamara, a carbon specialist at Camco Clean Energy, said: “There is quite a lot of expectation given the time frame this has had.”

“I would hope that we get an announcement of some kind from the budget,” he said. Otherwise, he expects the tax policy to fill in any remaining gaps about the tax.

Most of these gaps and feedback were incorporated in the documents about the tax released with last year’s budget speech, he said. “If we get this then industry has a year or two to get the frameworks in place.”

While there have been complaints that the tax will not be ring-fenced for sustainable development, McNamara said it will get “soft earmarking”. This will ensure that projects that drive a greener economy have the kind of funding they require. And with the localisation requirements of these projects – where a certain percentage of components or spending has to be local – this will drive the economy, he said.

Good for industry
Professor Harald Winkler of the energy research centre at the University of Cape Town said a carbon tax would be good for the country's industry as it would make it more resilient and efficient. The argument that it would be crippling to South Africa's business does not hold true because the tax would work out, once the deductions are added, to 3.6c per kilowatt-hour of electricity.

This would replace the current levy of 3.5c that currently stands on non-renewable sources of electricity, he said.

“A carbon tax is the single most important step you can take to address climate change,”  he said. Other major economies were also moving in this direction, including the once hesitant United States, so the economy would not lose a competitive advantage through a tax when everyone else had it, he said.

The tax price proposed is R120 per tonne of carbon dioxide emissions. It comes with punishments for companies that do not become more sustainable but also with rewards for those that do.

It starts with each company calculating its carbon emissions – which many of the JSE-listed firms are already doing as part of their voluntary disclosure project. Sixty percent of a company’s emissions are effectively exempt for now.

There is also space for a carbon-trading scheme, with companies being able to offset 5% to 10% of their emissions by buying credits. This would be added to the 60%. In order to ensure the tax does not harm the competitive advantage of local companies, an extra 10% deduction is also available for what treasury called “trade exposure”.

Exempt sectors
Most companies can avoid around 80% of the tax in the first years of its existence. This will gradually wear down so companies that do not lower their emissions get heavily penalised. The R120 will also increase by 10% every year until the first phase ends in 2020.

The agriculture, forestry, waste and land sectors get a 100% reduction when the scheme starts. Mining, outside of coal, is also exempt.

The hardest-hit companies will be Eskom and Sasol, based on their emissions supplied to the JSE’s voluntary disclosure project. At 230-million tonnes, Eskom will pay about R11-billion a year. Sasol, at 61-million tonnes, will pay R2.2-billion.

Last year Minister of Environmental Affairs Edna Molewa said the tax was a significant part of the country’s plans to reduce its carbon emissions by 42% by 2025. By that date the tax would have an absolute threshold for emissions each sector and company is allowed to emit.

A similar kind of tax is being mooted in the United States, with US President Barack Obama saying he will push it if Congress does not. Several provinces in China are also reported to be pushing ahead with a carbon tax. In these instances, the tax will link in with the wider regime of carbon financing mechanisms, such as carbon credits.

Sipho Kings

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