Carbon tax can address poverty and inequality

The debate about the continued global use of fossil fuels has intensified in recent times as a result of the threat posed by climate change to the very essence of human existence.  It has required greater urgency as the world spirals towards a 4-5 degree celcius global warming change that could have devastating impacts on Africa’s ability grow enough food and deliver people out of poverty. 

As with many developmental problems, the poorest, particularly women, are again at the sharp edge of the knife and bear the full brunt of climate change impacts: floods will have a much greater impact on a Diepsloot woman in a shack with a small food garden than someone in a million-rand apartment in Sandton.

In rural Africa, when the local pond dries up, and the forest line recedes, women have to walk and work longer hours in search of water and wood for cooking. Sadly, however, poor communities also bear the injustice of contributing the least to the problem.  

Globally, it is industrialised countries that have caused the problem through years of exploitation of coal, gas and oil to support their growth, which has released vast amounts of carbon dioxide and other greenhouse gases that have warmed the globe and caused climate change.  

Owing largely to the failure of rich countries to take action to stop emitting greenhouse gases, countries like South Africa which now sits amongst the top 20 emitters in the world, must also play a part in reversing the scourge.

But here too, a similar injustice is reflected – whilst industry and the rich enjoy easy (if frequently interrupted) access to energy in the form of electricity, which is the cause of most of South Africa’s carbon dioxide emissions, millions of poor households don’t even have access to power.

Those who do often have to make hard choices about prioritising food over fuel – as explained in a recent Oxfam publication, You Can’t Eat Electricity.

But South Africa is trying to make progress towards a low carbon future and a greener economy.  A low carbon economy could have significant benefits for addressing poverty and inequality whilst ensuring we are preserving the environment for future societies.  

As we've seen, coal based electricity prices continue increase year on year, putting more pressure on low income households.  Meanwhile there is evidence that the price of renewable energy is falling and could provide cheap or even free electricity to poor communities once installed, which will help to reduce the income gap.  Over and above that, as the Million Climate Jobs and other programmes demonstrate well, renewable energy could create 150 000 additional jobs making a positive contribution to the economy.

Earlier this year Finance Minister Pravin Gordhan announced that his department would be introducing a tax on carbon (dioxide) emissions and has recently produced a Carbon Tax Policy White Paper, intended to tax carbon emissions in order to reduce them and to move us towards cleaner, greener energy use.  

In this new green approach, government, business, civil society, unions and other stakeholders are in agreement that reducing our carbon emissions is not an overnight task and needs to be done progressively. This will be done whilst encouraging the development and adoption of new technologies that would trigger a shift from high emission practices towards a greener economy. 

While this sounds positive, the impact on poorer households who spend a disproportionate amount of income on food and energy (sometimes up to 40%) is massive.

So the question remains, how do we introduce a tax that could have both positive a effect on long term sustainable development whilst also addressing the present challenges of poverty, inequality and hunger? And how can we ensure accountability to the most vulnerable people in our society, such as women in poor communities?

The best approach is to put poverty, inequality and people at the heart of the policy.  Whilst the tax is being introduced to reduce emissions, it will also generate billions, possibly tens of billions of Rands in revenue.

This revenue could be put directly into reducing poverty and inequality. Government could increase poor household’s incomes, as the have  done in Brazil. They could ensure the revenues directly benefit households through a low carbon energy transformation such as providing free, or affordable, locally-managed renewable power that could create local jobs and could even eventually feed into the national power grid and generate income for communities.

An interesting suggestion in the policy paper, is that of “recycling” the revenues generated by this tax to up-scaling Free Basic Electricity – the 50kWh of free electricity given to poorer households as a way to cushion the potential prices increases that the carbon tax could have on lowest-income households.

In the Oxfam paper You Can’t Eat Electricity, a series of existing flaws in the system are documented, and it is suggested that 25% of indigent households in South Africa do not receive their free basic electricity due to a variety of implementation problems including municipalities taking this entitlement away as tool to force payment for water and rates.  

Whilst the concept of free basic electricity is worthy, throwing more money at this system doesn’t make sense without getting it to work properly. Besides, "recycling" doesn’t guarantee that the revenues will be used for anything in particular – it still suggests that the money will go back into the treasury pot and hopefully some of it will be allocated to schemes like free basic electricity.  

This is unaccountable and plays straight into the hands of those who want to prohibit this tax from going head by saying that it’s just another government fundraising tool.

Government can do better. One option that has been used in other funding mechanisms is to create an independent multi-stakeholder forum that has decision making and monitoring powers as to how the revenues from the tax are spent – so that people who are supposed to benefit are actually involved in the decision making.  This addresses the accountability issue.

By engaging more with stakeholders in civil society, labour, business, and, most importantly, women from poor communities who are most vulnerable to climate change, the tax could have a positive role in reducing poverty and inequality whilst still doing its main job of cutting emissions to save the planet.

Thembinkosi Dlamini is the Governance Manager of Oxfam in South Africa, specialising in tax. Rashmi Mistry is its Acting Economic Justice Manager, specialising in climate change



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