/ 16 November 2016

Carbon tax: Saving the world on the cheap

Carbon emissions would be dramatically lower with a carbon tax
Carbon emissions would be dramatically lower with a carbon tax

South Africa can cut its carbon emissions by a third and dent the progress of global warming. All it has to do is sign off on a local carbon tax. This will make business pay for its pollution and encourage it to lower emissions. And the cost is minimal.

Progress towards this goal has been slow. Business says a carbon tax will hammer productivity and force it to shed jobs. Government, led by the treasury, says the world is warming and companies have to pay for their role in that. Both sides need to win over the people who will ultimately pay for the tax – you.

The treasury’s release of new research – Modelling the Impact on South Africa’s Economy of Introducing a Carbon Tax – takes the country one vital step closer to that tax.

Why do we need a tax?

This week, the United Nations said that 2016 will be the hottest year ever recorded. Fifteen of the 16 hottest years ever recorded have come this century. The planet is warming and the burning of fossil fuels is the major culprit.

South African industry has a big role to play in global warming. Cheap electricity means the Vaal Triangle’s industrial complex pumps out massive amounts of pollutants. Sasol’s Secunda plant was, for a long time, the single most polluting factory in the world.

These emissions also add to local health problems such as asthma. The World Bank says air pollution kills 20 000 people in South Africa every year, costing the economy R300-million a year. But that cost does not appear on companies’ balance sheet. The carbon tax puts the health cost on the balance sheet and gives industry a reason to clean up its way of doing business.

What will it do?

Treasury released its first carbon tax policy paper in 2013. At that point, South Africa had committed itself at the Copenhagen climate conference to lower its carbon emissions by 42% by 2025. The environment department put a lot of effort into planning for reduced emissions.

But little progress was being made, so treasury sought to create a system to force some momentum. It said: “The tax is designed to provide a price signal to producers and consumers of carbon intensive products, creating an incentive to invest in cleaner technology and reduce emissions.”


The tax was pegged at R120 a tonne of carbon or other greenhouse gases that an industrial facility emitted. Companies would have a five-year period in which they would get discounts for doing work towards lowering their emissions. Treasury’s new research examined this policy and concludes this balance between the carrot and stick would “have a significant impact on reducing the country’s emissions”. By 2035, emissions would be down 33%, it says.

What’s the cost?

Previous analysis – as part of the battle to win hearts and minds – only looked at the effect of each industry paying R120 a tonne.

Treasury’s new research looked at the real cost of the tax to 2035 and found that it won’t throw a rusted wrench into the economy: “These emissions reductions are delivered while realising sustained growth in the economy.”

Annual growth will have up to 0.15 percentage points shaved off it. So if the economy was going to grow 3.5% this year, it would grow 3.35%.

That’s still money and money creates jobs

Carbon taxes are aimed at large-scale changes in how entire economies work, moving them from models that burn fossil fuels to ones that use alternative energy. That makes coal much less cost competitive and shakes things up.

Treasury modelling says that by 2035 coal power generation would be down 46% on where it would otherwise be without a tax.

The iron and steel sectors also have their growth slowed. But when one industry fades into extinction, others step into the gap created: exports for textiles, transport equipment and electrical machinery would grow by 7% a year.

Where will the tax go?

Treasury does not ring-fence money, but has said the carbon tax revenues will be pumped back into the economy. The electricity levy will be lowered and credits will be given towards the premium consumers pay on renewable energy. These, and other rebates, will help industries that lower their emissions to rapidly grow.

What if we don’t have a tax?

Per capita, South Africans are in the top 15 carbon emitters in the world. That’s mainly because of how carbon-intensive Eskom’s electricity production is. So South Africa isn’t a small fish. Those emissions warm the world.

Global warming is particularly nasty for Southern Africa, with more intense flood and drought cycles predicted.

But it is also a question of competition. Countries South Africa exports to either have carbon taxes (the European Union bloc) or are implementing them (China) and they will make life tough on imports that do not reflect the whole cost of producing them. The EU has already threatened border tax adjustments on the United States if it scraps its actions to reduce carbon emissions. This will mean a tax on imports that stops those imports competing. Without a carbon tax, South Africa won’t have markets.

What next?

In releasing this report, treasury said the tax would reach the final stage by early 2017. This would “nudge our economy on to a more sustainable growth path”. Carbon emissions would be dramatically lower, pushing the South African economy towards a renewable path.