/ 15 March 2019

Carbon tax gets a muted welcome

What the fog: Despite managing its air pollution poorly
Challenges in overcoming legacy of air and water pollution are ‘enormous’ in South Africa. (Mujahid Safodien/AFP/Getty)

A carbon tax from June  1 this year will add 9c a litre to the petrol price and 10c to diesel. This comes on top of the recent hike of 74c a litre to cover exchange rate and product changes — and there might be more of those to come.

There will also be a general fuel levy increase of 15c a litre on April  3, as announced by Finance Minister Tito Mboweni in his budget.

The carbon tax on fuel, which will go into the general revenue fund and not towards environmental expenditure, is an attempt by the government to honour its climate change commitments. South Africa agreed at COP15 in 2009 to cut its emissions by 34% by 2020 and 42% by 2025.

The Carbon Tax Bill, tabled in 2016, has been adopted by the National Assembly and is being processed by the National Council of the Provinces.

Notably, though, Eskom is intent on being exempted from the new carbon tax until 2022 because, in part, the utility already pays an electricity levy on its generation of nonrenewable electricity.

According to Harald Winkler, from the Energy Research Centre at the University of Cape Town,“the utility is paying 3.5c per kilowatt-hour in a levy on electricity generated from non-renewables, so that was considered an indirect carbon tax and the utility said it won’t pay a direct carbon tax at the moment”.

Eskom is the largest carbon dioxide emitter in the country. According to its 2018 annual report, it produces 205.5-million tonnes each year.

But the utility manages its air pollution controls poorly, which severely affects people’s health. According to a presentation to the department of environmental affairs in 2017 by United Kingdom-based air quality and health expert Dr Mike Holland, pollution from Eskom’s coal power stations is estimated to cause the premature deaths of more than 2 200 people a year and results in thousands of cases of bronchitis and asthma in adults and children.

Areport by United States coal plant expert Ranajit Sahu, released in February, showed the utility had failed to meet its own air quality standards over a 21-month period until December 2017. Its coal power plants exceeded its already lenient licence conditions nearly 3 200 times.

In response to questions, Eskom said it supports the carbon Bill. Deidre Herbst, Eskom’s senior manager for environmental management, said: “With the mechanisms that national treasury have put in place, the impact of the Bill in its current form is expected to have a negligible effect on Eskom until the end of 2022. After 2022, the removal of the renewables rebate can be expected to have quite a significant impact on electricity price increases in 2023 onwards.

“Eskom is undertaking financial modelling work to determine this full impact. The results of this work will continue to be shared with the national treasury.”

Meanwhile, Eskom has to find alternative and less harmful ways to generate electricity.

According to Louise Naudé, the manager of the low-carbon frameworks programme of the World Wide Fund South Africa,Eskom “is supposed to be producing a public good for everybody in the economy. It is going to be exempted for a few years, which will give it enough time to make its electricity less and less dependent on coal.”

The issue is not without controversy. Environmental critics say the Bill is too little too late, but those promoting it say it should be seen as the beginning of a transition.

There is also concern that allowances during the transition phase are too generous and others take a more cynical view and see the tax simply as a ploy to collect more tax without necessarily reducing greenhouse gases.

And then there are those who are pleading to be completely exempt from it.

All emitters will initially get an allowance of 60% and only be taxed on 40% of their emissions. But in some cases, depending on how emitters compare with one another, the allowance can be as much as 95%.

The initial tax will be set at R120 a tonne, which Bobby Peek, the director of nonprofit environmental justice service GroundWork, sees as being too low. He saidthe tax should be much higher for it to have an effect.

“The idea of a carbon tax is not enough. International research indicates that to move the market the tax needs to be between R560 and R1 120 per tonne in 2020, and that it must rise from there.”

In reality, Peek said, in reality, the effect of the allowances “allows so many loopholes that the actual rate will be between R6 and R48 a tonne”.

Naudé was also critical of the rate: “The allowances can add up to 95%. Companies were very strong in lobbying against this tax, so basically they won the day. There were others who understood the bigger picture and understand we need to reduce our carbon emissions. It’s not all businesses who were resisting this; it’s only those who were heavy emitters.”

The tax may be low, but companies are still pushing back. In Parliament on Tuesday, the Airlines Association of Southern Africa argued that the tax will undermine the competitiveness of local flights.

But according to Climate Neutral Group’s country director for South Africa, Franz Rentel, although this will be the case now, eventually international operators will be subject to carbon taxes too.

Chemical company Sasol said it was ready to comply with the carbon tax, but it had some reservations about how this has been structured.

Johan Thyse, Sasol’s vice president of regulatory services, said: “To ensure that South Africa’s transition is orderly and just, developed policy needs to be clear and cohesive.

“We remain of the view that policy in the form of standalone carbon tax in its current design is not in the best interests of South Africa as it further diminishes the country’s investment attractiveness and competitiveness.

“It appears to be drafted in a manner that prioritises revenue collection over mitigation.”

Business Unity South Africa (Busa) also complained to parliamentarians about the structure of the Bill.

“The tax should factor current economic circumstances. Busa is not opposed to the carbon tax [but] there are certain principles in its current form that warrant further revisiting,” said Jarredine Morris, the organisation’s energy and environment manager.

Trade union federation Cosatu deemed the tax “lazy”, adding that it is “concerned at government’s late approach to resolving climate change and its many other crises”.

“We are equally appalled by the business profit-above-all-else approach. However, we do concede that government has lowered the levels of the tax in response to industry and workers’ concerns.”

Tshegofatso Mathe is an Adamela Trust journalist at the M&G