South Africa committed in 2009 to reduce its carbon emissions by 34% by 2020. Every government department was then told to do its part, and treasury chose a carbon tax.
In this year’s Budget speech, Pravin Gordhan said the tax would start on January 1 2015.
The tax would force the external costs of fossil energy – health problems and environmental damage – to be included in the cost of anything produced by this energy. This would change behaviour and make renewable energy sources more attractive, said treasury in the policy paper. This is a strict interpretation of the “polluter pays” principle, which is contained in other environmental legislation.
Alex McNamara, a carbon finance specialist at Camco Clean Energy, said the tax will help change the current unsustainable mix of South Africa’s carbon-intensive economy, with considerable health and water related benefits. Oil is also the country’s largest single import, and lowering this would greatly help the balance of payments, he said.
The tax would encourage companies to change their habits and use already constrained resources more efficiently. This would make them more competitive in the medium to long run, he said.
All sectors start with an immediate 60% discount on the tax. Those that need to compete on international markets, like in the iron and steel sector, get a further 10% reduction. They can then trade carbon credits to lower it by another 5% to 10% – buying credits from initiatives that lower carbon emissions.
The tax will fall heaviest on the energy sector. National greenhouse-gas emission are 570-million tonnes a year, making South Africa the 13th largest emitter per capita in the world. Eskom is responsible for 230-million tonnes, but gets a 70% discount. This is up from the 60% discount proposed in previous documents, and means they would have to pay around R8-billion a year.
The parastatal has consistently said it could not absorb this tax, and would pass it onto the consumer.
But in the release of the last policy paper on Thursday, treasury insisted that the impact on households would be minimal. Chief director for economic tax analysis at the treasury, Cecil Morden, who has been driving the tax, said the price of electricity and petrol would only increase by a few cents as a result.
The net impact on the energy sector could be neutral, as treasury said it would ease away the current tax on non-renewable sources of energy. This is roughly equivalent to the tax that Eskom would face.
Mike Rossouw, chair of the Energy Intensive User Group of Southern Africa, said local companies were amongst the most efficient in the world so could not really lower their emissions without huge cost. The problem was with Eskom, and whatever they did would mean little if it still relied on coal to generate power.
The Treasury also said that it expected to raise R8-billion to R30-billion a year from the tax. Environmental groups have called for this to be ring-fenced and only used for green projects, but this is not treasury policy. Instead, it would earmark the money for incentives and tax reductions that lowered the impact on poorer people, and then on industry, it said.