Carbon taxes

We have been following the space on the proposed Carbon Tax carefully. There is currently a lot of controversy in Australia concerning a Carbon Tax. Julia Gillard the Prime Minister, said when speaking on a wind farm in New South Wales “the government is committed to a renewable energy target, that 20% of the energy that we use comes from renewable energy sources by 2020, but that renewable energy target was always designed to work with the price on carbon”. Her belief is that to build towards a clean energy future it is imperative for the Australians to price and tax carbon emissions. It appears that that price will be AUD 20-30 per tonne, and the tax will commence in July 2012. Australia’s approach is that an initial fixed carbon price (taxable for emitters) will transition after three to five years to a “cap and trade” emissions trading scheme that will be linked to international carbon markets.

The interesting thing in Australia is that their Productivity Commission is concerned that the problem lies with countries applying a myriad of opaque narrowly focused interventions designed to assist the production and the consumption of selected less carbon intensive technologies. This of course penalises particular emissions intensive product processes. Gary Banks, Chairman of the Productivity Commission has said that in Australia they have 230 policies in this regard, over 300 in the United States excluding State based schemes and more than 100 in the United Kingdom. He says that once you move away from an economy wide pricing mechanism, to a multitude of fragmented schemes that target different products and emission sources comparable measurement becomes highly problematic. In their view understanding how the various policies work is an essential first step to considering how the policies designed to produce lower carbon emissions must either provide incentives to abate, or disincentives to emit carbon. Will Qantas pay on all flights, or just domestic ones?

Our concerns in South Africa are similar – Cecil Morden of National Treasury was quoted in the Mail & Guardian on Friday 25 March 2011 as saying as “an emissions tax which applied directly on measured Carbon Dioxide emissions was the best option”. However, in the Integrated Resource Plan for Electricity 2010 – 2030, at paragraph 5.7 the report says “additional coal options would be undermined by a Carbon Tax regime, which would render South African industries less competitive and put economic value, jobs and country growth at risk”.

Part of the debate in Australia concerns what the revenue from the Carbon Tax is going to be spent on. The Green Party in Australia want to spend that money tackling social problems. Mrs Gillard has said the government will use every cent to help families with household bills and help businesses to make the transition to a clean energy economy. Opposition politicians in Australia estimate the tax will put AUD 300 on an annual household electricity bill and six cents a litre on the price of petrol. The Mail & Guardian article said Eskom’s emissions were 224,7 million tonnes for the past year – this would earn the government good tax money but Eskom will be begging NERSA for a concomitant tariff rise. It is imperative that if South Africa is going to impose a Carbon Tax, that their policy framework be carefully thought through. Will the money collected from such a Carbon Tax be used to incentivize clean energy mechanisms? What fiscal recognition will large businesses with substantial Carbon Emissions get for changing their behaviour? There will be substantial compliance costs for business if there is to be a Carbon Emissions Taxation Act together with Carbon Emissions Taxation (Administration) Act.