Carbon tax – writing on the wall?

A renewed interest in the concept of carbon pricing was ignited by the publication of the “Discussion Paper for Public Comment Reducing Greenhouse Gas Emissions: The Carbon Tax Option” (the “Discussion Paper”) published by the National Treasury in December 2010.

According to the Discussion Paper, the paper was aimed at building on “the work contained in the Environmental Fiscal Policy Reform Paper” published as early as 2006.

In terms of the Discussion Paper “the two main economic policy instruments available for putting a price on carbon and curbing GHG emissions are carbon taxation and emissions trading schemes”. The Discussion Paper itself was intended to “consider the economic rationale for introducing a carbon tax” while it was stated that the “next phase of government’s investigation into a carbon pricing regime will elaborate on the economics, design and practicality of an emissions trading scheme.” In this regard, it was stated that the policy discussion in respect of an emissions trading scheme (“ETS”) would be published for comment next year that is, 2011.

The impression created by the Discussion Paper was, therefore, that the introduction of a carbon tax in South Africa was not a fait accompli but rather an option under consideration within a process of public debate.

The policy discussion in respect of ETS has not as yet been published and it is only expected to be published in August 2012. In the interim, however, a framework for the introduction of a carbon tax was announced in the 2012 Budget Speech together with the proposal that a carbon tax be implemented in 2013/2014 at a rate of R120 per ton of carbon tax equivalent (CO2e) on direct emissions.

The extent of the detail of the framework for the proposed carbon tax as announced in the Budget Speech appears to suggest that a decision to proceed with the carbon tax option as the preferred carbon pricing mechanism, including the design thereof, has already been made. This contention finds further support from an indication that it is intended that National Treasury’s “next steps” is the release of carbon tax legislation for comment in May 2012.

An optimistic view may, however, be that it is not in fact the end of the road for public debate but rather that it is intended merely as a parallel process in the event that it is ultimately decided that carbon tax is indeed the most suitable carbon pricing option for South Africa.

It is hoped that cognisance is taken of the lengthy nature of the Australian experience in determining the most suitable design for the imposition of a carbon pricing mechanism, and that such a decision is not taken prematurely within the South African context. Needless to say it is evident that companies should start positioning themselves, if they have not already started, for the measurement and verification of their greenhouse gas emissions.