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Experts say the carbon tax introduced this week is so low it will have almost no effect in curbing South Africa’s greenhouse gas emissions that are increasing at a rate faster than the world average.
Companies will pay as little as 42 US cents a ton of carbon emissions, whereas an international study says a carbon tax should be between $50 to $100 a ton if it is to be effective in bringing down emissions.
But experts say that does not mean that South Africa’s new carbon tax is a waste of time. On the contrary, they welcome it as a major milestone in South Africa’s programme to tackle climate change, because for the first time the country has put a price on greenhouse emissions.
This means that the cost of these damaging emissions, which until now has been borne by society at large, will begin to be reflected on the balance sheets of the companies or institutions that produce them – the “polluter pays” principle.
The purpose of the tax is not to punish, but as Treasury says, to “nudge our economy onto a sustainable growth path”.
The low tax, designed to “cushion” the effect on companies initially, will be increased over time, giving companies the chance to work out ways to cut their emissions and so lower their tax bill.
Although the carbon tax, introduced on June 1, is set at R120 a ton of carbon dioxide emitted, the government has made allowances in this first phase of the tax, which runs until 2022. Effectively, companies have a tax-free allowance of 60%, which means the most they will pay is R48 a ton.
If they take advantage of the various other tax breaks in the new system, they could end up paying as little as R6 a ton.
Harald Winkler and Andrew Marquard of UCT’s Centre for Energy Research say there is no doubt that this current carbon tax rate is too low to transform the economy.
“It will reduce some emissions, but not at the scale required,” Winkler said.
He referred to the recent report by the High Level Commission on Carbon Prices that said countries should aim at $50 to $100 a ton of carbon by 2030 – about R750 to R1500.
Although the new tax is currently way too low to be effective in bringing down emissions, Winkler and Marquard say the move should nevertheless be “hailed as an important milestone” in the transition to a low-carbon economy.
They say the tax is a crucial way of responding to the climate emergency as it will raise awareness, improve reporting on emissions, and as the tax is increases over time, will provide a price signal to decarbonise the economy.
Andrew Gilder, director of Climate Legal, says the global move away from fossil fuels is one of the reasons South Africa needs the carbon tax.
“We absolutely need the carbon tax. You’ve got to look at the broad economic context over an extended period of time. Our economy is part of the world economy, which is inexorably moving to a low carbon economy. Nothing will stop that, not Trump or anyone can change that. And one of the drivers of that shift is the international climate change legal regime, of which South Africa is a part,” Gilder said.
Benefits and obligations
There were benefits to being part of the UN climate change legal regime, such as getting funding, but there were also obligations, such as reducing emissions.
“For instance, we need to rejuvenate our manufacturing industry, but we can’t do so if it is based mainly on fossil fuel. We’ve got to reduce our emissions profile. If we don’t, our economy becomes increasingly uncompetitive,” Gilder said.
Having no carbon tax or a low tax also laid a country open to border tax adjustments. For instance border adjustment taxes could be levied on goods imported into the EU, which has an emissions trading system, from countries that do not have an equivalent domestic price on carbon.
Treasury has said it will not ring-fence the money from the carbon tax, but has said it would recycle it back into the economy to support energy efficiency measures.
“That remains to be seen. If there is a financial crunch, the Finance Minister can use the carbon tax for other things because it is in his kitty,” Gilder said.
He said whether the carbon tax would be effective in forcing down emissions because they had become too expensive, and whether the tax revenue would support other energy efficiency measures, depended on the efficiency with which it was implemented.
The carbon tax is one of several policy instruments South Africa will use to meet its targets to cut greenhouse gas emissions under it National Climate Change Response Policy made in 2011.
Under the Paris Agreement, which South Africa ratified in 2016, the government made a commitment that the level of our greenhouse gas emissions would reach a limit by 2025, would remain at this level for 10 years, and then begin to decline from 2036.
South Africa’s greenhouse gas emissions have increased at 2.3% a year compared to the world average of 1.8% a year.
Cutting emissions won’t be easy in a country that uses coal to generate the bulk of our electricity, where renewable energy accounts for only 4.8% of electricity generation.
But Treasury, the Department of Environmental Affairs and SARS have said a “business-as-usual scenario” is no longer an option.
In a combined submission to Parliament in November these departments said the South African economy had to move onto a low-carbon growth path – and the window for making the right choices was “uncomfortably narrow”.
“The next two to three years are critical when many of our policy and investment decisions that shape the next 10 to 15 years will be taken. We cannot afford to lock-in polluting technologies and inefficient capital,” they said.