Carbon tax way too low to curb emissions, say experts

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. 

Too low

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.

Paris Agreement

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.