Carbon Tax: The start of the transition to a low-carbon economy?

The Carbon Tax Bill is currently before the National Council of Provinces on its journey to becoming law on 1st June 2019. The Minister of Finance has announced that at this time, motorists will have to pay an additional fuel levy of 9c a litre on petrol and 10c a litre on diesel. Narrowly, the cash strapped motorists amongst us will feel the pain and further inflationary pressures are likely to result from the increase. Conversely, those of you that are concerned about the environment and the effects that carbon emissions or so-called “greenhouse gases” have on global warming may welcome this news.

But, as with so many of the policy changes that lead to new law and the implementation of new measures such as the Carbon Tax much Is not what it first seems. Alas, there is no commitment on the part of the Minister of Finance to earmarking revenues gained through the carbon tax for environmental projects aimed at climate change mitigation or adaptation. Instead, these revenues will accrue to the general revenue fund. You decide if that should give you cause for concern!

What can be said with certainty is that the introduction of Carbon Taxes in an attempt to stimulate transition to a low-carbon economy should be welcomed if they lead to this outcome. Indeed, bearing in mind that South Africa is among the dirtiest energy producers on planet earth (a bit ironic given recent load-shedding) and one of its heaviest greenhouse gas emitters, the new legislation comes not a moment too soon. In 2016 South Africa was a heavier carbon emitter than countries such as the UK, France and Italy, all comparative industrial giants compared to us. Scientists also tell us that South Africa has been warming at twice the global average! As a water scarce country that is highly susceptible to climate-change we should be concerned, very concerned!

Predictably, large-scale fossil fuel producers such as Sasol and heavy fossil fuel users such as the mining companies (represented by the Minerals Council) and Eskom have reacted negatively to the proposed Bill. They advance arguments around the negative impact carbon taxes will have on profitability, competitiveness and even our attractiveness as an investment destination. The truth though is that Sasol emits more greenhouse gas than Portugal and by its own admission Eskom emits over 205 million tonnes of carbon into our atmosphere every year (less when it can’t keep its coal-fired power stations running!). That health experts have estimated that pollution from Eskom’s coal-fired power stations may cause the premature deaths of more than 2200 people a year, not to mention the thousands of cases of respiratory diseases might be a shock. But not when one considers that for the 21-month period prior to December 2017, Eskom failed to meet its own air quality standards, and it transgressed its license conditions in this regard more than 3200 times!

The Carbon Tax Bill provides for allowances wherein emitters will only be taxed on a part of their emissions. At the outset all emitters will only be taxed on 40% of their emissions. But guess what? Eskom is lobbying to be exempted from the new carbon tax until 2022! Critics of the Bill say the proposed Carbon taxes of R120 per tonne are insufficient to induce change of the kind that is required to shift our economy onto a more carbon neutral development path, and that the Bill is a capitulation to big business. Others argue that the Bill doesn’t take into account economic circumstances at a business and household level. Many contend that the Bill is too little too late. Seemingly, when all is said and done, South Africa is torn between its addiction to coal and the need to clean up its act as one of the worlds biggest carbon emitters.

While great strides have been made with the emergence of renewables in South Africa, they only account for around five percent of power generated in the country today. Our dependence on coal for power is relatively inelastic and will only decline very slowly thanks to the commissioning of the Medupi and Khusile coal-fired power stations which will demand vast quantities of coal for 30-40 years to come. Nevertheless, whatever the possible shortcomings of the Carbon Tax Bill, it is the best attempt yet to call our largest greenhouse gas emitters to order so far.