April 24, 2018

Those for and against carbon tax still at each other’s throats

The single point of agreement in the submissions on the draft Carbon Tax Bill discussed in Parliament’s Standing Committee on Finance last week was that the economy cannot cope with any more crippling taxation. The last thing citizens want to hear about right now are further tax increases, as they brace themselves for the additional 1% VAT from next month, but it appears the long-threatened carbon tax is back in the legislative pipeline.

It’s not going to hit next month, or even next year. In fact it has been the subject of discussion for almost 10 years, but it’s not going away. While it is hard to argue against reducing carbon emissions, there is little consensus about whether the proposed carbon tax is going to achieve that at all.

Earlier this month, Parliament held public hearings on the draft Carbon Tax Bill, and the Standing Committee on Finance together with the Portfolio Committee on Environmental Affairs faced about 30 submissions. They came from public interest groups, ranging from big business players such as Sasol and the Chamber of Mines, tax consultancies Pricewaterhouse Coopers and Deloitte and public interest groups including the Alternative Information and Development Centre (AIDC).

Relatively few rejected the notion that government has a role to play in reducing tax emissions – even if only because of South Africa’s commitment to the Paris climate accord –but that said there was relatively little agreement on what that role should be.

'We are concerned that the carbon tax is seemingly government’s only macro tool to address the crises of climate change' - Cosatu.

The first draft Carbon Tax Bill was published for public comment in November 2015. It followed an extensive public consultative process on carbon tax policy which started in 2010 with the publication of carbon tax discussion paper and further policy papers were released over the next few years.

The Carbon Tax Bill aims to enforce a tax on industry to meet the “sizeable reductions” in energy-greenhouse gas emissions agreed by South Africa in terms of the Paris Accord. The second, and latest, draft of the Carbon Tax Bill was published by Treasury in December 2017, and it called for a round of public submissions.

Treasury was at pains to assure consumers and business that the effects will unfold so slowly they will hardly be felt at all. The term it used to describe the carbon tax was “neutral”, at least when it comes to electricity. No increases will be passed through to consumers, at least for the first five years.

Treasury announced that implementation of the carbon tax “will be complemented by a package of tax incentives and revenue recycling measures to minimise the impact in the first phase of the policy on the price of electricity and energy-intensive sectors, such as mining, iron and steel.

"The impact of the tax in the first phase is designed to be revenue-neutral in terms of its aggregated impact, when assessed with the complementary tax incentives and revenue-recycling measures. Further, to ensure a minimal impact on the price of electricity in the initial phase, a credit for (or reduction in) the electricity-generation levy and the renewable-electricity premium (built into the current price of electricity) will also be introduced.”

Understandably efforts by National Treasury at the March public hearing to allay public concerns, even with its assurances that there was no rush to pass this Bill without sufficient consultation, did not gain much traction. This is understandable given that in December, when the Bill was published, Treasury was all for formally tabling a revised Bill by mid-2018.

It seemed no one was buying Treasury’s promise of low impact on the economy. In sum, concerns were raised that a carbon tax will inevitably further damage the economy because South Africa remains very largely dependent on fossil fuels, and the result can only in time be an increase in energy prices. This in turn will impact on fuel and food prices, and eventually electricity costs, and ultimately South Africa’s ability to grow the economy and create jobs.

It was also noted that there are sectors of South Africa’s economy that cannot reduce emissions because process emissions are part of the chemistry of the products being produced. Imposing a carbon tax on these sectors would not result in reduced emissions, but it could have the effect of closing down a number of companies with the loss of many jobs. It was argued that under the circumstances, imposing the carbon tax to reduce emissions could prove counterproductive.

If certain sectors are considered for exemption from the carbon tax, it surely defeats its own purpose. Already only 43% of emissions will be subject to the carbon tax, and is they who will carry a heavy burden to reduce emissions.

There was also the real concern that the carbon tax would not in fact deliver sufficient reduction in carbon emissions and questions were raised about whether revenue raised from carbon tax could be ring-fenced for mitigation initiatives.

In short, the mood was that alternative means must be found to meet South Africa’s international obligations without further buffeting its economy.

Cosatu pointed out the elephant in the room by asking if the shift towards indirect taxation is really the best, and only, tool that the state has at its disposal. Cosatu said “we are concerned that the carbon tax is seemingly government’s only macro tool to address the crises of climate change.

“This is far from enough to address this global crisis. We are concerned that it is being introduced in addition to increases in the VAT, fuel levies, health promotion levy and below inflation income tax bracket adjustments as well as reductions in state expenditure and public sector employment.

“We are worried that government is introducing a raft of new taxes but has no plans to soften their blows to the poor and the working class. These taxes treat the rich and the poor equally and are thus all regressive and not progressive.”

Non-profit organisation, the Industry Task Team on Climate Change, recognised South Africa’s commitment to address climate change but warned “a carbon tax is neither necessary nor suitable in the current economy,” the organisation said. “We furthermore assert that any policy instrument to reduce emissions should avoid unduly damaging the South African economy.”

Sasol, Business Unity South Africa (Busa) and others warned the carbon tax would add additional costs to the struggling economy. The reality is South Africa has an energy intensive economy, with limited access to lower-carbon energy alternatives, and a regulated electricity sector, all of which limits the impact of the proposed carbon tax.

The submission by Busa slammed the proposed tax as unnecessary: “National Treasury has stated categorically that a carbon tax is needed to ensure that South Africa meets its Nationally Determined Contribution under the Paris agreement. BUSA’s analysis of current performance in Greenhouse Gas emission reduction does not support this view and therefore it is BUSA’s opinion that the imposition of a carbon tax in the current economic environment without clear evidence that it is required poses an unnecessary risk of deterring both foreign and domestic investment.”

Representatives of the steel industry said there is no carbon-free technology to produce steel and by not imposing a tax on imports the impact on the sector could be devastating. They warned this could be to the detriment of the country’s manufacturing industry and that the carbon tax in its current form may have unintended and possibly irreversible consequences for the economy.

There were those who wanted to see the carbon tax imposed without further delay. The World Wildlife Fund (WWW) for example based its submission on “the polluter pays principle” and called for an increase in the tax, especially given that there has roughly been a five-year delay in imposing it.

The briefing inevitably raised the question: what has become of the ‘carbon budgeting approach’, which had been introduced in the National Climate Change Response White Paper of 2011. It proposed the use of a broad mix of different mitigation instruments, approaches, policies, measures and actions to make up South Africa’s mitigation policy, in a way that avoids harming the economy by introducing additional revenue-generating taxation.

Moira Levy

Additional information sourced from the Parliamentary Monitoring Group

Additional Info

  • Author: Moira Levy
Last modified on Thursday, 22 March 2018 19:05

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