Fears that carbon tax could limit SA economy

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Cape Town – Concerns raised in the public comments on the draft carbon tax bill include the adverse effect it will have on the SA economy.

The standing committee on finance heard from public stakeholders, including researchers, industry representatives such as the Chamber of Mines and energy company Sasol. Consulting firms PwC and Deloitte also commented on the bill, as did mine company Sibanye Stillwater and other organisations.

National Treasury which also sent representatives settled fears that the bill would be signed off in haste without sufficient engagement. Treasury indicated that the bill would not be signed off until Parliament fully understands the implications of the tax. Last year Treasury communicated in a statement that it plans to have the bill tabled in Parliament by mid-2018.

The bill aligns with South Africa’s commitments to the Paris Agreement which requires “sizeable reductions” in energy-greenhouse gas emissions, according to Treasury.

Treasury expects the carbon tax to help in reducing emissions, and possibly the restructuring of the SA economy to be less emissions intensive.

READ: Carbon bill drops the ball on actual taxes

However, Professor Phillip Lloyd of the energy institute at the Cape Peninsula University of Technology drew attention on the impact of the tax on the economy.

He highlighted in a report that “any carbon tax” would likely damage the economy and lose jobs. “[This is] because our dependence on fossil fuels is so large that it will take many years before a significant fraction of that dependency can close,” the report read.

Over 80% of South Africa’s energy is fossil-based. Energy prices will likely be increased if fossil fuels are taxed, according to the report.

Lloyd suggested that carbon tax may not reduce emissions significantly, and would increase the cost of energy instead. This would make South Africa less competitive and further reduce the ability to create jobs.”

Commenting on the socio-economic impact of the tax, Deloitte submitted in its comments that the carbon tax would “inevitably” result in food price increases, especially for cheap, staple foods.

“We do not believe food price inflation was or should be an intended consequence of carbon tax, and it is particularly worrying that no mention of food price increases is made in the Socioeconomic Impact Assessment (SEIA).”

Deloitte expressed concerns that carbon tax would have an effect elsewhere on the value chain such as transport. The firm flagged that the carbon tax on diesel and petrol will eventually be passed on to consumers by producers and transporters.

Deloitte submitted that a carbon budget as opposed to a carbon tax is a better approach to take. “A carbon budget system is far simpler, resulting in less administrative burden and greater certainty to emitters,” the submission read.

Miner Sibanye Stillwater rejected the carbon tax because of the “dire economic consequences” it will have on its marginal operations, profitability and competitiveness and its sustainability.

The South African Iron and Steel Institute submitted that if a tax on carbon is issued, then the industry should be provided with some relief or exemption. But the industry body highlighted that the tax burden would still weigh heavily on the earnings of iron and steel manufacturers even if allowances are considered.

“The industry would be exposed to imports not subject to a similar tax making the South African industry potentially uncompetitive or not viable at all,” the submission read. The body said it was willing to continue engaging with Treasury on the matter.

READ: Carbon tax: SA can't afford it, says economist

Sasol expressed views that Treasury should not go ahead with the carbon tax, and that existing successful policy frameworks should be built on.  This includes the integrated resources plan and a carbon budget approach.

Sasol submitted that the carbon tax, proposed in its current form, “will add additional costs” to a struggling economy. Sasol suggested that focus be placed on longer term policy development.

Non-profit organisation, the industry task team on Climate Change recognised South Africa’s commitment to address climate change and welcomed a carbon tax, but not as proposed in the current bill. “It is problematic in its design and practical implementation,” the organisation submitted.

“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.”

The organisation believes that reduced emissions can be achieved through a carbon budget, the IRP and an industry policy action plan.

The hearings will continue for the remainder of the afternoon.


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