Progress on the South African Carbon Tax

COP 17’s Durban Platform includes a commitment by governments to adopt a universal legal agreement on climate change. This will include an agreement on how to share the available “carbon space.”
The atmosphere can safely absorb a limited amount of carbon but there is not much of this space left and each country wants a piece of it.

 

While the debate around what constitutes a fair allocation of this space continues, South Africa is surging ahead with policies to mitigate its carbon emissions. 

The National Climate Change Response White paper (http://www.environment.gov.za/PolLeg/WhitePapers/climatechange_whitepaper.htm) includes a carbon budget approach to allocate the country’s share of emissions within the economy. To help stay within these budgets various efforts to reduce emissions will be undertaken including the introduction of a carbon tax to shift behaviour away from carbon intensive activities.

A discussion paper dealing with carbon taxes in South Africa was released in December 2010. The recent Budget review included a proposed implementation date and various design features. A revised carbon tax discussion paper is expected in May 2012. Until this is released uncertainty remains on how exactly the proposed carbon tax design features will be implemented.

The current proposal is to implement the tax in a number of phases. The first phase, from 2013/2014 to 2019/2020, will include an initial carbon tax at R120 per tonne of CO2e emitted that increases with 10% per annum. The tax will be levied on actual carbon dioxide equivalent (CO2e) emissions calculated using “agreed” methods. There is significant uncertainty regarding methodologies to measure direct CO2e emissions but the need for accurate emissions is unquestioned and ties in with the move to mandatory reporting outlined in the White paper.

Not everyone will have to pay the tax directly.  A percentage-based emissions “threshold” will be set below which the tax will not be payable. Relief is suggested for trade-exposed firms and firms who have achieved significant carbon efficiency. Indirect exposure to the tax will depend on the extent to which costs are passed on to consumers.

Companies will be allowed to use offsets to reduce a portion of their carbon tax liabilities (ranging from 5 – 10% of their total emissions). Offsets present an opportunity for potential integration of the carbon pricing framework with local and international trading schemes but the market for offsets may be hampered if allowances and other support bring the price of carbon significantly below R120 per tonne of CO2e.

Linking the carbon tax to the carbon budget approach adopted in the National Climate Change Response White Paper may be difficult, but it is doable. The debate continues – we will have to wait and see what happens later in the year.
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