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Carbon pricing

A taxing affair?

South Africa will see the introduction of carbon pricing within the next two years, following public commitments by President Zuma to reduce South Africa’s national carbon emissions by 34% by 2020 and 42% by 2025. Already we see Government departments mobilising on this. As part of its strategic plan, National Treasury has long been discussing fiscal instruments to promote reductions in carbon emissions from the South African economy.

Does South Africa need a carbon pricing mechanism...now?
“Will carbon pricing reduce emissions in South Africa now and can we afford it?”

Carbon pricing can reduce emissions and drive the implementation of clean energy and energy efficient technology. South African emissions make up barely 2% of world emissions and has more pressing needs, should a carbon tax be created.
A carbon tax is estimated to contribute approximately R83 billion to the fiscus. The tax is not likely to be ring fenced to support industry design to mitigate carbon emissions, potentially putting carbon intensive and export orientated industries at risk.
Carbon pricing should reduce the highest volume of emissions at the lowest possible cost. If not priced or levied correctly, a carbon pricing mechanism can result in emissions not being reduced to the extent required.

 

The option
As seen globally, there are two main market mechanisms by which these reductions can be achieved, the carbon tax and cap-and-trade systems.
Carbon tax
South Africa is not new to the idea of environmental taxes, although not on the same scale as the proposed carbon tax. Simply put, a carbon tax is an environmental tax placed on carbon emissions - resulting in a lump sum injection into the economy each year. Ideally, the price of a carbon tax would accurately reflect the cost of environmental emissions on society.		 Cap-and-trade
Cap-and-trade is a market based mechanism where a limit is fixed on the volume of emissions. The price of the carbon is set in a market, through what is known as the Cap-and-trade system. If a company exceeds the allowances in any given year, then the company is liable for large penalties. The company also has the option to buy in carbon credits from companies (locally, and ultimately across country borders) which have reduced emissions below the allowed limit and therefore have free allowances.

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