C-tax 2013 – a bit later, but broader and for sure?

An initial assessment of Minister Gordhan’s budget speech for 2013 suggests that the carbon tax proposal has been deferred. It has not been dropped, but a definite date set – for 1 January 2015.

Last year, the Minister proposed a similar tax for the 2013/14 financial year, this year he indicates it should come into effect on 1 January 2015 – a more precise date. The Minister has also given his department, Treasury, a deadline to release an “updated carbon tax policy paper” – something mooted last year, but not published.

The carbon tax remains at the same level as proposed last year, R120 per ton CO2-equivalent. As before, there are thresholds that effectively lower the tax rate by 60%. Ideas for better-designed thresholds, related to sector-average baseline for emissions and electricity as well as production, have not been incorporated, it seems.

The intention seems firmer to price carbon. The carbon tax is listed a second time (with the same date) as one of the “main tax proposals for 2013”, although it indicates that this particular tax will happen in 2015.

The carbon tax in the 2013 speech is placed in the context of a more substantial section on “low carbon economy”. So the particular economic instrument, the carbon tax, is placed together with fuel standards; spending on solar water heater, renewable energy, low carbon public transport, and other environmental goods; and finally, South Africa’s Green Fund, which is increased by R300m to R800m. The latter is substantial, but still a tiny fraction of investment in electricity supply, coal haulage to Richards Bay or other parts of the infrastructure programme.

A bit more detail is given the Budget Review chapter 4 that deals with tax proposals. The carbon tax is considered as one of the “indirect tax proposals” (ch. 4, p. 57). The overall aim is to align the  carbon tax, energy-efficiency savings tax incentives and the electricity levy. The carbon tax is to be phased in, rising at 10% per year, while the electricity levy is phased out. The exemptions for energy-intensive and trade-exposed (EITE) sectors are still at a basic rate of 60% – thus reducing the effective tax rate to R48 / t CO2-eq. Some revenues from the carbon tax will be used ot help these sectors increase their energy efficiency, through the “energy-efficiency savings tax incentive”.

There is also a proposal to phase out the electricity levy, that is a 3.5c/kWh levy on non-renewable sources of electricity. This in effect will broaden the carbon tax to other sectors.

In two areas, levies and taxes that encourage cleaner transport and lighting are increased. Noting that existing levy of R70 for every gram of GHG emissions above 120 g CO2 / km has been correlated with decreasing average CO2 rates – the levy is increased to R90. And for double cab vehicles, the increase is from R100 to R125 – but their threshold is higher at 175 gCO2 / km.

The levy on incandescent light bulbs goes up from R3 to R4 per bulb on 1 April 2013. Guess an outright ban might have been seen as an April fools’ joke – or made some customers incandescent with rage.