Proposed carbon tax rate for SA too low, say researchers

THE effective rate for the carbon tax to be introduced by January 2015 is too low and the proposed design is complex and not easy to understand, says the Energy Research Centre of the University of Cape Town.

In comments on the Treasury’s policy paper issued earlier this year, the centre calls for a simpler tax, but applied at the absolute level of R120 per metric tonne on 40% of carbon tax emissions, rather than the proposed minimum of R48 on 100% of the emissions after exemptions.

The centre said the effective tax rate, given the “complex set of exemptions” of between R12 and R48 per metric tonne of carbon dioxide, is too little to transform South Africa’s energy economy. The tax would not make a sufficient contribution to bending the curve of national greenhouse gas emissions, it said.

Energy and chemical company Sasol recently told Parliament that the implementation of the carbon tax in 16 months’ time was premature, too onerous and not backed up by adequate analysis.

Sasol’s presentation came after the South African Chamber of Commerce and Industry warned of the significant negative effects the tax might have on the economy and job creation.

ArcelorMittal SA has also warned that the proposed tax could cost the group R600m a year.

South Africa is well ahead of other countries in introducing a carbon tax. The level at which the Treasury is pitching the tax is also much higher than in other jurisdictions, Parliament’s trade and industry portfolio committee has been told.

The first period is from 2015 to 2019, with the rate increasing 10% per year until the end of 2019.

The rate of increase for the second period from 2020 to 2025 will be announced by February 2019 at the latest. The carbon tax is to be implemented as a fuel input tax and in principle will be levied across the South African economy.

“However, with all sectors receiving partial exemptions, some full exemption and some additional allowances, the tax base is less clear,” the centre said in its report submitted this month.

All sectors will receive exemption on 60% of the emissions, with the electricity sector receiving an additional 5% or 10% exemption, and petroleum getting an additional 5% or 10% exemption as well as an additional 10% for the fact that it is a trade-exposed sector.

Iron and steel, cement, glass, ceramics, chemicals and fugitive emissions from coal mining will receive exemptions of up to 85%, while the agricultural and waste sectors will be fully exempt.

The centre said the “basic tax-free threshold” of 60% means the effective tax rate is between R12 and R48 per tonne of emissions.