Theme 4: Carbon taxes and emissions trading schemes

Harald Winkler

Structuring approaches to pricing carbon in energy- and trade-intensive sectors: options for South Africa
Harald Winkler, Meagan Jooste and Andrew Marquard

This paper explores how energy-intensive (EI) sectors and those that are also tradeintensive (EITI) could be included in the use of economic instruments for mitigation in South Africa. Carbon tax or emissions trading are being considered as part of emerging climate policy.

Meagan Jooste

Economic instruments can make a major contribution towards South Africa’s goal of a deviation below business-as-usual of 34% by 2020. The paper identifies energy-intensive sectors, trade-intensive ones and compares the two. Reviewing international experience, it explores policy options for application in the SA context.
The rate of a carbon tax could be linked to energy or carbon content, with lower rates subject to an agreement with government on mitigation. If emissions trading were chosen, initial allowances should be auctioned. If permits were allocated administratively to EI or EITI sectors, this should be transitional and allow for an appeals procedure.

Andrew Marquard

Recycling of revenue would be desirable under either a tax or auctioning scheme, promoting efficiency, further mitigation and diversification in EITI sectors.
Policy favouring EI industry might need to be revised in favour of incentives for climate-friendly programmes. Access to a sectoral crediting mechanism on a no-lose basis deserves re-consideration. Targets for energy- or emissions-intensity could be set for EI and EITI sectors.

Prabhat Upadhyaya

Mitigation in India: Emission trading as a possible policy option
Prabhat Upadhyaya

It is important for countries to undertake actions at home in addition to engaging in the international negotiations. The Emission Trading Scheme can be one of the policy tools to promote mitigation actions, but has not yet been implemented in any developing country. The paper gives an overview of the climate change debate, carbon markets and proposed government action to tackle climate change in India. The paper studies the proposed Perform, Achieve and Trade (PAT) scheme in India, under one of its eight national missions to tackle climate change, besides identifying the key design aspects of emission trading based on international experience. The challenges that the PAT will face in the future, if it were to be a flagship programme to tackle carbon emissions as well, are highlighted. The key strengths that the country has to implement such a mechanism and factors that it needs to take into  consideration while it is finalising the implementation plan for an in-country enhanced energy efficiency trading scheme are investigated. Based on the initial study, emission trading research topics that need to be analysed in greater detail have been specified.

Tebogo Makube

Regulating energy demand and consumption in South Africa: Is carbon pricing sufficient?
Tebogo Makube

Globally, attention is being given to fossil fuels and their impact on climate change, environment, health and related issues. The economic policy issue is that carbon emissions represent a negative environmental externality, and in many cases the value of emissions is not easily monetised. Achieving sustained levels of economic growth, whilst protecting the environment and fostering sustainable development involves a complex trade-off. South Africa is not spared from this trepidation, because of high environmental emission levels brought about by its heavy reliance on fossil fuels for economic growth and development. Economic instruments are touted as cost-effective in dealing with climate change challenges. However, this study contends that economic instruments are important but not sufficient in comprehensively dealing with the impacts of climate change. In order to reduce emissions and transit towards low carbon economy, South Africa needs a myriad policy interventions to alter the economic structure which in the first place gives rise to environmental emissions. There is a need to reduce overall energy intensity whilst extracting more productivity and consumer welfare per unit of energy consumed. This will involve policy choices and complex trade-offs to balance the interconnection between economic growth, climate change  and sustainable development.