Treasury speeds up talks on carbon tax

Wednesday, March 16, 2011
Chris Bathembu

Johannesburg - Government is pushing to have a revised paper on the proposed carbon tax ready before the next budget is tabled in February 2012. Officials say the tax could be in force as early as July next year. 

The National Treasury is currently having wide ranging consultations on the proposals, with more than 79 written submissions received since a discussion paper on the proposed tax was published in December. A draft carbon tax policy had already been approved by Cabinet and will soon be tabled before Parliament.

Based on the "polluter pays principle", government wants to use the carbon tax to reduce South Africa's greenhouse emissions while ensuring that polluters are "punished". It forms part of South Africa's commitments, made in Copenhagen in 2009, to reduce the country's carbon emissions by 34 percent by 2020 and 42 percent by 2025. 

Already South Africans are paying 2c per KWh following the electricity generation levy announced in 2008, and as from this year, all new cars will also be subject to carbon taxation. 

While the move to introduce a direct carbon tax on measured emissions may hit company profits and hurt consumers, authorities are adamant that if Africa's biggest economy fails to act on climate change, the impacts could be devastating. 

"It's either you believe that there is a problem of climate change or you don't believe and if you don't believe, we have a problem ... What we know is that we need to act now and the tax is one of the instruments we will use," the Treasury's Deputy Director General, Ismail Momoniat, told industry leaders at a workshop on Wednesday to gauge the response to the proposal. 

He later told reporters that government will not use the carbon tax proposal as another way of generating revenue but sought to "change people's behaviour". Economists have projected that, if implemented correctly, the tax could add another R82 billion to the national fiscus. 

"We see this as a major instrument in changing behaviour and we are not saying it is not a hard choice ... We cannot sit back and do nothing; any delay will have serious impacts on the future," Momoniat said. 

He said the money made from proposed tax collection could be channelled to other government priorities or help support green economy initiatives and environmental lobby groups.

While there has been no final pronouncement on the matter, the Treasury is still mulling a tax of R75 per tonne of CO2, which could increase to around R200 per tonne CO2. 

At the workshop, business also wanted to know if there would be some kind of benchmarking and whether government would consider sector specific tax reductions and exemptions to protect the competitiveness of key industries. 

There were also concerns about emissions trading, with Business Unity South Africa wanting to know if there would be economic incentives or rewards for targeted reductions. 

Cecil Morden, Chief Director for tax and policy at the Treasury, said carbon taxes have proved to be successful in countries like Norway and some Caribbean nations.

"While we understand that we cannot compare ourselves with other countries, it is important to note that it has been successfully implemented and it's working," said Morden.

China and Australia have also made similar proposals.