On Tuesday 20 November, the Carbon Tax Bill was tabled in South African parliament by finance minister, Tito Mboweni. The bill introduces a carbon tax, a new financial instrument which charges industries a tax in an internationally agreed effort to curb excessive carbon pollution. Paulina French looks at the new solution and asks who will really pay the price for obscene corporate pollution.
In October 2018 the introduction of a carbon tax (CT) was announced in Tito Mboweni’s Medium Term Budget Policy Statement. The Carbon Tax Bill was tabled in parliament on 20 November 2018 and is effective from 1 June 2019. It has taken a significant time to get to this point given that a carbon tax (CT) was first discussed in 2010.
The recent decision to introduce a carbon tax (CT) ties in with South Africa’s obligations to meet its carbon emissions targets as set out in the December 2015 Paris Agreement to which it is a signatory. The purpose of the agreement is to drive action against climate change and to fast-track and intensify investment in order to drastically reduce the levels of carbon dioxide pollution. Countries party to the agreement must report regularly on their carbon emissions and the efforts that are being made to reduce these to the agreed levels.
In South Africa CT is to be implemented in phases, with the first phase running from 1 June 2019 to 31 December 2022. The second phase is then expected to start in 2023 and the hope is that this will be fully implemented by 2030. The purpose of the tax, much more than raising revenue for the fiscus, is to try and change the behaviours of polluters by forcing them to pay for the detriment they cause the environment. The tax will be levied on those companies who exceed the permitted carbon emissions threshold. It is hoped that the tax would act as a deterrent for polluters and would encourage innovation that would bring about a low-carbon economy. This should also stimulate the economy overall in that it will bring many new business opportunities — and with that jobs.
What does this mean for the price of electricity?
The bill specifically states that “the introduction of the Carbon Tax for the first phase will not have an impact on the price of electricity.” It goes on to state that “this will be achieved through a tax credit for the renewable energy premium built into the electricity tariffs and a credit for the existing electricity generation levy.” This existing Environment Levy applies to local energy producers who use non-renewable fuels and environmentally hazardous sources to generate electricity.
Given the incentive to produce greener energy it is hoped that electricity producers will calculate their carbon tax liabilities taking into account all the tax-free thresholds and potential rebates available to them. Once the tax liability has been calculated the producer is then permitted to deduct the electricity generation levy paid for the tax year as well as a Renewable Energy Premium (determined by the Minister of Finance on an annual basis).
The principle is that polluters must pay a tax for the damages they cause to the environment. But it is highly likely that these costs will simply be passed on to the end-user, perhaps leaving consumers worse off. We have seen consumers push back on proposed electricity increases and achieving some success for these efforts. Nonetheless, Eskom’s continuing financial and operational troubles may mean that once again we will be forced to carry the penalties imposed on the national power authority through CT.
A ticking timebomb globally
On 18 September 2018 the Organisation for Economic Cooperation and Development (OECD) reported that Governments needed to raise carbon prices (prices applied to carbon pollution) much faster, if they were to meet the commitments formally agreed to in order to cut emissions and thereby slow the pace of climate change.
Angel Guria, the Secretary-General of the OECD, reported that the gap “between today’s carbon prices and the actual cost of emissions to our planet is unacceptable”. The report shows the carbon pricing gap by country and across industries. The gap measures how far behind OECD and G20 economies are when it comes to pricing their carbon emissions.
In 2015 Russia had a pricing gap of 100%, China 90% and the United States was sitting at a 75% gap while South Africa was at 89%. This is incredibly high given our industrialisation is a fraction of that of these economies.
Countries with a low gap tend to produce fewer emissions than countries that do not price carbon emissions. Switzerland has the lowest gap at 27%. They are years ahead because they have been recovering CT from high-polluting industries since 2008.
China has taken a different tack by establishing what is hailed to be the largest carbon market in the world. Instead of taxing corporates for their carbon emissions they are incentivising energy producers to do the right thing and have launched the nationwide carbon emissions trading scheme (ETS) in an attempt to meet their carbon budget. In Argentina and Singapore, CT is expected to come into force in 2019.
Unfortunately, one of the world’s biggest contributors to carbon emissions, the USA, reneged on the Paris Agreement in June 2017. By doing this the Trump administration has sent out the message that the future sustainability of the world is of no concern to them.
Who will pay, really?
There is an argument that in countries like South Africa, where poverty is widespread and the majority of the population live below the poverty line, a CT will only add to the overall downtrend of the country’s economy. As always the poor will be most affected as the effects of climate change add a further burden to their daily lives that is outside of their control. The poor will simply not have access to the resources they would need to stave off or survive the effects of natural disasters brought about by the exacerbated rate of climate change due to the apathy, and perhaps even the wanton disregard, of their richer counterparts.
Pope Francis writes in Laudato si’, his seminal statement on the environment addressed to “every person living on this planet”:
We know that technology based on the use of highly polluting fossil fuels — especially coal, but also oil and, to a lesser degree, gas — needs to be progressively replaced without delay. Until greater progress is made in developing widely accessible sources of renewable energy, it is legitimate to choose the less harmful alternative or to find short-term solutions. But the international community has still not reached adequate agreements about the responsibility for paying the costs of this energy transition.
Mutual responsibility and accountability by the world’s governments to safeguard the environment is the intention behind the implementation of a CT. But success in this widely adopted mandated depends on a number of factors. These include the implementation, collection and the subsequent ring-fencing of CT recovered which needs to be reinvested in the development and production of much cleaner and more sustainable energies locally.
It is imperative that governments work together with industries to achieve this. It remains to be seen whether the main industry players, such as Eskom and the South African Fuel Industry, will absorb the resulting CT and assume responsibility for their hazardous emissions. It is much more likely that without shame they will force us to pay for their sins.
We can of course still hope that our new Minister of Environmental Affairs, Nomvula Mokonyane, will provide the leadership needed to move our country towards becoming a low-carbon economy for the benefit of all and find ways to take polluters to task — but that remains to be seen.