Carbon Tax Discussion Paper Published for Comment

National Treasury

National treasury has published the carbon tax discussion paper for public comment.

The policy was approved at cabinet’s last meeting of the year last week in Pretoria.

According to a statement released by the treasury, the paper seeks to add to government’s regulatory efforts to address environmental challenges. Government wants to curb carbon emissions.

The paper flows from South Africa’s commitment at Copenhagen in 2009 to reduce greenhouse gas emissions by 34% by 2020 and 42% by 2025 below the business as usual scenario.

Reference is also made to the long-term mitigation scenarios and the recently published national climate change response green paper.

They both acknowledge the importance of market-based policy measures, such as an escalating carbon tax, to price carbon.

The idea behind a carbon price is that “the cost of climate change can be reflected in the price of goods and services”.

“A carbon tax seeks to reflect the external costs of greenhouse gas emissions causing climate change, and should help to create a level playing field between high- and low- carbon emitting sectors”.

The introduction of a price mechanism is designed to influence consumer and producer behaviour. 

Issues discussed within the paper include:

• The economics of climate change
• The role of carbon taxes in reducing emissions at the least cost possible
• Comparison between regulatory and market-based policy measures
• Comparison between carbon taxes and emissions trading schemes

The paper advocates the gradual phasing in of a carbon tax as the best way to deal with concerns around competitiveness.

Three carbon tax options are discussed:

• Emissions tax on measured carbon dioxide emissions
• Upstream tax on fossil fuel inputs
• Downstream tax on products derived from fossil fuels

The statement reveals that the emissions tax option is currently regarded as the best option.

“A tax on actual measured emissions would require appropriate institutional capacity to measure, monitor and verify actual emissions”.

One advantage of an upstream tax, however, is that it could “piggyback on the existing tax administration system”.  It would be based on the estimated carbon content of the fuel in question.

Phasing in of the tax at low rates in the beginning would provide certainty to taxpayers. They would also be able to adjust to the tax over time as the rate increased.

The paper is available on the treasury's website.

Sabinet Cape Town Office

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