Revised Carbon Tax Policy Paper in the Pipeline

National Treasury

The finance minister, Pravin Gordhan, has indicated that a revised policy paper on a proposed carbon tax will be released before the end of this year.

He revealed this in a written reply to a parliamentary question on the potential cost implications of a carbon tax on mining companies.

According to the minister, treasury was aware of “various estimates made by mining and other companies on the impact of any carbon tax that may be imposed”.

He added that the estimates flowed from public comments made by mining companies following the release of the discussion document entitled “Reducing greenhouse gas emissions: the carbon tax option” in December last year.

According to a statement released by the treasury at the time, 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 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

In his written reply, the minister confirmed that 70 written submissions on the discussion paper had been received.

He declared that estimates made by mining companies should be “treated with some caution”.

The revised policy paper will provide more detail on design options and give an opportunity for a second round of comments.

The minister added that a final proposal would then be made.

“It is only once this final proposal is announced that one can assess the full impact of a carbon tax, and also consider the opportunities available for innovative companies within any sector”.

In a separate reply, the minister confirmed that a revised policy paper on youth unemployment is also to be released.

A discussion paper entitled “Confronting youth unemployment: policy options for South Africa” was released for comment on budget day.

The minister indicated that discussions on the paper had commenced within Nedlac in May this year.

“These discussions are on-going and alongside the public comments received on the discussion paper will inform a revised document”.

The discussion paper proposes that a youth employment subsidy be implemented from 1 April 2012.

Sabinet Cape Town Office

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