Don't hold SA's economy hostage to high-carbon companies

Despite having been consulted since 2010 when the Carbon Tax Bill was first mooted, the heavy emitters have reacted with predictable outrage and scare-mongering to the recent tabling of the Carbon Tax Bill. Yet two points are drowned out by what is essentially a distraction.

Firstly, the economy and citizens already pay the social cost of carbon through the water, land and health impacts of coal mining, fossil fuel combustion and climate change. Climate costs are already borne by certain businesses and those who work in them, particularly in agriculture, fisheries, tourism and the insurance industry. 

Technical modelling by SANBI shows GDP losses induced by coping with climate change over the next 35 years range from R217bn to R651bn, with a median loss of R259bn (almost 10% of GDP in 2012) in terms of net present value. A carbon tax seeks to surface the externality costs and redirect them where they belong – the industries generating the impacts. They should not be paid from the pockets of individual taxpayers and the poor.

Secondly, a carbon tax helps to incentivise a new low-carbon economy. Government should act now to facilitate the emergence of low-carbon business and position our economy for new low-carbon markets, rather than hold thumbs that the economy doesn’t crash later as a result of trade barriers or climate impacts.

'Just give us time'

But here’s how the special pleading of the high-carbon club goes: “We’re so crucial to the South African economy that you can’t afford to touch us. A carbon tax will take break us and shed innumerable jobs. We believe in a low-carbon transition—just give us time.”

Variations on these themes and delaying tactics have been played out over eight years. The question remains, is bending over backwards to accommodate the special interests of, in particular, the fossil fuel industry in national interest?

Climate risk and carbon exposure are increasingly a factor of business and investment decisions, and trade policy. The World Bank’s dashboard on the “State and Trends of Carbon Pricing” shows 46 national and 25 subnational jurisdictions are putting a price on carbon as at 26/11/18. The overlap with our biggest export trade partners is striking.

The Carbon Tax Bill includes up to 10% tax rebate for “trade exposed sectors”. This should be flipped on its head: an extra tax penalty for those whose carbon-intensive commodities or products are exposing our economy and its workforce to trade barriers, or getting stuck in the doldrums of global trade, by not putting an effective price on carbon.

Our carbon price embodied in the tax rate is a joke. With the 60% automatic primary rebate, and other tax-free allowances adding up to 95% of tax liability, Treasury is charging from R48 to R6 per tonne of greenhouse gases (CO₂e). Without any rebates, the headline tax rate is R120/tonne.

Seriously?

The High-Level Commission on Carbon Prices finds that a minimum carbon price should be in the range of R560–R1,120/tCO₂e by 2020, and R700–R1,400/tCO₂e by 2030, to be effective in driving adequate mitigation action to keep average global warming below 2 degrees Celsius. At least Treasury is suggesting a tax rate of R600/t for emissions in excess of coming mandatory carbon budgets, being a maximum level of emissions a company is allowed to emit.

Of course, that should be the rate on all emissions. But the Bill’s approach to inflationary increases of the tax rate will never catch up to an effective rate.

Tax-free allowances which should be dropped on the grounds of being nonsensical are a “performance allowance”. This rebates the tax liability of companies which have improved their carbon intensity—so, a company reduces its tax liability through mitigation initiatives and therefore pays less tax, and then gets to pay less tax for having managed to achieve paying less tax.

Sasol wails that at R120/t it will pay R1bn in carbon taxes annually.

• READ: Sasol says proposed carbon tax will cost it R1bn a year

Note that the company won’t be paying the full R120/t, because it is eligible for a rebate of up to 95% in tax free allowances. R1 billion is 2% of its R52bn pre-tax profits (EBITDA) for the year ended 30 June 2018, worth a wail if you’re a shareholder. Dry your eyes, your lobbyists won, which means you can pass along the tax to your customers.

If you want the rest of us to shed a tear, how about the fossil fuel sector hands back the subsidies it gets from us taxpayers. In the liquid fuels sector alone, South Africa’s fiscus hands fossil fuel producers between R7bn and R29bn in direct subsidies, and forgoes between R35m and R5bn through indirect subsidies (and this excludes price support received by Sasol via the regulated fuel price).

Buffer workers and the poor

Given that fossil fuels have been integral to South Africa’s economy and energy supply, it is important to buffer workers and the poor in the transition to a low-carbon economy. (Hmm, imagine how far those fossil fuel subsidies might go.) The carbon tax design caters for this through revenue recycling and by ensuring the tax will not impact the price of electricity in the first phase.

A Nedlac Carbon Tax Task Team is investigating strategies and measures to deal with labour market shifts in a low-carbon transition which will be in the form of sector job resilience plans. We do workers no favours by only reacting defensively and failing to facilitate new low-carbon opportunities.

For example, mining jobs are being lost because of commodity prices and moves to mechanise, and not because of climate considerations. This is while the demand for metals and minerals required for low-carbon technologies is set to grow, and best we look at how to reserve mining for these industries and purposes (using mining practices with the least socio-environmental impacts possible).

If we seek a tax regime which serves the interests of the majority, rather make the carbon tax more stringent (thereby putting the social cost of carbon where it belongs and putting the money in public hands to be used for developmental ends) and reduce the VAT rate (which has a disproportionate impact on the poor).

South Africa’s economic development should not be held hostage to special pleading from high-carbon companies who represent themselves as “business” and even “the economy”, and mask job-shedding decisions as being caused by the carbon tax and other measures to shift to a low-carbon economy. Carbon complacency will catch up with us. Opportunities for economic growth and development are not to be found in the rear-view mirror of a 20th Century economic paradigm.

Louise Naudé is the Low Carbon Frameworks Programme Manager for WWF South Africa.

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