The government’s proposed carbon tax could earn R82.5 billion a year for the fiscus, or 12 percent of South Africa’s estimated tax collections in the year to March, Deloitte & Touche research shows.
“The numbers get very big very quickly,” Deloitte’s director for sustainability and climate change, Duane Newman, cautioned last week.
The Treasury proposed in a discussion paper last year that a carbon tax should kick in at R75 a ton of emissions, rising to a maximum of R200 a ton using 2005 prices as a base. It argued that this appeared to be the most appropriate mechanism to reduce greenhouse gas emissions at the least cost to the economy.
The green paper on climate change also refers to a carbon tax.
The research assumed carbon emissions of 500 million tons taxed at a rate of R165 a ton – lower than the Treasury’s R200 ceiling. “The reality is a carbon tax could get to these levels very quickly – within two to three years of implementation,” Newman said.
The R82.5bn carbon tax bill would almost equal South Africa’s combined estimated total tax revenues for fuel, customs duties and excise taxes of R86bn in financial 2011, nearly half of projected VAT collections of R181bn, and more than half of estimated company taxes of R154bn.
The Treasury paper follows the work of the long-term mitigation scenarios study which, after modelling carbon taxes of up to R750 a ton from 2008 to 2050, concluded taxes were the most effective mechanism to achieve emissions reductions.
Nobel laureate Joseph Stiglitz, a member of Economic Development Minister Ebrahim Patel’s advisory committee, expressed support for a carbon tax during a visit to South Africa this month. He said a realistic carbon price was probably $80 (R570) a ton.
Business Unity SA (Busa) at the weekend called for “detailed consultation” on whether a carbon tax should be introduced, as well as its design.
Busa deputy chief executive Raymond Parsons said the issue needed to be debated in Nedlac, the negotiating forum for the government, labour and business, “as soon as possible”.
Business was currently in the process of defining its response to the tax proposals.
“We haven’t reached a final view as Busa yet, but we will make input shortly,” Parsons said, adding that Busa had been
informed that a carbon tax was only “one possible option” to change behaviour.
It also believed a carbon tax’s impact on South Africa’s competitiveness, inflation and employment had to be considered,
particularly with the government’s plan to create 5 million jobs. “The carbon tax proposal needs to be consistent with the goals of the New Growth Path strategy,” he said.
For its part, Deloitte, whose clients include heavy emitters such as Eskom, Sasol, BHP Billiton and ArcelorMittal South Africa, argues that the nation cannot afford the tax now, and that green fiscal incentives should be introduced first.
Newman said: “We’ve got to first create incentives, and only then penalise business. Government needs to seriously look to develop green incentives, maximise Eskom’s demand side management and maximise the use of carbon credits.”
“I don’t think a carbon tax is wrong – just the timing of it.”
The public has until the end of February to comment on the discussion paper. This would be revised into a policy document for submission to the cabinet in the 2011/12 financial year, a Treasury spokeswoman said.
She said the Treasury had not softened its stance against the earmarking of revenues from a carbon tax, despite acknowledging in the paper that partial earmarking for specific environmental or social purposes might be appropriate.
The potential of a carbon tax to significantly expand the tax revenue base has led to repeated calls over the past months to ensure the tax is designed as “revenue neutral” – in other words, there is no overall increase in the amount of taxes collected.
The Treasury said it did not want to pre-empt suggestions on revenue neutrality before the public comment period had run its course. “However, we are hopeful that we will get some pointers in this regard.”
Newman said that to offset the potential negative effects of a carbon tax on South Africa’s global competitiveness, corporate income taxes would have to be cut, benefiting companies with lower emissions profiles.