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Tuesday, December 14, 2010

Add your voice to carbon tax discussion

Pretoria - National Treasury today published a discussion paper on carbon tax for public comment across all sectors of the economy.

Named “Reducing Greenhouse Gas Emissions: The Carbon Tax Option”, the paper follows the announcement made in 2008 – of an electricity generation levy of 2c per kWh - which would be the first explicit carbon tax to be introduced in South Africa.

The paper - which the public has until 28 February 2011 to comment on - discusses the economics of climate change, as well the role of carbon taxes in reducing emissions at the least cost possible. It also compares regulatory and market-based policy measures, carbon taxes and emissions trading schemes.

“The design of a carbon tax is best addressed by focusing on the definition of an appropriate tax base and measures to mitigate potential adverse impacts on low-income households and on the trade competiveness of certain sectors. The paper argues that the gradual phasing in of a carbon tax is the best way to deal with competitiveness concerns,” said Treasury.

At the 2009 Copenhagen conference, South Africa announced its intention to reduce greenhouse gas emissions by 34 percent by 2020 and 42 percent by 2025.

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 adoption of low carbon growth path can also result in competitive advantages in low carbon technologies as well create incentives for research, development and increased levels of innovation.

The document explores three options for imposing a carbon tax, namely an emissions tax applied directly on measured carbon dioxide emissions; an upstream tax on fossil inputs based on the carbon content of the fuel (e.g. coal) and a downstream tax imposed on the outputs or products generated from fossil fuels ( e.g. electricity or liquid fuels).

“A carbon tax imposed directly on all measured emissions of carbon dioxide appears to be the most appropriate. The second best option is to tax fossil fuel inputs such as coal, crude oil and natural gas, based on the carbon content of these fuels,” said Treasury.

According to Treasury, both options create adequate incentives to encourage behavioural changes.

Tax on actual measured emissions would require appropriate institutional capacity to measure, monitor and verify actual emissions.

An upstream tax would be based on the estimated carbon content of the kind of fuel in question and could piggyback on the existing tax administrative system. Its design could also include a crediting system to encourage the development and adoption of technologies like carbon capture and storage.

The tax should as far as possible cover all sectors, and over time be equivalent to the marginal external damage costs of carbon dioxide emissions to effect appropriate incentives. These are some of the design considerations.

“The phased introduction of the tax at initial low rates, with a commitment to phase-in increased levels of taxation over a specific time period, would provide certainty and an opportunity for taxpayers to adjust to the new tax. This will also provide a strong price signal to both producers and consumers to change their behaviour over the medium to long term,” said Treasury.

Comments on the carbon tax discussion paper should be submitted to Sharlin Hemraj on email: sharlin.hemraj@treasury.gov.za . - BuaNews

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