Time for fresh thinking on how to cut emissions
REDUCING greenhouse gases is a commitment under the Paris Agreement, but the proposed carbon tax will not yield the desired results on its own. The delay in implementing the proposed legislation until early 2018 provides a great opportunity to come up with a better solution.
Late last year, National Treasury published the results of a study on the likely effects of the proposed tax. Perhaps unsurprisingly, the study concluded that the tax would reduce our emission of greenhouse gases (33 percent by 2035) without having a significant impact on economic growth or jobs. However, Treasury’s report has been criticised as being “fatally flawed”.
The introduction of the carbon tax is not surprising: the World Bank estimated that, in 2016, 15 percent of global emissions were subject to a tax or carbon pricing.
The largest contributor to carbon emissions is the burning of fossil fuels. Although the intention is that the carbon tax will not affect consumers of electricity until 2020, thereafter it is likely that the costs will be passed on to consumers. Without a focus on alternative means of generating electricity, consumers will either have to pay more or use less electricity.
The ideal model is where the tax incentivises companies to change their behaviour and consumption patterns and become less reliant on fossil fuels. Currently, there are few alternatives, and those that are available are expensive.
Why more time is good
First, any modelling exercise is, by definition, limited by the assumptions on which it rests and the data projections it uses. The problem is exacerbated by the entrenched orthodoxies that characterise all thinking about climate change. An equally compelling reason for spending a little more time and thought on formulating a strategy is that the experience of other countries has been mixed, at best.
In Australia, for example, it appears as though confusion reigns despite emissions having been reduced. In 2014, a carbon tax was repealed in favour of an emission-reduction fund, and Environment and Energy Minister Josh Frydenberg announced in December last year that his department would undertake a review of the whole matter. The concerns include the impact on power generation, which has affected employment in the energy sector and energy-intensive industries.
Similarly, a study by two researchers at Statistics Norway found that high carbon taxes in that country have yielded only “modest” reductions in gas emissions. The study notes: “This surprisingly small effect relates to the extensive tax exemptions and relatively inelastic demand in the sectors in which the tax is actually implemented. The tax does not work on the levied sources and is exempted in sectors where it could have worked.”
France has recently indicated that it is dropping plans to introduce a carbon tax, citing concerns about its ramifications and constitutionality.
We should draw two main conclusions from all of this:
• Legislation needs to be complemented by supporting initiatives to build consumer awareness and promote alternatives.
The aim of the carbon tax is to reduce emissions, not, in the main, to expand the tax base.
• Companies need to be assisted in implementing alternatives or reducing their dependence on fossil fuels without experiencing a significant production or job losses.The biggest impact could be made if we reduced our reliance on burning fossil fuels to keep the lights on.
South Africa has made commitments to reduce its greenhouse gas emissions. The real question is how best to live up to those commitments. Hopefully, the Budget speech will indicate that we will use the delay in implementing our carbon tax to come up with an integrated strategy.