According to a media statement by the National Treasury in May, “The primary objective of implementing carbon taxes is to change future behaviour, rather than to raise revenue. The Policy Document therefore prescribes a relatively low carbon price at the beginning, which will then progressively rise after five to ten years and beyond. This approach provides industry and other major emitters sufficient time to innovate and invest in greener technologies for the future.”
It is envisaged that the introduction of carbon taxes will drive both consumption and production behaviour towards being “low carbon and more energy efficient”. The Paper outlines three main benefits of introducing the Carbon Tax and its intended outcomes:
- A carbon tax will alter the relative price of goods and services based on their emissions intensity and encourage the uptake of low carbon alternatives by making them more cost effective. Should low carbon measures not be introduced, producers will have to pay for their emissions. This will ultimately expose final consumers to higher prices for goods and services as manufacturers will transfer the higher production costs along the value chain.
- A carbon price will create a dynamic incentive for research, development and technological innovation in low carbon alternatives. It will help to reduce the price gap between conventional, carbon intensive technologies and new low carbon alternatives.
- Carbon intensive factors of production, products and services “are likely to be replaced with low carbon emitting alternatives”.
Two main options are available to South Africa in order to comply with the extent of emission reductions committed to in Copenhagen in 2009: Production technologies will need to become less carbon intensive and/or the consumption of certain carbon intensive products such as cement, steel, and aluminium will need to be reduced.
The latter is not a viable option – reducing production in these areas will affect thousands of jobs, have a negative economic impact and hamper government’s infrastructure development plan.
This last point sums up the motivation behind the work of the Industrial Energy Efficiency Project through the UNIDO methodologies and the support of the NCPC-SA. Industry must address the way it produces, embracing concepts such as cleaner production and industrial energy efficiency.
Energy Efficiency Tax Rebates
One of the basic principles of the Policy Paper is that the carbon tax can and should be instituted in such a way as to reduce carbon emissions whist having a limited negative macroeconomic impact. This will largely be achieved through “revenue recycling”. Since revenue generation is not the main objective of the tax, the income gained through the carbon tax will be ‘recycled’ or better re-invested in the form of incentives addressed to industry for the further uptake of environmentally sound alternatives.
The Energy Efficiency Tax Incentive will play a major role in this ‘revenue recycling’ process and will assist the implementation of energy efficiency interventions. The incentive scheme will give tax rebates to companies implementing energy efficiency interventions. This will not only help reduce the payback period of the interventions, but will ensure a rebate to off-set the carbon tax. According to the statement issued by National Treasury, the gazetting of the regulations that will provide guidelines for the implementation of the energy efficiency tax incentive is imminent.
The bottom line
An initial carbon tax rate of R120 per ton of CO2 equivalentproduced will be applied, with a 10 per cent annual increase, during the first phase of implementation (January 2015 to December 2019). However, an across the board basic 60 per cent tax-free threshold is proposed for process emissions of trade-exposed sectors, below which the tax will not be payable. There will be additional relief for certain sectors and offsets could be used by firms to reduce their carbon tax liability. Emissions from the agricultural and waste sectors will be exempt during the first phase.
A revised carbon tax regime with lower tax-free thresholds and a revised tax rate will be announced in February 2019 and it is expected to be implemented as of on 1 January 2020.
With the planned implementation date for carbon tax less than two years away; switching to a more resource and energy efficient production chain, gains not only environmental significance but it becomes a real business priority to ensure market competitiveness and overcome international trade barriers.
To read the full statement by National Treasury click here
To download the Policy Paper click here
Carbon tax will not be implemented if not ready – Treasury official (Engineering News 18 June 2013)