Submission of the Carbon Tax Bill as tabled in November 2018

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Parliament of South Africa tabled the long-awaited Carbon Tax Bill by the Minister of Finance on 20 November 2018.  The Standing Committee of Finance would be reviewing the Bill on the 4th and 5th of December, where citizens are able to attend, but only to observe. Ahead of this on the 30th of November, African Climate Reality Project put a number of concerns and considerations in writing to the Committee, for an effective and just carbon tax.
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Honourable Mr Yunus Carrim
Chairperson
Standing Committee on Finance
Parliament of the Republic of South Africa

By email: [email protected]

Cc: Allan Wicomb, Committee Secretary ([email protected])

Dear Sir,

Subject: Submission on the Carbon Tax Bill as tabled on 20 November 2018


The African Climate Reality Project (ACRP) welcomes the tabling in Parliament of the long-awaited Carbon Tax Bill by the Minister of Finance on 20 November 2018. We further welcome and support Treasury’s intention to implement an effective carbon tax no later than 1 June 2019, as announced in the MTBPS.

The Standing Committee on Finance is due to review the Bill on the 4 and 5 December 2018, meetings which members of the public will be able to attend as observers only. We are writing to put a number of concerns and considerations for an effective and just carbon tax before for your Committee, which we hope will assist in informing this review:

1. Tax rate:
1.1. The proposed rate of R120 per ton of CO2 equivalent (tCO2e) of the greenhouse gas (GHG) emissions, to be increased annually as per consumer price inflation (CPI), is wholly insufficient. Research by the High-Level Commission on Carbon Prices indicates that a minimum carbon price should be in the range of R550 – R1,110/tCO2e by 2020, if it is to be effective to achieve the Paris Agreement’s temperature target of “well below 2 degrees Celsius” (1).

“[T]his Commission concludes that the explicit carbon-price level consistent with achieving the Paris temperature target is at least US$40–80/tCO2 by 2020 and US$50–100/tCO2 by 2030”, converted to Rands using exchange rate on 30/11/18.

1.2. Annexure A published by the Department of Treasury in relation to the Carbon Tax Bill Tabling states: “A higher tax rate will be applied on those emissions above the carbon budget (no tax-free allowances apply) where the carbon budget will serve as the maximum level of emissions allowed.” (p.1). This would be an important “penalty” mechanism for non-compliant emitters. However, there is no reference to a higher tax rate for emissions above the carbon budget in the Bill. The question is whether this measure is indeed included in the Bill – and if so, in which section and under what conditions.

2. Tax allowances:
2.1. The number and scope of tax allowances undermines the effectiveness of the carbon tax system by offering significant rebates (starting off at 60%) to most of the industries that are in fact the heaviest GHG emitters.

In effect, these allowances enable a reduction in carbon tax liability of up to 95% for certain activities.

Allowances of particular concern, and which ought to be considerably revised, and preferably removed from the Carbon Tax Bill, include:
The carbon budget allowance, whereby taxpayers participating in the carbon budget system must receive an additional allowance of 5% of their total GHG per tax period. In a mandatory carbon budget system as envisioned by South Africa, there is no need to incentivise compliance by GHG emitters through allowances. Compliance is a must, and penalties apply to those who don’t comply. Allowances that reward companies for not breaking the law are absurd.
Emitters must be taxed on all emissions, not just emissions in excess of their carbon budgets.
The performance and offset allowances, which rewards emitters that have managed to reduce their tax liability through mitigation efforts or offset investments. There again, these allowances boil down to rewarding compliance and passing onto the general public a share of negative externalities.

2.2. Taxpayers already provide massive subsidies to fossil fuel industries. In the liquid fuels sector alone, South Africa’s fiscus hands between R7 billion and R29 billion in direct subsidies, and forgoes between R35 million and R5 billion through indirect subsidies (2). This, in effect, means that the public is already paying for the negative externalities of these industries.

3. Driving the rapid and shift to a low carbon economy:
As a Pigovian tax, the carbon tax serves to internalise negative externalities, i.e. the social and environmental costs of carbon. The proposed rebates defeat this very objective from the word go. The low tax rate and excessive rebates in the proposed carbon tax will render it completely ineffective at leveraging a reorientation of the whole economy in a lower carbon direction, in a timeframe that is consistent with the urgency of climate change and South Africa’s commitments under the Paris Agreement.

4. Serving the interest of the people of South Africa – rather than the interests of heavy emitting industries:
4.1. If we seek a tax regime which serves the interests of workers and poor people, we must rather make the carbon tax more stringent (thereby effectively putting the social cost of carbon onto the emitters rather than the poor), and reduce the VAT rate (which has a disproportionate impact on the poor).
4.2. We are pleased that the Carbon Tax Bill allows for credits, which mean the tax will not impact the price of electricity in the first phase. The poor cannot afford higher electricity prices and its ripple effects. As a parastatal, Eskom’s carbon emissions can be managed through the Integrated Resource Plan (IRP) provided that it brings an even greater share of renewable energy into the electricity supply mix than envisaged in the current draft updated IRP 2018 recently open for comments.
4.3. As is, the proposed Carbon Tax Bill raises a number of issues in terms of effectiveness, consistency with other policies and commitments, and economic justice While we acknowledge and commend the extensive public consultation on the proposed carbon tax that has taken place since 2010, we feel that community organisations and many sections of the public have faced and continue to experience barriers in participating in this process and getting their voices heard. Thus we encourage the Committee to allow for meaningful input from members of the public, through a far-reaching and informative public participation process that will allow for open constructive involvement.

We trust that the Standing Committee on Finance will take these considerations into account when reviewing the Carbon Tax Bill and planning for the public participation process on this critical measure to accelerate the shift to a low-carbon development pathway.

Faithfully,
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Noelle Garcin
Action 24 Project Manager
The African Climate Reality Project
Postal address: 94 Bessemer street, Wendywood, Johannesburg 2090 , South Africa
Email:
[email protected]
Tel: 011 656 9802

(1) High-Level Commission on Carbon Prices, 2017. Report of the High-Level Commission on Carbon Prices. Washington, DC, World Bank. Available at https://www.carbonpricingleadership.org/report-of-the-highlevelcommission-on-carbon-prices/, accessed 30/11/18.

(2) Burton, J., Lott, T. and Rennkamp, B., 2018. ‘Sustaining carbon lock-in: Fossil fuel subsidies in South Africa’. In Skovgaard, J. and Van Asselt, H. (eds.), The politics of fossil fuel subsidies and their reform. Cambridge University Press, Cambridge.The wide range of numbers is due to methodological differences. USD amounts in the study were converted to Rands using exchange rate on 19/9/2018.
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