The government, economists and many independent groups have identified South Africa’s carbon tax as the most effective means of decarbonising the economy, but a lot hinges on implementation.
It would appear the government wants to backtrack on the progress it has made to date, undermining national development goals and with the potential for severe, long-term economic and social impacts.
What is the genuine cost of carbon emissions? Over time, and with more understanding of the potential impacts of climate change, estimates of the “social cost of carbon” have gone from under $20 to more than $200 per tonne, with outlier estimates sitting at more than $1,000 per tonne.
Without a carbon tax, these costs will come in the form of environmental and economic externalities resulting from increased floods, droughts, heat — and disease-driven deaths and concomitant impacts on all sectors of the economy.
The aim of carbon tax is to disincentivise these negative impacts and to provide much-needed fiscal support to help with the transition to a low-carbon future. This is known as a Pigouvian approach, developed by economist Arthur Pigou, to correct market failures caused by negative externalities (such as climate change) by imposing taxes equal to the marginal external cost.
To understand this point it is important to pick apart the benefits that arise from burning fossil fuels (energy availability) from the negative impacts (emissions-driven climate change and other pollution). If this was the only way to obtain energy, it might be reasonable for society to minimise energy needs and live with the negative consequences. However, renewable energy, in the form of solar photovoltaics and wind, are not only cheaper than any fossil fuel but are also the cheapest form of energy ever available to humanity.
It is therefore rational to impose a carbon tax to push the societal costs of fossil fuels onto the producers (in line with the “polluter pays” principle enshrined in our environmental laws), and to incentivise the transition to clean energy. At the current low price this incentive is weak, notwithstanding that none of the cost of the carbon tax is passed through to consumers.
Fossil fuel emissions in the Eskom/Sasol airshed are responsible for thousands of deaths a year, chronic illness in children and adults, and billions in lost livelihoods for people unable to work. In addition, a conservative estimate of the human impact of carbon dioxide indicates that Secunda’s annual CO₂ emissions are responsible for causing between 10,000 and 50,000 human deaths from climate change over the course of this century. The broader impacts of the remaining 89% of our emissions are concomitantly massive.
The key issue concerning the government is the cost, hence the framing of an energy transition at “a pace and scale we can afford”, but affordability is a highly contingent issue.
Of course, poverty related to a lack of energy also results in large numbers of deaths and human suffering, but the fact that cheaper and cleaner alternative energy can be supported by imposing a proper carbon tax undermines the use of this shortfall as a justification.
The Renewable Energy Independent Power Producer Procurement Programme is a case in point, having demonstrated such energy can be brought online faster than any alternative. Moreover, independent modelling of a socially desirable energy future, aligned with net zero and broader social energy provision, shows it would result in more employment in the energy sector and similar growth to a high-carbon alternative, even where it includes closure of Sasol.
The key issue concerning the government is the cost, hence the framing of an energy transition at “a pace and scale we can afford”, but affordability is a highly contingent issue. For instance, the EU’s carbon border adjustment mechanism (CBAM) means importers in the EU will pay additional costs to import metals and chemicals with high embedded carbon costs, making South African products less attractive.
Where imports proceed, those fees will be directed in the EU towards their own growth. However, if the country of origin has a carbon price on parity with the EU’s, no such price will be paid. By setting our national carbon price at the same level as the EU emissions trading system price, South Africa will experience no greater trade barrier but will divert that import duty from the EU’s fiscus to our own.
For those companies that make the case that they cannot decarbonise in the timelines implied by a strengthening carbon tax, there is a real question as to whether they would remain viable in the absence of such decarbonisation.
There is a reasonable point put forward that a rapidly imposed, strong carbon tax might collapse important economic pillars (arguably, among them Sasol) before alternatives can come online. What is certain is that high-emitting industries will either decarbonise or die as the world shifts to a low-carbon economy, and that new low-carbon alternatives will take their place. This is the case for steel, aluminium, glass, chemicals and any industry for which the primary source of emissions is energy, in other words, most industries.
For those companies that make the case that they cannot decarbonise in the timelines implied by a strengthening carbon tax, there is a real question as to whether they would remain viable in the absence of such decarbonisation.
The broader economic fallout of this collapse further down the road, where the rest of the world has decarbonised, would be exceedingly high. Economic modelling for the Presidential Climate Commission by Cambridge Econometrics indicates delayed decarbonisation will have strong negative impacts on the South African economy regardless of the trajectory the rest of the world pursues.
A key question we should be asking is whether we will see real decarbonisation without the carbon tax? Predatory delay from fossil-heavy industries has seen the timeline for the carbon tax from conception to the current weak implementation reach 16 years. It is notable that over this period, despite loud claims from these same industries that they are committed to decarbonising, there has been no noticeable progress. A stronger economic driver in the form of a higher carbon price and removal of rebates is essential for them to put their money where their mouths are.
It is possible to structure the tax such that companies can realise clawbacks for real decarbonisation investments. This would additionally provide the means for derisking financial sector investment from such industries, which investments might otherwise be lost as the carbon bubble bursts.
To frame the carbon tax as a cost to South Africa is disingenuous and shortsighted. This tax is a partial means of reducing subsidies to industries that are currently paid in the form of human health, poverty and lives.
It does not realistically undermine energy security, notwithstanding arguments to that point. In fact, it is one of the strongest means of ensuring economic growth in the face of climate change and global headwinds, and of securing additional fiscal support for realising equitable energy provision and the just transition.
While repealing or pausing the tax might be a popular option for fossil-heavy industries, what government should be doing is removing blanket rebates, strengthening the price signal and considering replicating the EU’s CBAM to prevent carbon leakage and undermining of local economies through high-carbon imports.
This is the only approach that aligns with our constitutional rights and, indeed, with responsible governance.
• Reeler is a senior technical specialist in climate at WWF South Africa.
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