Davis Tax CommitteeCarbon tax submissionMay 2015

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Agenda

Key message

Concerns

Recommendations

May 2015

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Key messages

Carbon tax not appropriate in SA at this time.

May have a role to play as a mitigation instrument in future

But needs to align with other policy instruments and mitigation potential

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Concerns

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ConcernsTiming

• Climate change is a global problem requiring a global solution

• SA 2009 commitments subject to financial and technological support

• Global agreement to be adopted 2015 and implemented 2020

• Carbon emissions on track to meet 2020 commitment with no further action

• Carbon budget is SA’s primary mitigation instrument (NCCR White Paper)

- Carbon tax intended to be support instrument (page 25)

- Need to implement carbon budget as first step (2021)

• Impact on SA competitiveness and socio-economic implications

- Complete and thorough understanding of impact required

• Administrative and compliance burden

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ConcernsScope• Economy-wide scope

• NDP

- Carbon tax to be implemented in flexible manner sensitive to employment and environmental impacts

- Considerations:

◦ Impact on sectors with limited mitigation potential and energy-intensive industries

◦ Economic incidence of tax

◦ Conditional exemption of electricity sector

- Conditional exemptions for specific sectors

- Introduction of carbon-pricing mechanism – 2015

- Economy wide extension of carbon tax – 2020May 2015

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ConcernsScope cont.• Policy instrument overlap

- Carbon budgets

- IRP

- Duplication of regulatory burden and mitigation costs

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ConcernsDesign

• Lack of clarity on proposed tax base

- Greenhouse gases covered

- Sources of emissions

◦ Mobile combustion, process emissions, fugitive emissions

- Who is liable?

- Measurement of emissions

◦ Alignment with mandatory reporting and carbon budgeting

• Allowance for trade-exposed sectors

- Insufficient relief

- Basis of determination using imports/exports flawed

- No relief for scope 2 emissionsMay 2015

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ConcernsDesign cont.

• Process emissions relief

- Sector coverage

- Exemption?

• Offsets

- Limits

- Demand vs supply

• Revenue recycling

- Lack of clarity

- Track record

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ConcernsPricing• Few developing countries have explicit carbon price

• Direct comparisons with other countries difficult

- Floating rates

- Exemptions and thresholds

• Proposed SA carbon price relatively high

- EU +-€7 (R92)

- China +-Yuan 30 (R57)

- California +-$12.20 (R145)

- Mexico +-R40

- Chile +-R60 (2018)

- Ireland €20 (R260)

- Japan $2 (R24)May 2015

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Recommendations

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Recommendations• Postpone implementation to 2021

- Align with global agreement, including carbon price

- Align with carbon budget instrument

• Exempt electricity sector

- IRP primary mitigation instrument

- Retain electricity levy to promote energy efficiency

• Apply to sectors/sub-sectors not covered by carbon budget

• Possibly apply to emissions > carbon budget

• Transparent economic modelling

- Assumptions

- Short/medium/long term economic impact by sector

◦ Employment, GDP, balance of payments, exchange rate, investment, tax revenues, etc.

May 2015

“South Africa should initially focus on pursuing those mitigation options that are likely to have the least regrets options, particularly around energy efficiency, that improve the competiveness of local industry, create jobs and represent a net saving rather than cost to the economy and gross domestic product” (NDP)

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