ONE of the graces of the State Intervention in Mining (Sims) report is its rejection of National Treasury proposals for a carbon tax on industry. Given that Sims was commissioned, and reviewed, by the ANC, it would hint at a fault line between two of the government’s policies; the National Treasury’s proposal for a phased-in carbon tax in its 2012/13 national budget, and government’s approved “Response on Climate Change” regarding the control and reduction of carbon dioxide (CO2) emissions.

Quite simply the ANC, as per the Sims report, favours a resource rent rather than straightforward taxation, phased in or otherwise. It must be said, however, that in the highly charged world of SA’s climate change policy-making, nothing is actually straight nor necessarily forward.

The National Treasury has been preparing to publish a policy document on carbon tax proposals. It was scheduled for an April release, but there’s been neither sight nor sound of it thus far. Interestingly, finance minister, Pravin Gordhan, speaking on the sidelines of the ANC policy conference said a decision had not yet been taken on carbon tax.

Business Day quoted him as saying: “We have had a number of engagements with different stakeholders and will continue to have engagements. There is not decision yet on the carbon tax. We are listening very carefully.”

While Gordhan takes in the views of stakeholders, the Department of Environmental Affairs has issued a tender for an independent assessment of how SA can reduce its CO2 emissions, which is part of an approved government policy for carbon budgeting that in other countries is an enabling step towards a carbon trading system. An important aspect of this study is to identify the cost and what’s really possible from a national perspective in terms of reducing CO2 emissions.

One growing realisation is that the carbon tax proposal in its current form is not compatible with the carbon budgeting policy. The carbon budgeting policy sets out to set emission caps and price discovery for reducing CO2 emissions, while the carbon tax proposal is looking to install a new punitive tax on carbon emissions.

In line with government, the mining industry is simultaneously conducting a ‘bottom-up’ assessment of the extent to which it can reduce CO2 emissions to complement the government’s top-down approach. Hopefully, the government’s estimation on what’s possible in terms of lowering CO2 emissions meets with that of the industry.

In both cases, neither is likely to chime with the COP16 undertaking made by President Jacob Zuma, who pledged, with conditions, to reduce SA’s CO2 emissions by two-thirds to 300 million tonnes CO2 equivalents (CO2e). It was a bold move considering no other developing economy agreed to such a radical reduction: few understand why Zuma agreed to it.

Regardless of Zuma’s pledge, it is hoped that National Treasury will take its finger off the fast-forward button on carbon taxation. Mike Rossouw, Chairman of the Energy Intensive Users Group (EIUG), says that in addition to establishing the country’s abatement capacity, facts have to be set down first.

For instance, it’s generally not known that the premium being paid for alternative, non-coal, energy as per the Integrated Resource Plan 2010 would be equivalent to R140/t of carbon emission, more than the R120/t threshold the National Treasury has suggested. The tax on vehicle emissions and environmental taxes also need to be made transparent.

There’s also the uncomfortable realisation that Zuma’s pledge to COP16 cannot be met without significant foreign aid and more time, especially if SA’s GDP is to grow at 6% or more. The EIUG’s own benchmarking suggests South Africa’s current CO2 emissions will have to increase and then later plateau and even decline if the country wants to sustain 6% GDP growth and transition to a lower carbon economy, but this can only be done over a longer time period; most likely more than 30 years.

The gradualism of EIUG is recognition that promising to reduce CO2e emissions cannot be achieved in an economic vacuum. “Pulling the lever on environment you might compromise energy security,” says Rossouw as one example of how the carbon emission debate is placed in a matrix of other considerations.

The essence of the matter is that government’s carbon budgeting if done correctly will produce a rational and workable CO2e emissions abatement program for South Africa. Incidentally, in establishing a plan for CO2e emission, reduction could very well also lay the foundation for carbon trading and offsets or environmental good deeds, that allows industry to plan and manage its own carbon risk rather than have it managed for it by a tax collector.

Source: MiningMx by David McKay 27 June 2012

 

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