South Africa

Our Burning Planet

Carbon Tax Bill, South Africa’s climate change battlefield

Carbon Tax Bill, South Africa’s climate change battlefield
Photo by Sam Bark on Unsplash

In its bid to tackle climate change, the South African government has thrown most of its weight behind setting a price on carbon emissions. The tabling of the Carbon Tax Bill in late November 2018 was the culmination of a fight that has lasted almost a decade. Given that the combatants are still at it, who are they and what do they stand to lose?

I. Through the eyes of the rich

The ratification of the 2015 Paris Agreement emphasises the reality that we will have to prepare to operate in a carbon-constrained economy over the medium to long-term.”

So there you have it: “Reality” as defined by the government of the Republic of South Africa. And yet the wake-up call, hidden in an annexure to a memorandum sent out by National Treasury on 21 November 2018, had nothing on the ice-bucket that was dumped on the sleeping nation the day before.

Climate change poses the greatest threat facing humankind,” finance minister Tito Mboweni declared, during the tabling of the Carbon Tax Bill in parliament on 20 November, “and South Africa intends to play its role in the world as part of the global effort to reduce greenhouse gas emissions.”

Still, as encouraging as his words may have been to some, none of the interested parties were placing bets on how much of the new reality was really real. The bill’s tabling, after all, was the culmination of a consultation process that had begun eight years before. First, there was the 2010 Carbon Tax Discussion Paper, then the 2013 Carbon Tax Policy Paper, then the 2014 Carbon Offsets Paper and only then, in 2015, the “original” Carbon Tax Bill.

To give that its proper context, while our legislature was taking the better part of a decade to collate comments — submitted, according to Treasury, by “business, non-government organisations, civil society, labour, state-owned entities [and] government line departments” — South Africa was coming in year after year among the dirtiest energy producers on the planet. In 2015 we ranked 18th on the list of worst greenhouse gas emitters, hot on the heels of Australia and only a few places behind the international aviation industry; in 2016, although our emissions dropped off a bit, we climbed the list to 17th place, choking out developed nations such as the UK, Italy and France.

What, then, given that the paperwork excuse no longer flies (ref: the mounting evidence for impending civilisational collapse due to humanity’s collective inability to reduce emissions), has been the reason for the hold-up?

The letter sent on 26 November by Dr Morné du Plessis, CEO of the South African office of the World Wildlife Fund, to Yunus Carrim, chairperson of the parliamentary standing committee on finance, offers a clue.

South Africa’s economic development,” wrote Du Plessis, “should not be held hostage by special pleading from a limited number of high-carbon companies who represent themselves as ‘business’ and even ‘the economy’.”

Fossil fuel producer Sasol, to paraphrase, followed closely by the mining industry, have claimed in their consistent stonewalling to have the country’s best interests at heart. In Sasol’s case, as the company informed Daily Maverick, the carbon tax in its latest iteration will diminish South Africa’s “investment attractiveness and competitiveness.” What they have been arguing for instead is “an integrated mandatory carbon budget system with only a higher tax on excess emissions.” As for the Chamber of Mines, the official view is that “the carbon tax has the potential to erode profitability through increasing costs”—a scenario, they insist, that will cut jobs and exacerbate unemployment.

WWF’s letter to the finance committee, which oversaw a two-day session in Parliament to read through the bill, was essentially a request to close off the debate. Mining jobs will continue to be lost because of “commodity prices and moves to mechanise,” noted Du Plessis, not because of the carbon tax. At the opening of the parliamentary session on Tuesday 4 December, Treasury’s deputy director-general Ismail Momoniat signalled that government (or at least the part of government overseen by Mboweni) was also getting fed up. According to Fin24, Momoniat called for “a mindset change from everybody.” Given the background, it’s likely that by “everybody” he mostly meant Sasol.

Because here’s the thing: At the chemicals and energy multinational, which emits more greenhouse gases than the entire country of Portugal, the level of intransigence may outdo even Shell, BP and Exxon Mobil, oil giants that have not only misled the public about climate change, but have funded the climate denial movement itself. Where the Big Oil conglomerates have recently begun to accept shareholder-backed climate resolutions, Sasol has flat-out refused.

One side-stepped resolution, as Just Share executive director Tracey Davies wrote in Business Day in June, asked shareholders “to vote on the proposal that Sasol should prepare an annual report detailing how it is assessing and ensuring long-term corporate resilience in a future low-carbon economy.”

According to Sasol, the sole reason for refusing this resolution was that it intends to publish a “Climate Change Report” in 2019. “Sasol made this commitment publicly,” the company informed Daily Maverick, “as climate change management is a priority for the board.”

Which, if true, is great news for the future. As things currently stand, however, Sasol has recently admitted to not having any carbon emission reduction targets of its own. The Carbon Tax Bill, for all its failings, is the most direct attempt of the South African body politic to call the country’s heaviest emitters to account.

II. Through the eyes of the poor

And yet, to the advantage of these self-same emitters, the failings of the bill are legion.

Top of the list is the fact that, from implementation on 1 June 2019 to the end of the first phase on 31 December 2022, the tax will range from R6 to R48 a ton of carbon dioxide, or equivalent greenhouse gas (GHG), emitted. While the nominal tax rate for the first phase is R120 a ton, the bill provides for tax-free emission allowances ranging from 60% to 95%. Even at the high end of R48 a ton, carbon in South Africa will be priced so low it’ll basically remain free.

The World Bank-sponsored Report of the High Level Commission on Carbon Prices concluded in May 2017 that to meet the Paris Agreement target of an average global warming cap of 2°C, carbon would need to be priced at $40 to $80 a ton by 2020, going up to $50 to $100 by 2030. In these terms, South African companies will be paying somewhere between a 100th and a 10th of what’s required. And that’s not even counting the findings of October 2018’s IPCC special report on global warming of 1.5°C, which revealed that the Paris target is treacherously high — at 2°C, the report stated, the resulting heatwaves, droughts, floods, water crises and food shortages would render society ungovernable by the middle of the century.

So back to the R48 a ton problem.

Our research has shown that it’s too low to make a difference,” Professor Harald Winkler, director of the Energy Research Centre at the University of Cape Town, told Daily Maverick. In his centre’s response to the recently tabled bill, Winkler also noted the following:

ERC is of the firm view that raising tax but deducting allowances is a sub-optimal design of the carbon tax. It would be far preferable to levy the full tax and then provide for a ‘jobs and competitiveness programme’ which would allow energy-intensive and trade-exposed payers, who also demonstrate their contribution to increased employment, to claw back part of the carbon tax paid (up to 50%) in order to reduce both unemployment and GHG emissions, that is, to assist them with mitigation and socio-economic transformation.”

This suggestion is based on another reality of climate change: That it will hit the poorest the hardest. A constant criticism of the Carbon Tax Bill has been that the eight years leading up to its tabling have included comment from everyone but the economically marginalised. Winkler’s research has focused on ways to soften the blow — not only would a claw-back scheme incentivise heavy emitters to meet GHG targets while qualifying for employment subsidies, but the total tax revenue off the full R120 would allow the government to tackle climate change as well as development.

In a 2017 paper published in the Journal of Energy in Southern Africa, Winkler lays out four programmes to reduce energy poverty that could potentially be funded by the carbon tax: Electrification of off-grid houses; extension of free basic energy; scaling up of sustainable housing; and subsidisation of rooftop solar for poor households.

It’s this last idea that’s the kicker. South Africa’s over-reliance on coal is the primary reason that we’re one of the world’s filthiest energy producers. The Department of Energy places our use of fossil fuel for internal power needs at 77%, stating:

This is unlikely to change significantly in the next two decades owing to the relative lack of suitable alternatives to coal as an energy source.”

The statement is an outright lie, of course. As anyone who leaves their house in the mornings can tell, South Africa has plenty of sunshine and an abundance of wind. Also, as demonstrated by a 2017 report of the International Renewable Energy Agency, solar power has fallen in price by three-quarters since 2010, while wind turbine prices have dropped by half.

And so the more likely (and most generous) explanation for government’s love affair with coal boils down to habit: Power utility Eskom, with the tacit approval of the Department of Energy, appears to have been stalling on offtake agreements with providers of renewables because of an institutional commitment to upcoming coal generation build-outs.

Meanwhile, the world has been getting warmer. More to the point, for every year that Sasol and the coal mine owners have been carping that a carbon tax will price them out the market, South Africa has been warming at twice the global average. While it’s true that an effective carbon tax could wipe $1.5-trillion in profits from companies worldwide, it’s equally true that an increasing number of international economists are beginning to view climate change as an example of market failure.

With initiatives such as the European Union’s emissions trading system now regulating carbon emissions for half of the power stations and industrial plants in Europe, the trend is clear — Sasol and South Africa’s coal mine owners (who account for 6% of total coal exports) will find themselves at a trading disadvantage if they aren’t penalised for polluting.

Which was the implicit message in the opening line of National Treasury’s explanatory memorandum on the Carbon Tax Bill:

Reducing the impacts of climate change through facilitating a viable and fair transition to a low-carbon economy is essential to ensure an environmentally sustainable economic growth path for South Africa.”

The bill isn’t perfect, in other words, but it is a start.

A move in the right direction,” according to Professor Winkler. On 1 June 2019, according to the promises of Treasury, the carbon tax will be signed into law. When the second phase kicks in, at the beginning of 2023, the plan is to push the rate up to R600 a ton.

By then, let us hope, Sasol and the heavy emitters will have come to terms with reality. DM


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