CAPE TOWN - The Treasury is forging ahead with research into a carbon tax to cut greenhouse gas emissions, and after it holds discussions with industry it will release a second discussion paper before the end of the year.

Treasury deputy director-general Ismail Momoniat yesterday told public hearings at Parliament on climate change that a carbon tax was designed to change behaviour and to ensure that those who polluted the atmosphere paid for it, on the "polluter pays" principle.

Business and industry have expressed considerable concern about what form a carbon tax could take in SA.

A vehicle emissions tax was introduced in September last year in an attempt to limit the number of gas-guzzlers on the road. The emissions tax was to apply initially to passenger cars, and later to be extended to commercial vehicles once agreed emissions standards for these vehicles had been set.

It is expected to generate about R1bn in revenue.

The Treasury's economic tax analysis head, Cecil Morden, explained to the environment affairs committee that the rationale for a carbon tax was based on the fact that the external costs of greenhouse gas emissions were not reflected in the market prices of certain goods and services. The prime example of this in SA was energy produced by coal- fired power stations.

"A carbon tax is a means by which government can intervene by way of a market-based instrument to take into account the social costs resulting from carbon emissions. A carbon tax seeks to level the playing field between carbon-intensive (fossil fuel-based) and low carbon-emitting sectors (renewable energy and energy efficient technologies)," Mr Morden said.

He added that Australia was poised to implement a carbon tax system next year .

Responding to suggestions that a carbon tax was simply another way of raising money from embattled taxpayers, Mr Momoniat said it could well be "revenue neutral" and be used to lower other taxes.

Mr Morden said that while SA did not have any international obligations to lower carbon emissions at present, "it is not an option to do nothing".

Committee chairman Johnny de Lange said the DNA of the South African economy had been in place for a long time and it would be very difficult to change it. He said it would be painful to change but even more painful if nothing was done.

Mr Morden said developed countries used border tax adjustments to target countries not participating in emissions reduction - which involved taxing imports according to emissions associated with their production. He warned that these tax adjustments would negatively affect countries that did not take appropriate action to price carbon and said they might also have a negative affect on global trade.

A carbon tax in effect puts a price on carbon emissions.