DELAYS in implementing a South African carbon tax could cost South Africa’s international trade, especially with its major trading partner, the European Union (EU), says the Treasury’s chief director of economic tax analysis, Cecil Morden.
It is possible the Treasury will delay until the beginning of next year the release of a second discussion document on what a South African carbon tax will look like, which public sector environmental policy expert Crispian Olver says could put implementation of this tax back as far as 2015.
Mr Olver says the Treasury is aware "some territories like the EU are making noises about trading with places that don’t price carbon."
The business community has been waiting for this second document so that it can get a clearer idea of what the carbon tax will look like, and plan for it. Carbon has become the catchword for all greenhouse gases.
South Africans are already paying about R10bn a year in unofficial carbon taxes such as the levies on electricity, fuel and new vehicles. Finance Minister Pravin Gordhan announced in this year’s budget that the tax would be implemented in the 2013-14 tax year.
But Mr Olver says there is a lot of policy and legislation that still needs development, "to say nothing of the political deal-making, with both business and labour probably opposed to the tax. If a new discussion paper only comes out next year, realistically the tax will not be implemented before 2014."
And then it will be complicated by the 2014 election, so the tax might be delayed until after this, some time in 2015.
Time has run out for South Africa to take advantage of the world’s $142bn carbon credit market because EU legislation has stipulated a year-end deadline for Clean Development Mechanism (CDM) projects not registered in "least-developed countries".
The CDM is a market instrument used to trade in carbon credits. Africa has a mere 2% share in the global carbon credit market, and South Africa has about 30% of the continent’s share.
Standard Bank Group senior carbon trading manager Fenella Aouane says the carbon market needs the benefits it will glean from carbon taxation, such as increased liquidity, "sooner rather than later". However, the tax’s design is "critical to creating this benefit" and likely to take more time to finesse.
Mr Olver says a carbon tax would allow a domestic carbon market to develop in the gap between the year-end close of the EU Emissions Trading Scheme to South African CDM projects and the development of new market mechanisms still under international negotiation.
Graham Sinclair, principal of SinCo investment advisers, says using Australia’s experience as an example, it will take years to roll out a carbon tax. Being slow off the mark "just keeps holding back South African businesses with global supply chains or global marketplaces ... (by) delaying changes in business practices". The delay also increases the total cost of mitigation and adaptation of investment and business strategies, which Africa’s growing economy cannot really afford," he says.
However, properly designing the tax is also important, says World Wide Fund for Nature South Africa climate change manager Richard Worthington. "We understand Treasury’s desire to continue fine-tuning until there is a high level of consensus amongst government line departments.
"The effect of the delay will be minimal as long as government remains resolute about introducing an economy-wide carbon tax, communicates this resolve, and resists attempts to secure up-front exemptions, or special treatment on the basis of vague projections of negative impacts on jobs or international competitiveness," he says.