Carbon tax Submission to Davis Tax Committee

Transcription

1 Carbon tax Submission to Davis Tax Committee 12 May 2015

2 Overarching business view Since the carbon tax policy paper was published (2013) the context within which the tax should be considered has changed substantially: Lower greenhouse gas emissions profile than projected Significant progress has been made in the development of other mitigation measures A number of carbon taxes, like the electricity levy, are already in place Economic performance continues to be weak BUSA is a confederation of companies and business organisations, membership of which contribute over 75% to GDP BUSA supports a holistic climate change policy Singular pursuit of a carbon tax outside a holistic policy cannot be supported BUSA continues to engage relevant government departments on the need for a holistic approach to climate change policy 2

3 Current status of proposed carbon tax Proposed carbon tax will be imposed at R120/t CO 2 e; with allowances R48/t CO 2 e, which is still higher than competitor countries Number of design elements still unresolved Economic modelling undertaken by National Treasury includes revenue recycling which results in an unrealistically positive view of the impact Even if soft earmarking was intended, historically no evidence that funds are used to benefit the corporate sector paying the tax 3

4 National emission profile National Greenhouse Gas Inventory (2014) shows national emissions 518 Mt for 2010; 11% lower than the projected 583 Mt for Emissions reduction partially due to lower than projected economic growth Decline in carbon intensity of GDP due to sharp electricity price increases; increase in low carbon intensity electricity and improved energy efficiency by industry Lower emission trend likely to continue until at least 2021, when Medupi and Kusile are in full operation 4

5 Electricity sector emissions 5

6 Other mitigation measures South Africa is unique in attempting to introduce two distinct mitigation approaches: (i) Carbon tax and (ii) carbon budget (emissions cap) Adoption of this dual system without alignment will result in double costs for companies The first five year phase of the carbon budget system, scheduled to commence in 2016, will now not be mandatory but a trial system to allow for proper development of the system and assessment of its impact. 6

7 Other carbon taxes Environmental levy on electricity of 3,5c/kWh currently recovered at 4,1c/kWh or R41/ton CO2e. Proposed increase for 1 July 2015 will result in an increase to 6.1c/kWh or the equivalent of R61/ton CO2e, which is higher than the proposed carbon tax. Electricity tariff already includes a carbon price through the premium paid for renewable energy purchased by Eskom; estimated to be R10,9/ton CO2e This brings the total tax currently paid on electricity to R71,9/ton CO2e, which is significantly higher than the proposed carbon tax of R48/ton CO2e Motor vehicle carbon dioxide emissions are also subject to a carbon tax. 7

8 Conclusions (1) Structure of South African economy, particularly the major contribution of the electricity sector to national emissions, allows limited scope for industry to change its emissions profile Projected weak economic growth and constrained electricity supply will result in a lower than anticipated emissions trajectory until 2022 The debilitating effect of the current electricity situation cannot be underestimated; the pass through of a carbon tax in the electricity price will place a significant burden on a business sector already struggling to remain viable in the face of ever increasing prices and ongoing unreliability of supply A substantial carbon tax is already being paid by electricity consumers, through the electricity levy 8

9 Conclusions (2) Given the current lower than projected emissions trajectory, a broad based carbon tax is not required to reduce emissions and will have a negative impact on the economy. Such a tax is considered unjustifiable under current circumstances Current and projected economic growth substantially below rate required to address unemployment Imposition of proposed tax will have a negative effect on economic performance. It is unlikely to result in more investment in lower carbon technology, particularly in the electricity sector which is the largest source of emissions Carbon budgets will be allocated to all significant emitters in 2016 on a trial basis, which will allow government to assess both the success of a cap in reducing emissions and the cost of such a system 9

10 Thank you