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Aug 08, 2014

Need for industry to work together with government on carbon tax implementation

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Cecil Morden discusses the implementation of carbon taxes.
CECIL MORDEN The mitigation of greenhouse gases on the environment should be a joint effort between government and industries
CECIL MORDEN
The mitigation of greenhouse gases on the environment should be a joint effort between government and industries
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With the implementation of carbon taxes in South Africa having been postponed to January 1, 2016, National Treasury chief director for economic tax analysis Cecil Morden emphasised the importance of industry to work together with government to ensure the implementation of carbon tax.

Morden highlighted this during the South African Petroleum Industry Association’s twenty- year anniversary last month, in Sandton, and added that the energy, petroleum, transport and manufacturing sectors were the greatest emitters of greenhouse gases.

Therefore, there is a growing need for industries to note the importance of mitigating the effect of the gases on the environment and provide solutions for these environmental challenges.

“A carbon tax rate of R120/t on carbon emissions, increasing at 10% a year, will be implemented during the first five years of implementation. When the tax-free threshold and additional relief are taken into account, the effective tax rate will range between R12/t and R48/t of carbon emissions,” he pointed out.

However, industry is concerned about the impact of carbon tax on business holistically.

Engineering News reported last month that steelmaking giant ArcelorMittal South Africa (AMSA) recently indicated in the press that the proposed carbon tax, if implemented in its current form, would cost it between R630-million and R650-million a year, prompting AMSA to call for special carbon tax treatment.

Cement manufacturer PPC indicated in its yearly financial statements that its carbon tax liability would be about R150-million.

As a result, the general sentiment of industries is that carbon taxes are likely to pose a huge threat to the future competitiveness and financial wellbeing of their businesses.

Morden explained that, although the carbon tax rates might appear to be too much for industry, it was the responsibility of industry to assist in mitigating carbon emissions.

With industry playing its role, he said, government would be able to partner with industry to finance the mitigation of carbon emissions.

The

carbon tax drive changes producer and consumer behaviour in three ways.

Firstly, carbon pricing will encourage a shift in production and consumption towards low- carbon and more energy efficient technologies by altering the relative prices of goods and services and by encouraging the uptake of cost-effective, low-carbon alternatives.

Secondly, carbon-intensive factors of production, products and services are likely to be replaced with low carbon-emitting alternatives. Subsequently, as the industries that emit the largest amounts of greenhouse gases are important to the country’s proposed infrastructure build programme, appropriate policies are required to ensure that mitigation and adaptation strategies are taken into account in investment decisions that have long-term lock-in effects.

Thirdly, a carbon price will create dynamic incentives for research and development and technology innovation in low-carbon alternatives.

Edited by: Martin Zhuwakinyu
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