Sasol warns of possible unintended carbon-tax consequences
12 March 2013

The unintended consequences of South Africa’s proposal to introduce a carbon tax as from January 1, 2015, had to be analysed, Sasol CEO David Constable said on Monday.

Speaking following the release of the energy and chemical group’s interim results, Constable noted that South Africa would be joining a group of only three countries to have introduced carbon taxes and, therefore, urged the authorities to engage with stakeholders to “better understand the unintended consequences of what that means”.

The details of the tax proposal were likely to emerge later this month, when the National Treasury releases an updated policy paper.

In his February Budget address, Finance Minister Pravin Gordhan confirmed that any carbon tax would be phased in from 2015 and that there would be a gradual phasing out of the electricity levy as the tax is phased in.

The National Treasury’s current plan is to initiate the first carbon-tax phase between 2015 and 2020, starting with a tax at a rate of R120/t of carbon dioxide (CO2) equivalent, increasing by 10% a year during the first implementation period.

A basic tax-free threshold of 60% was proposed, as well as offset percentages of 5% to 10% to allow “emission-intensive and trade-exposed industries to invest in projects outside their normal operations to help reduce their carbon tax liabilities”. That translated into an actual carbon-tax cap of around R48/t at the start of 2015.

The National Treasury, which typically eschews all forms of ring-fencing, has also indicated that “some of the revenues generated through the carbon tax will be recycled to fund the energy efficiency savings tax incentive”.

The energy efficiency savings tax incentive will reportedly help companies to reduce their energy intensity and the country’s level of CO2 emissions.

Constable stressed that Sasol supported the transition to a lower-carbon economy and outlined several initiatives being undertaken by the group to align its business with such a shift.

But he also said that the introduction of a carbon tax could place South Africa in a “challenging position when it comes to attracting foreign investment and being able to compete”.

Therefore, Sasol would seek to interact with the National Treasury and with the Department of Environmental Affairs on the proposed tax to “put forward our position”.

Many other sections of business were also likely to raise objections to the tax, with some having already argued that government is failing to take account of the fact that a carbon price is already in effect in the form of subsidies that will flow to renewable-energy projects through higher tariffs and as a result of various environmental levies.

Gordhan himself showed some sympathy for that position recently, when he disagreed with some of the Organisation for Economic Cooperation and Development’s (OECD’s) climate change arguments, which were raised in its ‘Economic Survey of South Africa 2013’.

The OECD called for the implementation of a broad-based carbon tax and also for even higher electricity prices to help stimulate the transition away from the country’s current carbon-heavy growth trajectory.
Gordhan acknowledged the energy-intensive nature of the South Africa economy, which he said required a proactive response from both government and the private sector.
But he also expressed concerned about the impact on the competitiveness of certain business sectors and stressed that, in the end, it would be a “country-based decision”.

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