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Combining price and quantity instruments: insights from South Africa
08 August 2014

Combining price and quantity instruments: insights
from South Africa
EMILY TYLER1, BRENT CLOETE2


1 Independent Climate Economist, Rosebank, South Africa
2 DNA Economics, 1122 Burnett Street, Hatfield, Pretoria 0083, South Africa

A carbon tax will form the central carbon pricing instrument in South Africa. The country, however, is also in the process of setting
specific short-term emissions limits at a subnational level. Additional mitigation policy instruments will thus be required to meet
these targets. Although it is possible to combine sector-level quantity targets with a broad-based carbon tax, this article finds that
this greatly complicates mitigation policy design, increasing both the information requirements and the likelihood of unintended
consequences. The trade-offs between economic efficiency (optimized by the use of a broad-based price set by a carbon tax)
and environmental effectiveness (optimized by using instruments that ensure emissions reduction targets are met) are ever
present. A clear understanding of subnational quantity targets and an appreciation of the characteristics of the instruments to
achieve such targets (quantity-based instruments, QBIs), the framework through which the instruments are combined, and their
possible interactions, are required for effective policy making. Three possible frameworks for combining instruments are identified
in the article, and some specific implications of interaction between particular QBIs and a carbon tax are suggested.

The full article can be found at http://www.tandfonline.com/eprint/hFIwNCSYwgRuVTXuIwPE/full


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