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Davis Tax Committee
Carbon tax submission
May 2015
Agenda
Key message
Concerns
Recommendations
Davis Tax Committee
PwC
May 2015
2
Key messages
Carbon tax not appropriate in SA
at this time.
May have a role to play as a
mitigation instrument in future
But needs to align with other
policy instruments and mitigation
potential
Davis Tax Committee
PwC
May 2015
3
Concerns
Davis Tax Committee
PwC
May 2015
4
Concerns
Timing
• Climate change is a global problem requiring a global solution
• SA 2009 commitments subject to financial and technological support
• Global agreement to be adopted 2015 and implemented 2020
• Carbon emissions on track to meet 2020 commitment with no
further action
• Carbon budget is SA’s primary mitigation instrument (NCCR White
Paper)
- Carbon tax intended to be support instrument (page 25)
- Need to implement carbon budget as first step (2021)
• Impact on SA competitiveness and socio-economic implications
- Complete and thorough understanding of impact required
• Administrative and compliance burden
Davis Tax Committee
PwC
May 2015
5
Concerns
Scope
• Economy-wide scope
• NDP
- Carbon tax to be implemented in flexible manner sensitive to
employment and environmental impacts
- Considerations:
◦ Impact on sectors with limited mitigation potential and energyintensive industries
◦ Economic incidence of tax
◦ Conditional exemption of electricity sector
- Conditional exemptions for specific sectors
- Introduction of carbon-pricing mechanism – 2015
- Economy wide extension of carbon tax – 2020
Davis Tax Committee
PwC
May 2015
6
Concerns
Scope cont.
• Policy instrument overlap
- Carbon budgets
- IRP
- Duplication of regulatory burden and mitigation costs
Davis Tax Committee
PwC
May 2015
7
Concerns
Design
• Lack of clarity on proposed tax base
- Greenhouse gases covered
- Sources of emissions
◦ Mobile combustion, process emissions, fugitive emissions
- Who is liable?
- Measurement of emissions
◦ Alignment with mandatory reporting and carbon budgeting
• Allowance for trade-exposed sectors
- Insufficient relief
- Basis of determination using imports/exports flawed
- No relief for scope 2 emissions
Davis Tax Committee
PwC
May 2015
8
Concerns
Design cont.
• Process emissions relief
- Sector coverage
- Exemption?
• Offsets
- Limits
- Demand vs supply
• Revenue recycling
- Lack of clarity
- Track record
Davis Tax Committee
PwC
May 2015
9
Concerns
Pricing
• Few developing countries have explicit carbon price
• Direct comparisons with other countries difficult
- Floating rates
- Exemptions and thresholds
• Proposed SA carbon price relatively high
- EU +-€7 (R92)
- China +-Yuan 30 (R57)
- California +-$12.20 (R145)
- Mexico +-R40
- Chile +-R60 (2018)
- Ireland €20 (R260)
- Japan $2 (R24)
Davis Tax Committee
PwC
May 2015
10
Recommendations
Davis Tax Committee
PwC
May 2015
11
Recommendations
• Postpone implementation to 2021
- Align with global agreement, including carbon price
- Align with carbon budget instrument
• Exempt electricity sector
- IRP primary mitigation instrument
- Retain electricity levy to promote energy efficiency
• Apply to sectors/sub-sectors not covered by carbon budget
• Possibly apply to emissions > carbon budget
• Transparent economic modelling
- Assumptions
- Short/medium/long term economic impact by sector
◦ Employment, GDP, balance of payments, exchange rate,
investment, tax revenues, etc.
Davis Tax Committee
PwC
May 2015
12
“South Africa should initially focus on pursuing
those mitigation options that are likely to have the
least regrets options, particularly around energy
efficiency, that improve the competiveness of local
industry, create jobs and represent a net saving
rather than cost to the economy and gross
domestic product” (NDP)
Is the introduction of a carbon tax at this time in
line with this statement?
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