The case against a carbon tax for South Africa

Treasury has made a proposal that there should be a carbon tax in South Africa. In its Discussion Paper, the rationale for the tax is given as “Climate change and its effects are the result of GHG emissions, which are not paid for by the emitters. Such emissions impose external costs on society - an “externality” in economic terms. Because these costs have not been factored into the prices of goods and services, this is a “market failure”, which can be corrected by a pricing instrument.” But greenhouse gas [GHG] emissions are global, and the South African contribution is minor. If one accepts that the polluter should pay, then the major polluters should pay the major burden and the minor polluters a lesser burden of the external costs caused. Of course, there is an assumption that the external costs can be quantified and agreed. If the debate around climate change is any guide, there is not likely to be any agreement on the sources, let alone the magnitude, of the external costs any time soon. That should not, however, detract from the underlying principle, which is widely accepted, that the polluter should pay. In this sense, it is totally inappropriate to consider a tax on South Africans that approaches the levels accepted by the EU, and certainly not before the North Americans have made equivalent commitments. Yet this is what Treasury proposes. It is argued that a tax on carbon constitutes a tax on energy consumption, and that because energy consumption and economic development are directly correlated, a carbon tax on South Africa is in fact a tax on development, and should therefore be rejected out of hand.