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Carbon Tax is a Stick Without a Carrot

In the latest budget speech on the 26th of February, Finance Minister Pravin Gordhan announced that the implementation of the planned carbon tax in South Africa will be delayed till 2016. This is what GCX staff had to say about it:

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‘I don’t think anyone in the industry is surprised, as it was very obvious the Government had no plan or processes in place to roll this out in 2015. Hopefully over the next year the Government can formalise a proper strategy to address climate change with the least amount of economic and social disruption.’

Evarne Rees

GCX Sustainability Analyst

‘I think it had to happen, they are not ready and there are too many things to be done before this tax can be implemented.

I would prefer to see it pushed another year out actually, as the 2015 decisions made in Paris at the UN COP should help to inform what we actually do with our carbon tax here in SA. It would be good to see what the playing field looks like globally and what we as South Africa set ourselves in 2015 before implementing the tax. I think setting the tax and then setting our UN commitment is the wrong way around.

I am also pleased that there is more time for consultation.  As it stands the carbon tax is unpopular, virtually across the board from my perspective, but there is huge potential to turn it into something very positive for SA if carefully designed in consultation with ALL stakeholders – including international investors.’

Geoff Perrott

GCX Sustainability Consultant

‘Perhaps the biggest implication is the uncertainty. Business loves certainty and there is now even greater uncertainty whether the tax will come into effect at all. Will this affect companies’ innovation and forward planning? Will companies decide not to go for that solar initiative now that they don’t pay a tax on carbon?’

Adam Green

GCX Sustainability Consultant

‘If the stick was complemented by a carrot, it could work. The issue with the carrot is that there is no commitment to ringfencing the carbon tax revenue and use it to incentivise meaningful growth of the green economy. Right now the only carrot is to avoid being hit by a stick! It is a punitive tax.

Lets look at the carbon tax that is levied on new cars in 2011. For every new car that emits over 89g/km there is a tax. To date about R5b has been collected. Car buyers behavior has not necessarily materially changed. Imagine if the R5b that was collected was used to reduce the price of cars that emitted less than 89g/km. That would be a big carrot that would make low emission cars more affordable and influence purchase behaviour. A lost opportunity. Proposed carbon tax would be more of the same.

You can levy taxes in two ways, top down or bottom up. Up until now all carbon taxes have been levied from top down, meaning they simply slap a levy on oil and electricity at source. Now they are proposing a  carbon tax on a bottom up calculation where all liable parties need to comply with mandatory reporting, the framework for which is not yet defined. Given where most company’s are with their carbon reporting, it will be a challenge for them to provide an accurate and verifiable inventory of Greenhouse Gases upon which to base the tax by the time the tax is implemented. Furthermore, the administration of such a bottom up tax, could prove to be a nightmare given skills and experience required by Treasury to do so. Etolling is a good analogy, where the idea is to convert a top down levy on petrol products into a bottom up, user-pays tax. All it results in is disproportionate administration costs and a massive burden on business and consumers to manage and pay the tax.

Treasury must stop trying to disguise just another tax as an environmental  tax. It gives environmental taxes a bad name and builds resentment among  consumers and business because it is expensive to administer while the money is not spent where it should be – on reducing the carbon footprint of the country.

Rather just slap another levy on electricity and petrol which would then be easy to collect and even easier for government to spend on whatever they want to.

If there is indeed an authentic intention to green the economy by changing behaviour, introducing clean technology and cleaning up waste, then the government must ringfence the funds and spend it all for this purpose.’

Kevin James

GCX Lead Strategist

‘The delay in tax was inevitable. The administrative implications of the tax are only starting to be understood.   I think this one-year delay will not only give business some comfort in getting ready for the emissions monitoring regime, but will hopefully allow for treasury and SARS to get their systems in place ideally in the most inclusive manner possible, as well as specify the requirements of the complementary offset scheme.’

Ohad Shachar

GCX Managing Director

‘One can only hope that the government delaying the implementation of the carbon tax, will allow for serious consideration into providing business with more positive incentives so as to help ease with its adoption. There’s definitely good evidence to suggest that positive incentives are more effective than negative incentives, especially when it comes to compliance. This of course, has some financial implications for government as it will need to allocate the appropriate funds for doing so. Unfortunately, no such allocation seems to be taking place, based on the recently announced National Budget, 2014. Environmental issues yet again are on the back burner on the list of priorities set out by government. So the question is, what is the government planning in terms of its approach during its roll out of the carbon tax in 2016? And again, why is the government not initiating more engagements? Businesses after all have a good insight to what will work most efficiently. The last thing South Africa needs is another economic downslide, which the carbon tax can contribute to.’

Nthabiseng Matsoha

GCX Sustainability Analyst

Here is our official response submitted to treasury last year:

https://www.gcx.co.za/businesses-should-future-proof-themselves-against-the-coming-carbon-tax/

Get in touch with us today to find out how to turn carbon tax into a better business opportunity for you. ohad@gcxafrica.co.za

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