by Jonathan Faurie

A taxing problem

While carbon taxing is a solution to some, it is a hindrance to other major industries

There are major concerns about the affects of carbon taxing across various sectors
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As Africa’s largest economy, South Africa is following the lead set by many nations around the world to reinvigorate its economy so that it is based around renewable energy resources rather than the current fossil fuel based model that the country is currently adopting.

As well as being the continents biggest economy, Reuters reported in February that South Africa is also the continents biggest polluter and is one of the 20 biggest emitters of greenhouse gasses worldwide.

Although South Africa is investing heavily in new technology which will move it away from a carbon-based industry, it may take decades before a significant portion of this energy comes from clean sources.

But President Jacob Zuma is looking to fast track this transition and has been mulling over carbon tax for a number of years. It was reported earlier this year that the government will be implementing a carbon tax in 2013 in order to achieve this.

Although this might raise some concerns within the industrial, energy, manufacturing and agricultural sectors, the government has made the right noises around the implementation of the tax pointing towards a slow transition rather than wholesale implementation.

According to Reuters, nearly two-thirds of emissions will be exempt until 2020 in order to lessen the impact on industry. According to the report, the government is proposing a tax of R120/t of CO2e (carbon dioxide equivalent) for emissions above the thresholds. Once in effect, the tax will increase by 10% every year until 2020.

Although still in the planning phase, the news is making waves in industry where it is being labelled harsh and counterproductive, saying that the likelihood of the South African economy experiencing negative growth as a result of the laws a distinct possibility.

There is no doubt that the tax will have a major effect on the energy and mining sectors but because Eskom dominates the energy sector it can apply for a further 10% rebate on the tax. It still remains to be seen what leeway will be given to the mining sector. But an industry sector that can ill-afford to experience negative growth is the agricultural sector, especially since there is a significant portion of the South African population that lives below the breadline. It will also affect the poorest of the poor.

“This will be to the detriment of the consumer and especially the poorer consumers, thus undermining household food security and even national food security,” said Agbiz CEO Dr John Purchase.

The other side of the argument

But there is also a danger of not implementing the proposed tax. “Protecting energy and carbon-intensive industries to the extent that business-as-usual greenhouse gas emissions continue could weaken basic ministerial climate negotiations and exacerbate climate change impacts.

"These include changes in water availability, increased floods and droughts, biodiversity loss and crop losses or lower agricultural production in South Africa,” said Liesel Van Ast, research editor at Trucost. Maintaining emissions at their current level could result in lower productivity.

However, Purchase feels that there will still be significant resistance to the implementation of these laws in South Africa pointing to the recent introduction of carbon taxing in Australia and the resistance experienced in that country.

What it means for the consumer

Although South African companies rank very low in terms of taxation by Government, according to Wikipedia, South Africa has one of the highest rates of unemployment in the world and the public have to deal with tax in a very personal capacity. On September 4, for example, the price of petrol was increased by 93c a litre taking the price of petrol to R11.97/l inland and R11.62 at the coast. 

This is already putting a significant strain on the consumer in that not only do they have to fork out more for fuel, but the increases have a significant impact on food costs.

Because South Africa is a net importer of oil and petroleum, the price of petrol fluctuates relative to the oil price. This means that the price of petrol is never stable and decreases are rarely relative to increases.

Any effect that companies would feel as a result of the implementation of the carbon tax would be transferred onto the consumer by way of increased food prices. With this in mind, one would shudder to think what the effect on the consumer would be if the agricultural industry was not exempt from carbon taxing.

 

 

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