SA’s Carbon Tax obsession – fiddling while industry is burning

I was more than a little irritated after this interview. Not because of the guests – although having a lawyer on one side and a banker on the other has its challenges. But rather, that the studio guests missed the real point. Which is why South Africa, as a developing country with under half a percentage point of global GDP, insists on trying to position itself as the world leader in reducing carbon emissions. Ah, said the hairless lawyer after the programme, but if we don’t our manufactured products won’t be able to be sold anywhere. What manufactured products is a more appropriate question. The national de-industrialisation is gathering momentum through a combination of labour unrest, the world’s least flexible labour laws and the drained confidence that comes with communists forcing through their utopian but unworkable Developmental State. The idea of a Carbon Tax is a bit like Nero fiddling while Rome burned. South Africans need incentives to invest. Urgently and desperately. Lots of carrots, and a breaking of some of Government’s sticks., Instead industry is now threatened with another dis-incentive on top of the long list we already have. We need another tax like a hole in the head. Especially one that will be paid for in part through another electricity price increase. For once I wish we’d take a lead from the Australians and can this damn thing, at least for now. And focus our collective effort on fixing rather than fiddling. – AH  

ALEC HOGG:  The Department of Environmental Affairs and the Treasury are busy finalising an approach to carbon tax for South Africa. The idea is to reduce greenhouse emissions, as we heard earlier from Chris Yelland, some people think it is just a way of raising more revenue. Here to give us their perspectives are Andrew Gilder who’s from the South African Wind Energy Association and Marco Lotz from Nedbank Group Sustainability. He’s a Specialist on Enterprise Governance and Compliance at Nedbank. Marco – Carbon taxes: the Australians have said they’re a lot of bung. Chris Yelland has said ‘it is just a way to raise money. It won’t actually drop carbon omissions……

MARCO LOTZ: Well, for me, there are two separate issues, so one is we should definitely price in externalities, environmental externalities. We cannot continue using resources, whether it is coal or water or the way in which we are currently doing. As you also said, in between the different sessions, the young people of today will not stand for it. Completely separate to that, we’ve got to the discussion of a carbon tax and the question is, “Is that the correct mechanism to address the externalities, the use of water, and the use of coal that we should be pricing and that’s a very difficult question.

ALEC HOGG: Andrew, you are on the other side of the fence. You are representing the Wind Energy Association, I’m sure you would like to see benefits coming to you, via a carbon tax.

ANDREW GILDER: Well, there will be benefits to the economy. I take the point that the idea is that all Treasury is doing is trying to raise more revenue. That is one way of looking at it but the fact of the matter is that it is a component of National Climate Change Policy. It is not the only mechanism that is being proposed, it is part of what is called a mix of measures, with the unfortunate acronym of MOM, but in any event, it is part of a mix of measures that the country is proposing to the international community around the reduction of the carbon profile of our industry. If we don’t do that, we become increasingly uncompetitive in the industrial space. For example, we have a very ‘carbon emissions’ heavy baseline, in the generation of things, anything from steel to consumer goods.

ALEC HOGG: 80 percent of the carbon emissions from industry, come from Eskom and Sasol.


ALEC HOGG: So Eskom and Sasol, how are they going to be affected if there’s a carbon tax?

ANDREW GILDER: Well, at this point, Eskom has said to us what they are going to effectively be doing is passing that carbon tax responsibility through to its consumers.

ALEC HOGG: We’ve got a 12.7 percent electricity price increase that has just been approved.


ALEC HOGG: What is that going to do to the electricity prices in the future?

ANDREW GILDER: It will, potentially increase electricity prices, and so the question is then, how clever are you, as industry? Are you able to capitalise upon the ‘so-called’ allowances that have been built into the carbon tax, and work your industry, in a much more efficient emissions manner, into the future? It must be very clearly understood that Treasury has not simply said and, by the way, we are talking only about a policy document, at the moment, although we kind of have a timeline about it now. Treasury has not said, “We are simply going to slap a tax on you, relative to this amount of your emissions.” In fact, it is not to do with your emissions anyway. It’s about the intensity of your fuel input. They’ve said, “We are going to do that but, at the same time, we have a number of allowances built into the system that would allow you to operate in a much more efficient manner.”

ALEC HOGG: I get that but, surely Marco; South African taxpayers are now ‘gatvol’. We’ve had many new taxes that have been brought into the system. We’ve had very good examples of the tax Dollar/Rand being wasted. Isn’t that the danger here? Yet another tax coming in on carbon emissions, as Andrew has said, we are going to pay for it because it will go through Eskom (higher prices). Isn’t there just one more straw that is going to break this South African taxpayer’s/camel’s back?

MARCO LOTZ: I think, with that in mind we definitely need to be very sensitive, to some of the industries that cannot change or cannot change that quickly. Andrew, from the Wind Energy Association and some of those big projects, sits with their bank, that’s a fascinating place and a good market position to be in but imagine going to a warehouse or to a hardware shop and trying to find a normal, incandescent bulb today. It is very difficult, so positioning is crucial, so that companies also move their product offerings – their service offerings – as quickly as possible. If it is not for the carbon tax then it will be due to international pressures.

ALEC HOGG: I’ll tell you what I’m getting at here. Andrew, you’ve explained earlier that we want to tell the rest of the world how to handle greenhouse submissions, and South Africa has got this wonderful ability to try and be the first in the world at certain things. If we are point-three-percent or point-seven-percent of global GDP, depending on how you want to slice and dice the purchasing power parity. That’s a tiny, little fraction of the world. Who are we to be starting to impose on our citizens the responsibility for being world leaders, in a field like this?

ANDREW GILDER: It is to misunderstand that we are not world leaders. There are a number of organisations, and there are a number of initiatives across the world that are seeking to price carbon into emissions and tense baseline. For example, earlier this year under the auspicious of the World Bank was launched, the 2014, World Pricing Report, if you would like. We are one of some 39 initiatives, internationally that are looking at mechanisms that will bring carbon pricing into economies, so a much less subtle way of doing it would be simply a ‘command and control’ approach. May I point out, just for your interest, at a session run by Treasury last Thursday? There’s a very strong push from civil society that says, “We should immediately be bringing in a carbon price that is equal to the social cost of carbon in the economy.”

ALEC HOGG: Which civil society?

ANDREW GILDER: Well, there’s a large group of…

ALEC HOGG: Taxpayers? No, no you tell me. If you go to a taxpayer and you say ‘we are pushing up vat by one-percent because of carbon tax’.


ALEC HOGG: Do you think your taxpayers are going to say ‘yes, fine. We’d rather pay more VAT’?

ANDREW GILDER: But you have to take into account, Marco has already, is kind of the technical aspect. We have to take into account that we do not and have not taken into account environmental externality cost, in our production baseline to date. Do you know that it costs the State approximately R5bn that is never taken into account, in the generation of electricity, in respect of increased incidents of lung disease on the East Rand, related directly to the Eskom Power Station.

ALEC HOGG: That needs to be proven but, from your perspective, should we have a carbon tax, I think that is what we’re getting at? People like me are saying, “Hang on, one more tax, ‘eish’.”

MARCO LOTZ: Okay, for me, there’s two points. The one is we should internalise environmental externalities. What that implies is we can’t continue as we are doing now. Completely separate to that is, is the carbon tax the right implement at the right time and where will the money go to? That is what we need answer.

ALEC HOGG: I agree. Do you agree with that one, too?

ANDREW GILDER: I agree. It needs to be appropriately designed and Treasury has agreed that it needs to relook at the design.

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