South Africa intros carbon tax to increase revenue

Pravin Gordhan, Minister of Finance, South Africa

South Africa is the biggest greenhouse gas emitter in Africa and is among the top 20 emitters of carbon dioxide in the world. In a quest to mitigate global warming, the South African Government has proposed the introduction of carbon tax.  In his 2013 national budget speech, the Minister of Finance, Pravin Gordhan, announced the introduction of a carbon tax, effective from 1 January 2015.

The proposed tax is R120 per ton of carbon dioxide equivalent on 40 percent of a company’s emissions, which will increase by 10 percent annually until 2020, writes Phineas Machinga, Industrial Automation, Manufacturing, and Mining Research Associate at growth consulting firm, Frost & Sullivan.

The introduction of the carbon tax will assist the government in increasing revenue. As indicated by the Chief Director of Economic Tax Analysis at the National Treasury of South Africa, Cecil Morden, government will raise between approximately R8 billion and R30 billion a year from the proposed carbon tax. Revenues from the carbon tax will be used to fund the country’s carbon mitigation and environmental programs. These programs include investing in renewable energy research and development and installation of solar water heaters. In South Africa, research in renewable energy is still in its infancy and it will, therefore, take time before renewable energy can be used on a larger scale.

South Africa’s mining and manufacturing industries will be most affected by the introduction of the carbon tax. Organizations will have to invest in research and development to find appropriate carbon dioxide sequestration technologies and equipment. Examples of equipment include absorption columns and scrubbers used to capture greenhouse gases in the above mentioned industries. Organizations, such as ArcelorMittal South Africa, Eskom, and Sasol will also have to incur further capital expenditure in acquiring such equipment, which is costly.

Consumers will also be affected by the introduction of a carbon tax, as prices of products will increase when companies are forced to incorporate the carbon tax into their production costs, leading to a reduction in disposable income for many South Africans.

Although the introduction of the carbon tax is expected to have a costly effect to both companies and consumers, the implications will leave South Africa with a cleaner environment.

By Phineas Machinga, Frost & Sullivan’s Industrial Automation, Manufacturing and Mining research associate