OUR BURNING PLANET: OP-ED: Carbon Tax Bill gift-wrapped for big emitters: At last, South Africa is getting a (weak) carbon tax
A decision to reduce carbon tax at the expense of climate change in South Africa puts economic growth ahead of environmental sustainability. This is despite mounting evidence that the more we wait to act on greenhouse gases, the more drastic our shift must be.
After an almost decade-long process, the Parliamentary Standing Committee on Finance voted last week on the Carbon Tax Bill that will soon be tabled in Parliament for adoption and implemented by 1 June 2019. This Bill will enshrine in law the mechanism that puts a price on carbon emissions in South Africa. However, with legislators pitting economic development against environmental sustainability, and allowing 11th-hour amendments that enable South Africa’s biggest greenhouse gas emitters even more leeway, the only price they are putting on carbon emissions is catastrophic climate change – and South African citizens are the ones who will pay.
The carbon tax is a fiscal instrument that puts a price on greenhouse gases emitted through the production of goods and services. These emissions generate negative social and environmental costs to society as a whole by altering the climate and triggering social, economic, and environmental harms. By taxing goods and services according to their greenhouse gas emissions, we correct this imbalance and nudge companies and people to change their behaviour.
The carbon tax is a critical tool in the fight against climate change – the greatest existential threat of our time, and no longer a remote one: many South Africans in rural areas and cities from Limpopo to the Western Cape are already affected.
The latest Intergovernmental Panel on Climate Change (IPPC) report states that we have 12 years to radically reduce our heat-trapping emissions to have the slightest chance of keeping global warming below 2°C. Even then, as a confirmed climate hotspot, South Africa will warm at twice the global average. A frightening reality for our country: “There is no certainty that adaptation to a 4°C hotter world is possible,” warns the World Bank. This is why an effective carbon tax is so important.
Unfortunately, the carbon tax system the Standing Committee just endorsed is far too weak to be efficient and raises issues of consistency with other policies and commitments, and economic justice. South Africa committed to play its part in tackling climate change by ratifying the Paris Agreement on Climate Change in 2016, and that includes reducing the country’s greenhouse gas emissions by up to 42% by 2025. This is no small task: it means almost halving emissions within six years.
Why then this watered-down carbon tax, with an excessively low tax rate and a string of allowances and rebates that will leave heavy greenhouse gas emitters off the hook for at least another three years? “It’s the economy, stupid!”. Despite extensive consultations over the last nine years, it is clear that both the Treasury and the legislator have systematically opted to disregard environmental and climate-related concerns. They are pitting economic growth against environmental sustainability despite mounting evidence that the more we wait to act, the more drastic our shift must be.
In a recent conversation with African Climate Reality Project, the chair of the Standing Committee on Finance, Yunus Carrim, warned that it would be unwise to over-tax the productive forces given the “perilous state” our economy finds itself in. Large greenhouse gas emitters did not shy away from threatening that a stringent carbon tax would diminish South Africa’s “investment attractiveness and competitiveness”, and lead to job losses and increased unemployment. Hence the phased approach. Fair enough: one must consider the economic impact of applying another tax in an already strained economic context. It is a good thing, for instance, that the Carbon Tax Bill allows for credits so that the tax will not affect the price of electricity at least until 2022.
“The carbon tax could undermine the economy. We cannot just care about the environment,” according to Carrim.
This false dichotomy between economic growth and environmental sustainability is not only misconstrued, but it is also misleading and detrimental to our sustainable development agenda and the just transition to a low-carbon economy. Sadly, it is the mantra of the current government, as illustrated by Minister of Energy Jeff Radebe’s recent declaration regarding South Africa’s “coal endowment”, following in the footsteps of his infamous predecessor David Mahlobo. It shows the economic blackmail at play – and how it influenced the legislator to accept a watered-down carbon tax. It is ironic that government advocates a “phased approach”, after a decade of dragging its feet to set in motion the just transition called for in Chapter 5 of the National Development Plan.
A flawed public participation process
Not all citizens have had equal opportunities to engage in this process and have their voices heard. The chair of the Standing Committee on Finance himself deplored the under-representation of economically marginalised communities, unlike well-resourced stakeholders from the private sector and large NGOs. The civil society raised this problem regularly to the committee and, as in other instances, some NGOs have taken it upon themselves to facilitate broader participation with their limited resources. However, this was not just a matter of financial capacity. Calls for a far-reaching and informative public participation process that would allow for constructive involvement of diverse sections of society have remained unanswered.
In the meantime, private sector stakeholders had all latitude to weigh in on the discussions, a fact that Carrim acknowledged willingly. The successive iterations of the Bill since 2015 show that carbon-emitting companies had a far greater influence on the carbon tax system than stakeholders who advocate for more progressive and ambitious measures to penalise global warming emissions. The Standing Committee did not provide feedback on how submissions on the successive drafts of the Bill informed the committee’s review, arguably due to a lack of capacity. But one just needs to compare the various versions of the Bill to see the tax rate and allowance provisions have remained unchanged despite many critics – worse, allowances have actually increased.
The proposed carbon tax provides for exemptions and rebates to most of the heaviest greenhouse gas emitters. These allowances enable a reduction in carbon tax liability of between 70% and 95%. Said differently: large greenhouse gas emitters will be taxed on maximum 30% of their emissions, and may end up paying only R6 to R36 per tonne emitted instead of the nominal tax rate of R120 – a rate already five times too low to keep global warming well below 2°C, according to the High-Level Commission on Carbon Prices.
It appears that at the last minute of the parliamentary review process, Treasury increased the minimum tax-free allowance from 60% to 70%. This material change was not subjected to public scrutiny, which raises the question of the transparency of the process. While the committee chair insisted that only “radically new” ideas from the public would be considered during the final review and vote, the legislators saw no harm in introducing a change at the eleventh hour that further weakens the effectiveness of the carbon tax system.
Some argue that an imperfect tax is better than nothing at all, and that it can (will?) be strengthened over time. This line of reasoning hardly holds up in the face of the urgent task at hand: the end-of-century projections are dependent on what we do now to reduce heat-trapping emissions drastically. We need an effective and just carbon tax that serves the interest of the people of South Africa, particularly the workers and the poor – not the interests of heavy-emitting industries. We must make the carbon tax more stringent, and introduce mechanisms that cushion the economically marginalised (for instance by reducing the VAT rate which has a disproportionate impact on the poor, or conditioning rebates to demonstrated increased employment).
As teenage climate activist Greta Thunberg would say: it is time to panic. When your house is on fire, you don’t ask the firemen to spare water because you’re not sure you can afford it. We can no longer satisfy ourselves with incremental measures to protect the status quo and private interests. A system-change is what we need. By failing to push for an efficient and just carbon tax the legislators have shown that they lack the political courage to do just that.
Perhaps it’s time we make our elected representatives panic a little. DM
Noelle Garcin is the Project Manager of Action 24 – Active Citizens for Responsive Legislatures, the project promoting broader and more effective public participation in environmental governance co-funded by the European Union. Nicole Rodel is the Communications Officer of African Climate Reality Project. Find out more about Action 24. This article was produced with the financial support of the European Union. Its contents are the sole responsibility of the implementing organisations and do not necessarily reflect the views of the European Union.