A critique of the proposed South African carbon tax with particular analysis on economic consequences and employment-related implications

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2012-07-19

Authors

Gerhard, Robert A.

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Abstract

Following various commitments made by South Africa in terms of global climate change initiatives, the Department of the National Treasury released a discussion paper in December 2010 proposing the introduction of a carbon tax. The research sought to assess whether a carbon tax is appropriate for South Africa considering the international adoption of similar policies and what the implications of a carbon tax would be on South Africa’s socio-economic development objectives. This report presents findings showing that South Africa’s greenhouse gas (GHG) emission commitments and proposals for a carbon tax are “out of step” with developing country peers, particularly leading countries such as China, India, Brazil and Russia. Further, the research demonstrates that the Treasury proposals will have a significantly detrimental impact on the South African economy and will result in employment reduction in the industrial sectors of the economy – mining, manufacturing, construction, trade and transport/communications. While existing macro-economic studies identified in the literature review reveal that a carbon tax will have a negative effect on the economy, these studies tend to understate the degree of the problem. Furthermore, the Treasury discussion paper appears to omit certain important data from available studies, particularly regarding employment losses that, in terms of a relevant World Bank study, could be as high as 16% in lower skilled job categories. The author’s original research forecasts dire economic consequences based on a “bottom up” analysis of the “Top 47” industrial companies: lost GDP of 3% – 7% and job losses of 0.4m – 1.7m in the industrial sector. While the research had some limitations, it is sufficiently robust to justify the call for a “pause” on the implementation on the carbon tax proposals until policymakers and stakeholders better understand the “trade off” that must be made to achieve environmental objectives at the expense of socio-economic development objectives.

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