The Industry Task Team on Climate Change (ITTCC) a voluntary, non-profit association established in December 2010 which represents carbon and energy intensive companies in SA, submitted its comments on the Carbon Tax Bill today.
Says Jarredine Morris, ITTCC representative, “We support South Africa’s commitments to address climate change and we are in favour of a predictable and gradual transition to a lower carbon, resource efficient economy. We acknowledge the merits of a carbon price in the longer term, but not the currently envisaged carbon tax. Any such policy instrument should avoid unduly damaging the South African economy.”
“A carbon tax is neither necessary nor suitable in the current economy as a low-carbon, resource efficient economy can be achieved through the DEA’s carbon budget regime, the Integrated Resource Plan (IRP) and the Industrial Policy Action Plan (IPAP),” emphasises Morris.
As the ITTCC supports the comments submitted by Business Unity South Africa, the ITTCC submission only covered the energy landscape and the role the energy mix must play in transitioning to a lower carbon future. Morris states that the ITTCC’s analysis demonstrates that the proposed tax is not necessary to meet international commitments within the current national circumstances.
South Africa has already made progress in mitigation of national GHG emissions, as measured against the National Benchmark Trajectory. Economic growth has been lower than assumed in the business as usual (BAU) trajectory, which has come at a great cost to the economy and consequently to employment. Structural changes to the economy have seen a decline in the carbon intensity of GDP.
A combination of sharp increases in electricity prices has played a large role in electricity sales volumes contracting by more than 14% below 2011 levels, with the largest contractions in mining and industrial sectors. In addition, direct interventions to increase low-carbon electricity supply will further the decarbonisation of the electricity supply industry in South Africa.
The slow economic growth and shift in the electricity supply mix are significant and important considerations in the development and implementation of integrated climate change and energy policy. The long-term consequences of these changes must be understood to ensure that the implementation of climate change policy does not further unnecessarily burden the economy.
Furthermore, the structure of South Africa’s electricity sector means that the future electricity mix cannot be shaped by a price signal since its emissions reductions are driven by the Department of Energy’s Integrated Resource Plan (IRP). Notwithstanding business’ call for an updated IRP based on a least-cost, technologically unconstrained base-case, including a carbon reduction policy adjusted scenario – this instrument determines the energy mix of the country.
In this context, the carbon tax will have no material impact on reducing carbon emissions from the electricity generation sector. The carbon tax is a pass-through cost for regulated utilities and will therefore only add costs to the end customer which will already bear the cost of the new build programme via electricity tariffs. In addition, it is not clear how a carbon tax will be passed through to consumers in the second phase of the tax.
According to Morris, “We understand that the current intention is to ensure revenue neutrality on the price of electricity for the first phase, however the practicalities of how this will be achieved is yet to be proven and there is no certainty of neutrality for the second phase, which hinders investment and negatively impacts international competitiveness.”
Given the structure of South Africa’s electricity sector, ITTCC believes that the IRP and mandatory carbon budget regime are more appropriate to driving and enabling structural change in the largest emitting sector of the economy. Despite many requests from business over the years, no further clarity has been provided on the alignment of the proposed carbon tax and other emissions’ reduction instruments, such as the carbon budgets. The 5% allowance is an inadequate replacement of the proper alignment of these two instruments. As it stands, there will be a period of overlap and consequently a double penalty.
ITTCC argues that the proposed carbon tax is neither predictable nor gradual. The proposed implementation date does not allow sufficient time to address the plethora of challenges with the current design. In addition, the tax will further increase investment uncertainty. Furthermore, the proposed tax is administratively and practically enormously costly and onerous.
Morris concludes, “in the context of these challenges, the focus of policy development in the short-to-medium term should rather be on ensuring cohesive development of polices through alignment with various government departments. Future climate change policies must consider the current national circumstances as well as the structure and state of the economy. We aspire to work collaboratively with government departments to develop integrated and sustainable policy for the country – a policy that recognises that South Africa has been de-industrialising and has an urgent need to re-industrialise and become more competitive.”
ITTCC believes that policy development and implementation should be guided by the following principles:
- Predictable and gradual: Emissions reduction policies must be set out well in advance and the pace and progress of introduction should be clearly laid out in advance.
Reduces investment uncertainty allowing businesses to transition efficiently to low carbon economy. Encourages investment in low carbon choices, accelerating development of new technologies and reducing the overall cost of abatement.
- Broad based: Includes a broad range of policy levers and covers the broadest possible range of greenhouse gas emission sources, sinks and low carbon energy options to lower the overall cost of emissions reduction.
- Simple and effective: Effectively reduces emissions at least economic cost and is simple to implement and administer. Simple policies increase transparency thereby reducing opportunities to game and reducing administration and audit costs.
- Supportive of technology: Encourage the adoption of the most efficient low emissions technologies through a carbon price signal, and fiscal measures where market failure can be demonstrated.
- Climate Ready: The South African government must adapt to reduce adverse impacts of climate change such as severe weather and rising sea levels.
- Development focused: Addressing the developmental priorities of poverty, inequality and unemployment by enabling the creation of decent work, economic and social transformation, and sustainable energy supply.
- Trade friendly: Allows the economy to progressively reduce emissions without distorting trade and investment flows or compromising the international trade competitiveness of South African industry in the absence of a global response to climate change.
- Revenue neutral: The objective must be to change behaviour not raise revenues – if revenues are raised though a price measure, they must be recycled to aid individuals and sectors adversely affected by the policy measures, not be diverted into general revenue.
- Clear Price Signal: Ensures that a carbon price signal influences producers and consumers such that emissions and carbon consumption are reduced, and the incentive to develop low carbon technologies is increased.
The ITTCC is a voluntary, non-profit association established in December 2010, and a sister organisation of the Energy Intensive User Group (EIUG), focussed on climate change policy. Members are energy and carbon intensive organisations that collectively contribute over 20% to South Africa’s gross domestic product (GDP).
ITTCC agrees that warming of the climate is unequivocal, that human influence is clear and that physical impacts are already occurring. It recognises that climate change poses a complex challenge for global society, with differing country response capabilities, and it is our responsibility to act. The approach needs an integrated South African mitigation approach through which we can contribute to a global solution. ITTCC supports South Africa’s international commitments to address climate change that consider its current national circumstances, developmental state and socio-economic aspirations. This support is subject to the availability and provision of appropriate technology and financing support from developed countries.
ITTCC supports a predictable and gradual transition in South Africa to a lower carbon, resources-efficient economy. This must be based on an accurate and up-to-date emissions profile. It acknowledges the merits of having a carbon price in the economy in the longer term, but not the currently envisaged carbon tax as it is problematic in its design and practical implementation. This carbon pricing can be achieved through DEA’s carbon budgeting proposal, with a penalty applied exceedance of the budget.