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Planned carbon tax faces serious hitches

24 February 2015   (0 Comments)
Posted by: Authors: Duane Newman and Joslin Lydall
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Authors: Duane Newman and Joslin Lydall (Cova Advisory & Associates)

One of the big announcements in Wednesday’s budget is expected to be a further delay in a new tax that could have harsh consequences for industry — the carbon tax.

We heard in last year’s budget speech that the tax was being delayed by a year to allow time for more consultation and the alignment of the tax with work by the Department of Environmental Affairs.

It appears that not enough of this has taken place, forcing another delay, probably with final details being announced only in next year’s budget.

Finance Minister Nhlanhla Nene is unlikely to upset many companies if he holds off a bit on this measure, which is highly unpopular, except among its devoted fan base in the green movement. However, the potential damage will be enormous if this tax descends on industry, which is already reeling under the effects of Eskom power cuts, a disturbing fall in confidence among investors and a volatile labour market.

The concept of a carbon tax may look quite simple, but a lot of detail sits behind it. We think the government initially underestimated how complicated it can be when you get into the detail, and the potential effects are enormous on large energy users and carbon emitters such as oil, steel and cement producers and Eskom itself. Officials seem to have not yet done all the required technical work, and the response from industry seems to have been far stronger than expected.

Our understanding is that the government still believes this tax is a last resort. While it may be imperative to reduce carbon emissions, and the National Treasury would relish the extra multibillion-rand income stream, the government would bring in a carbon tax if other ways could be found to bring down carbon emissions.

The timing of the planned carbon tax is not great, with load shedding already placing a huge burden on industry. The problem is that there are not a lot of viable alternatives to the carbon-intensive electricity grid.

Although we are seeing more moves towards renewable energy and alternative energy resources, and while industry understands we need to reduce greenhouse gas emissions, there are limited alternatives and not enough incentive to change. Some believe the carbon tax will create this incentive to change.

So industry is being dealt a double whammy — a looming carbon tax, and it is also being load shed, and this means growth is limited.

Since 2009 SA has wanted to take a leadership role in climate change, but there is some concern that we are a developing country and we have other challenges. Our industries rely on fossil fuels, and until we can incentivise them and offer alternatives, it is premature to push through a carbon tax. Even so, companies would be wise to prepare for the worst.

If they are not already doing so, companies must measure their carbon footprint. Using this footprint, companies can then quantify their carbon tax liability, which allows them to understand the effects of a carbon tax on their operations and to start to investigate their options.

Companies should also start to understand the potential to access higher tax-free thresholds or rebates and what this would cost, and to start understanding what other incentive and grant opportunities exist.

Even if the carbon tax never comes, all these measures are worthwhile at a time when there is more and more emphasis on energy security and cost.

We would welcome a statement in the budget on Wednesday that there will be no immediate move towards a carbon tax, allowing more time for careful thought and consideration. We must preserve the planet, but not at the cost of a crippled industrial sector and a further brake on economic growth.

This article first appeared on bdlive.co.za.


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