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Treasury’s Carbon Tax Plans Draw Sasol’s Fire

Wednesday, 21 August 2013   (0 Comments)
Posted by: Author: Linda Ensor
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Author: Linda Ensor (BusinessDay)

Petrochemicals group Sasol on Tuesday added its voice to the clamour for the Treasury to rethink its carbon-tax proposals, saying they were premature, too onerous and not backed up by adequate analysis.

Its views, expressed during parliamentary hearings on the proposed tax, echoed those expressed earlier this week by the South African Chamber of Commerce and Industry, which warned of the significant negative effects the tax might have on the economy and job creation.

Furthermore, steel producer ArcelorMittal South Africa has warned that the proposed tax could cost the group R600m a year.

Business Unity South Africa (Busa) also called on the Treasury on Tuesday to delay the introduction of the tax — scheduled for January 2015 — so that South Africa could devise an appropriate set of mitigation policies.

South Africa is well ahead of other countries in pushing on with a carbon tax. The level at which the Treasury is pitching the tax is also much higher than in other jurisdictions, Parliament’s trade and industry committee was told.

The Treasury released a carbon tax policy paper in May which proposed a tax of R120 per metric tonne on emissions of carbon dioxide above suggested thresholds, with annual increases of 10% per year until 2019-20.

Allowances and tax relief were built into the proposal.

Sasol representatives told MPs that the complex proposed carbon tax — which the government wants to introduce well ahead of the conclusion of globally negotiated agreements and without regard for the mitigation plans being formulated by the Department of Environmental Affairs — would be punitive for beneficiation. Yet this is a sector which has been targeted for attention in the government’s industrial policy.

It would negatively affect investment, they said.

Both Sasol and Busa argued that the carbon tax proposal did not take into account a raft of other carbon-pricing instruments that existed in the economy. Sasol submitted that no thorough analysis of the potential effects of the tax — particularly on competitiveness and jobs — had been considered adequately.

Sasol’s climate change specialist Shamini Harrington said the Treasury was "running ahead" with its carbon tax policy.

The global agreement on mitigation was expected to be finalised only in 2015 for implementation in 2020.

Also, the Department of Environmental Affairs still had to finalise its mitigation plans for each economic sector.

By delaying the introduction of a carbon tax, South Africa would be able to devise an appropriate policy mix, Ms Harrington said.

Sasol strategy manager Henry Gilfillan added that a carbon tax would reduce the capital and funds the group would have available to invest in low-carbon feedstock alternatives.

An analysis by Sasol of the effect of the tax on its business indicated that instead of the R120/tonne proposed by Treasury, it would be paying as much as R170/tonne in some parts of its business.

Busa representative Laurraine Lotter also urged a deferral of the plan, warning if the tax were to be imposed as currently designed, it would have a "substantial" negative economic effect.

Busa’s projections show that it would add an additional 8% annual increase to the electricity price, over and above the expected inflation-related increase.

Ms Lotter said the tax should not be developed in isolation from other planning taking place both locally and globally.

The Department of Environmental Affairs’ plans for mandatory mitigating measures would limit the emission outcomes for different sectors of the economy, and would also propose energy efficiency targets.

Implementing these measures would carry a cost, which the carbon tax policy had not taken into account.

Ms Lotter proposed that the carbon tax apply only if companies did not meet these targets. This would allow a "seamless linkage" between the carbon tax and other mitigation measures.

One of the flaws of the carbon tax policy paper, she said, was that it did not recognise existing carbon prices, such as the R35/tonne levy on nonrenewable electricity generation which was built into the electricity price.

The electricity price also incorporated an internal carbon price for renewable electricity generation, which Busa estimated to be about R116/tonne.

But Department of Trade and Industry chief director of green industries Gerhard Fourie emphasised that climate change mitigation was an imperative, both from a climate and a trade and industry perspective.

He warned that without these measures South African production and trade would become increasingly vulnerable to carbon-sensitive policies.



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