December 15, 2010 / 9:22 AM / 8 years ago

S.Africa's carbon tax could hurt business, consumers

CAPE TOWN (Reuters) - South Africa is likely to phase-in a carbon tax on fossil fuel inputs as part of new measures to curb carbon dioxide emissions, the national treasury said, in a move that may hit company profits and hurt consumers.

Smoke rises from a chimney at the Sugar Cane Growers cooperative in Belle Glade, Florida January 6, 2010. REUTERS/Carlos Barria

Africa’s biggest economy, also the continent’s worst polluter, is considering three carbon tax options as it moves to reduce CO2 discharges by 34 percent over the next decade.

In a draft carbon tax policy approved by cabinet on December 9, the government said it was considering a direct carbon tax on actual measured emissions, a fossil fuel input tax based on carbon content and an output tax applicable to emitters.

South Africa hopes the taxes will influence behaviour among consumers and industry, including power utility Eskom and petrochemicals group Sasol, which ranked as the country’s worst emitters in 2009.

Treasury said a tax of 75 rand per tonne of CO2, which could increase to around 200 rand per tonne CO2, would be “feasible and appropriate” to achieve reduction targets.

However, while the proposed tax on fossil fuel inputs would probably hit companies using coal, crude oil and natural gas, it did not guarantee less harmful emissions, an analyst said.

“Producers will have less profit and consumers will have to pay more. What we need is alternative energy sources and not increased costs,” Cornelis van der Waal, an energy analyst at Frost and Sullivan told Reuters.

Both Eskom and Sasol said they were still studying the paper to determine its financial implications and would hold further discussions with government on its implementation.

Eskom last year emitted some 220 million tonnes of CO2, while Sasol’s South African operations were responsible for 70 million tonnes of CO2.

“We do believe a carbon tax has a role to play in a suite of options aimed at reducing carbon emissions. However, we need to ensure it does not make commodities like electricity unaffordable,” Hilary Joffe, Eskom’s spokeswoman, told Reuters.

Eskom supplies the bulk of power in Africa’s biggest economy, using mainly coal-fired stations.

The utility is already struggling to pay for new plants to meet fast rising demand in the world’s top producer of platinum and a major supplier of gold, and analysts said a carbon tax could further strain its bottom line.

South Africa, which introduced its first explicit carbon tax in 2008 with the announcement of an electricity generation levy of 2c per kWh, wants the new carbon tax initially set at a modest rate and gradually increasing over time.

The Treasury said it would consider sector specific tax reductions and exemptions to protect the competitiveness of key industries, although these would be temporary.

South Africa, the world’s 12th-largest emitter of CO2, will host the next global climate change round in Durban in 2011, and is under pressure to step up its fight against greenhouse gases.

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