THE SOUTH AFRICAN CARBON TAX

Transcription

1 THE SOUTH AFRICAN CARBON TAX Enhancing Market Readiness Session Dr. Memory Machingambi, Tax Policy Unit, 27 October 2017

2 South Africa s National Climate Change Response Policy (NCCRP), 2011 South Africa s response to climate change has two objectives: Effectively manage inevitable climate change impacts through interventions that build and sustain South Africa s social, economic and environmental resilience and emergency response capacity. Make a fair contribution to the global effort to stabilise greenhouse gas (GHG) concentrations in the atmosphere at the level that avoids dangerous anthropogenic interference with the climate system within a timeframe that enables economic, social and environmental development to proceed in a sustainable manner. One of the elements in the overall approach to mitigation is: The deployment of a range of economic instruments to support the system of desired emissions reduction outcomes, including the appropriate pricing of carbon and economic incentives, as well as the possible use of emissions offset or emission reduction trading mechanisms The carbon tax policy forms an integral part of the climate change response policy package under NCCRP and recognised as an important instrument to ensure cost effective GHG mitigation in the National Development Plan. 2

3 Carbon pricing within the NDC context South Africa signed the Paris Agreement in April 2016 and endorsed the submission of its Nationally Determined Contribution (NDC). The NDC requires that emissions peak in 2020 to 2025, plateau for a ten year period from 2025 to 2035 and declines from 2036 onwards. GHG emissions expected to range between 398 and 614 MT CO 2eq As part of South Africa s submission of the NDC, the carbon tax was noted as an important component of the country s mitigation policy strategy. In the South African context, a carbon tax is more appropriate than a cap-andtrade scheme because of the oligopolistic nature of the energy sector; The carbon offsets flexibility mechanism could be a 1st step towards implementing a market mechanism which could later be linked with international schemes; The most recent carbon tax modelling results show the tax would lead to an estimated decrease in emissions of 13 to 14.5 per cent by 2025 and per cent by 2035; marginal reduction in the annual average growth rate of the economy of just percentage points compared to business as usual. 3

4 CARBON TAX DESIGN FEATURES: Rate, Tax-free Allowances and Recycling Measures Revenue Revenue Recycling Carbon tax at R120 per ton of CO 2 e 60% basic tax-free threshold Max of 10% tax-free allowance for trade exposure 10% tax-free allowance for process and fugitive emissions Up to 5% performance allowance 5% tax-free allowance for complying with carbon budgets information requirements 5 or 10% allowance for Carbon Offsets to reduce the carbon tax liability - Tax-free allowances of 60-95% - effective tax rate of R6 - R48 t/co 2 e - No impact on electricity prices in 1 st phase Energy Efficiency Savings tax incentive Credit against Eskom s carbon tax liability for the renewable energy premium built into the electricity tariffs Credit for the electricity levy Support for the installation of solar water geysers Enhanced free basic electricity / energy for low income households Improved public passenger transport & support for shift of freight from road to rail 4

5 Carbon Tax Policy - timeline Environmen tal Fiscal Reform Policy Paper (2006) LTMS (2007) Carbon Tax Discussio n Paper (80 comments) (Dec 2010) NCCR- WP (2011) Carbon Tax Policy Paper (115 comments) (May 2013) Carbon Offsets Paper (77 comments) (April 2014) Draft Carbon Tax Bill (91 comments) & Draft Regulations on Carbon Offset (65 comments) ( ) Revised Carbon Tax Bill to be published, introduced & tabled in Parliament

6 Draft Carbon Tax Bill: Main Comments 1. Electricity pricing and electricity levy; 2. Design of the trade exposure allowance; 3. The socio-economic impact of the carbon tax; 4. Alignment of the carbon tax policy with other climate change policies; 5. GHG Reporting framework and tax administration. 6

7 Carbon offsetting under the carbon tax In 1 st phase, permitted carbon credits should be developed under: Clean Development Mechanism (CDM), Verified Carbon Standard (VCS), Gold Standard (GS); Allowance for potential domestic standard to cover project types not well catered for under international standards e.g. AFOLU; Specific eligibility criteria for carbon offset projects for effective implementation of the offset mechanism in South Africa includes: Project activities must occur outside the scope of activities subject to the carbon tax, Only South African based credits will be eligible for use within the carbon offset scheme. Carbon offset projects registered and / or implemented before the introduction of the carbon tax regime will be accepted subject to certain conditions and within a specific timeframe. 7

8 Policy intent of carbon offsets scheme The carbon offset component of the carbon tax has a dual purpose: To serve as a flexibility mechanism that will enable industry to deliver least cost mitigation, i.e. mitigation at a lower cost to what would be achieved in their own operations, and thereby lower their tax liability; and To incentivise mitigation in sectors or activities that are not directly covered by the tax and/or benefiting from other government incentives, especially, transport, AFOLU, waste. 8

9 Draft Regulation on the Carbon Offset Comments 1. Design issues of the carbon offset component of the carbon tax a. Removing the cap on the carbon offset allowance; b. Geographical scope beyond South Africa; c. Development of local South African carbon offset standard; d. Harmonising the domestic offset criteria with CORSIA. 2. Eligibility and non-eligibility criteria with regards: a. Tax base (activities within the tax net); b. Early action projects vs potential supply of carbon offset credits; c. Energy efficiency and fuel switch projects on activities owned orcontrolled by taxable companies; d. Renewable energy projects including bidding projects under the REIPPPP; e. Energy efficiency projects benefitting from the Energy Efficiency Savings Tax Incentive; f. Criteria and scope forpositive and negative lists. 3. Administration of the carbon offset scheme. a. Functions ofthe administrator and steps onclaiming the allowance; b. Procedures forinternational credits transfer to local registry, listing ofcredits and transfer to taxpayer; c. Registry establishment concerns. 9

10 Carbon offset administration system 10

11 Summary Policy development and public consultation on carbon pricing in South Africa commenced in 2010; The 2011Climate Change Response Policy provides policy context for a carbon price / tax as one in a suite of measures to address climate change challenge and the transition to a low-carbon economy; The proposed design of the carbon tax addresses international competiveness concerns for South African firms and the impact of higher energy prices on low income households; The phased approach to the tax will provide the flexibility required for a cost-effective, just transition to a low carbon, climate resilient economy; The carbon offsets registry mechanism designed to allow seamless incorporation of elements of Article 6.2 of the Paris Agreement; Revised Carbon Tax Bill incorporating stakeholder comments will be published for consultation and tabling in Parliament. 11

12 THANK YOU Any Questions?