Thursday, March 10, 2011

A carbon tax in South Africa?

Last year, Treasury issued a discussion paper on a possible carbon tax. It concluded that a tax of R75 per ton of CO2, with an increase to about R200 per ton CO2 (at 2005 prices) would be both “feasible and appropriate.” As a coal-fired power station emits about 1kg CO2 per kWh, the carbon tax would add between 15 and 40% to the present cost of electricity. Is such an increase merited?

Treasury’s discussion paper starts by reviewing the effects of climate change. It gets the effects wrong, and always in the wrong direction. For instance, Treasury claims “Average temperatures have increased over the past 50 years at a rate of 0.2°C per decade, largely as a result of human activity.” The HADCRUT official data, variance adjusted, gives 0.13°C per decade for 1960-2010.

Similarly, Treasury believes “the atmospheric concentration of these gases could reach 550ppm of carbon dioxide equivalent (CO2e) by as early as 2035, committing the earth to an average temperature increase of about 2-5°C.” The IPCC, which is nothing if not conservative about these matters, says that with a very gloomy view of the world (its A2 scenario), it expects an average temperature increase of about 2-5°C about 2095, not 2035! Less gloomy IPCC scenarios give 1.8-2.8°C about 2095.

Likewise, Treasury claims “Warming is expected to increase mosquito prevalence, with a concomitant rise in malaria.” The IPCC says “Climate change is expected to have some mixed effects, such as a decrease or increase in the range and transmission potential of malaria in Africa.” This is IPCC-speak for “We don’t know!”

Why was it necessary for Treasury to overstate the case in this way? Did it honestly believe we should be scared into accepting its new tax? A guide to the true impacts of climate change is the last century. There was detectable global warming, but the impacts can barely be seen. We live in a water-stressed country. Yet our own Weather Service reports “Higher temperatures will influence the rainfall, but it is still uncertain how the annual rainfall will change. It could increase in some parts of the country, and decrease in other parts.” The IPCC couldn’t have put it better!

Treasury’s Paper then considers the rationale for a tax. “Command and control regulations and market based instruments are used to control pollution.” Is carbon dioxide a pollutant? A dictionary definition of pollution is “The contamination of air, water, or soil by substances that are harmful to living organisms.” Carbon dioxide is not harmful to living organisms. To the contrary, it is the very basis of life.

The Paper then argues “Climate change and its effects are the result of GHG emissions, which are not paid for by the emitters.” That may be so, but many costs are born by society as a whole. Society can agree to build a bridge to cross a river. The costs may born by society, or the bridge may be tolled and paid for by users. The implicit assumption in the Paper is that ‘tolling’ is the only solution.

The Paper lists some issues underlying the design of a carbon tax. The first of these is “Environmental effectiveness – The ability of the tax to reduce GHG emissions.” Suddenly the rationale has moved from concern about the external costs associated with emissions to the emissions themselves.

It is futile to worry about South Africa’s emissions alone. Climate change is a global problem. Each year, South Africa emits about 125 million tons of carbon. China’s emissions are growing by an additional 200 million tons of carbon each year. South Africa could cut its emissions to nil, and the effects of climate change would still be there.

Until there is agreement on a global solution there is no purpose in placing additional imposts on our economy. A carbon tax would be a cost with no detectable benefit.

The only countries to have imposed carbon taxes are in the European Union. There is also a Canadian province, British Columbia. No developing nation has seen any merit in the idea.

This is not altogether surprising. Development demands ever more energy. There is a direct relationship between energy consumption and GDP. Over 80% of the world’s energy is derived from fossil fuels. The International Energy Agency predicts this may fall to slightly less than 80% by 2035. However, ongoing economic growth will see a 30% increase in greenhouse gas emissions by then.

Why should we slavishly follow the Europeans? There is absolutely no basis for a carbon tax in South Africa.

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