Tuesday, August 2, 2011

Should we support a carbon tax?

Last year Treasury put out a Discussion Paper on a carbon tax. Discussion was muted in the extreme. Indeed, Government may have been left with the idea that a carbon tax is positively desired. Recently the WWF and others have argued that business should meekly lie down and accept the tax. Nothing can be further from the truth.

Most arguments for a carbon tax start with the assumption that it would be possible to reduce the impact of climate change if we as a nation reduced our emissions. This would be true if all nations agreed to reduce their emissions, but that day is far off. Carbon emissions have dropped in a few European countries, to be true, but globally they have risen. Indeed, since the Kyoto Protocol came into force in 1998, emissions have accelerated, not declined.

Moreover the present trend is towards further increases. Many optimists speak of ‘the transition to a low-carbon world’, but it is presently a truly fruitless wish. There is no transition. Instead we face a world with ever-increasing levels of carbon dioxide in the atmosphere.

In 2010, South Africa’s emissions were about 400 million tons per annum, which amounts to less than 1.5% of the global total. At present China emits about 8 000 million tons, growing annually by over 600 million tons. Whatever we did would be insufficient to offset the annual Chinese growth.

That being said, South Africa has a policy which seems reasonable. Our Climate Change Response Green Paper commits us to “making a fair contribution to the global effort to achieve the stabilisation of greenhouse gas concentrations in the atmosphere at a level that prevents dangerous anthropogenic interference with the climate system.”

However, the Green Paper also gives a rider. “South Africa …. is committed to reducing its own greenhouse gas emissions in order to successfully facilitate the agreement and implementation of an effective and binding global agreement, together with all the other countries responsible for significant greenhouse gas emissions.” So Government recognises that it would not be effective to act alone. If we are to reduce our carbon emissions, it can only be as part of a global agreement involving all other significant emitters.

IRP2010 showed that any significant reduction in our emissions would increase our energy costs significantly – and already it is clear that the recent increases in prices are causing closure of industries, such as our only zinc smelter, with attendant job losses.

An argument for a carbon tax is that we could face trade sanctions unless we act to reduce our emissions. There are few nations that would be able to impose such sanctions, for the simple reason that there are few that have managed to reduce their emissions. Thus the threat is more imagined than real.

Those in favour of a carbon tax argue that we cannot continue on our present path. They claim that business-as-usual is not an option. The trouble with this view is that our present path is not working. We are not creating jobs at the rate needed to drag ourselves out of poverty. We need an environment conducive to growth, not one littered with artificial constraints and bureaucratic traps. We certainly do not need new taxes, particularly a tax like the proposed carbon tax which will achieve nothing except further slowing of our growth (and even the Discussion Paper accepts that).

A problem with growth is that it comes at the cost of greater demand for energy. There is a very direct relation between the domestic product per capita and the energy used per capita. Nearly all the wealthy nations have emissions of over 9t of carbon dioxide per capita per year. Nearly half the world’s nations have emissions of less than 3t, and they are all poor.

The supposed solution to this dilemma is to grow the renewable sector of the energy economy. This presumes that renewable energy technologies are a replacement for our existing fossil fuel technologies. Unfortunately, that is not yet true. The UK Department of Energy and Climate Change has just released its latest figures. It has been working hard to reduce Britain’s carbon emissions, and they have definitely fallen. Nearly 10% of its energy comes from low-carbon sources – but nuclear power is two-thirds of that, and wind energy is less than 5%, or 0.4% of the total supply.

Analysis of the reasons for the drop in the UK emissions soon shows that it is due to the decline in coal use, which has more than halved since 1990, and an increase in natural gas, which has nearly doubled over the same period. However, this has come at a cost – nearly 40% of the gas is now imported, so Britain no longer enjoys the energy security it has had historically. Its demand now exceeds what it can produce.

There are high hopes in South Africa, expressed in the IRP2010, that we will soon be able to resolve our energy supply problems via renewable energies. But renewable energies have not provided Britain with a sustainable solution to growth with a reduction in carbon emissions, and they seem most unlikely to provide us with an answer. If the British experience is anything to go by, our best hopes are to rush to nuclear power and to hope that the Karoo will yield its shale gas to fracking. The recent proposal by WWF and its lobby, that we should rush into a carbon tax to achieve low-carbon growth, seems very misguided.

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