I'm glad the
Minister of Finance gave us all some respite in this year’s
budget. For this was the year when he was
supposed to be introducing a carbon tax.
However, he first made the proposal back in 2009. Since then, the world has changed
and his original rationale is now looking very suspect.
For
instance, internationally the price of carbon has plunged. The EU, which was particularly strongly
committed, has been trying to support the price, and failed (at great cost). So
we now have the prospect of taxing something at about twice its actual
value. That suggests that carbon is a
very great sin indeed; only sin taxes are higher than the basic cost of what
is being taxed.
Internationally,
too, nations which have tried to set up carbon limits are abandoning them when
faced by reality. Germany, for instance,
has had laudable carbon targets, but the political decision to phase out
nuclear power has meant the death of the targets. This year alone Germany will bring on line some
ten new coal-fired power stations, with more to follow. In Japan, too, the closure of nuclear plants
following a re-assessment of the risks in an earthquake-prone land has meant
discarding their target to reduce carbon emissions. Japan now faces increasing
emissions for the foreseeable future. Carbon targets are far less important
than keeping the lights on.
The great
efforts of the UN have come to naught.
At Copenhagen in 2009, they reached an Accord, but it was merely
noted. Some elements of the Accord were
accepted at Cancun in 2010. In Durban in
2011, they developed a “Platform for Enhanced Action”. It was hoped to agree
something by 2015 for implementation by 2020 – some enhancement! At Doha in
2012, there were grave reservations that few nations were committing
aggressively enough to the 2oC target – an understatement, if ever
there was one. The 2013 meeting in Warsaw broke up in disarray – those awful
developing states were demanding that the developed nations pay for the damage
they had caused. Ridiculous! Didn’t they understand it was a global problem?
It is now
questionable if carbon is as severe a global problem as was thought five years
ago. Emissions have soared, but the thermometer has remained stuck on “warm” –
since 1997, according to some commentators. Yes, this decade is warmer than any
since we got accurate instruments, but it is not getting warmer still.
Meanwhile some of those naughty developing nations, like China and India, are
emitting more and more carbon every year. The annual growth in China’s
emissions is larger than South Africa’s total output.
Another
global phenomenon is the realisation that carbon taxes are not the answer. They are supposed to cut emissions. Our official policy is to slow emissions
until they reach a peak around 2025, after which they may decline. But carbon taxes have not been able to stop
emissions. Australia tried it, and didn’t like the taste. In eighteen other
jurisdictions around the world, the best that can be said is that it has slowed
the growth in emissions, not reversed them.
Only in the Canadian province of British Columbia has a carbon tax managed
to cut emissions. Only there did the government reduce income tax in direct
proportion to the carbon tax. In some countries, carbon emissions have more
than doubled since the tax was put in place.
Even here,
some circles of Government are somewhat less enthusiastic than they were five
years ago. Treasury itself has been
mulling over the problem which they first identified, that the impact of the
tax falls heaviest on the poorest, and enriches the richest. The Department of Energy, in its November
2013 review of its IRP2010, has found better ways of reducing carbon than a
tax. And it has found a carbon budget,
beloved of the Department of Environment Affairs, to be really disastrous – but
that is another story.
The Energy
review also had difficulty in identifying the impact of higher energy prices on
the demand for power. All of us have
felt the impact of the higher prices; all of us have tightened our belts as far
as we can. The drop in consumption seems largely to be due to the restrictions
on the supply and to the increasing downtime for maintaining Eskom’s power
stations. The stations used to be
available 86% of the time; the target is now 80%.
This is an
important finding, because the whole thesis underlying the carbon tax is the
Pigovean idea that demand will drop if you increase the price. The trouble is that energy is one of those
things that are essential to our lives in general and to the economy in
particular. It is a critical factor of
production. You can’t increase efficiency beyond certain limits. Once those limits are
reached, reducing the energy means reducing the output.
There are
already taxes on our energy. There is the
non-renewable energy levy, and the tax to pay for the additional cost of
renewable energy. Neither of these have had any detectable effect on the
demand. In economic terms, the price of
energy is not very elastic. You can see
this most dramatically in the oil price.
From the 1950’s to the early 1970’s, the demand grew at 150Mt/a. In the 1970’s there was a ten-fold increase
in price. Since the early 1980’s, the demand has continued to grow somewhat
slower at 50Mt/a. So even a really dramatic
price increase will only slow the growth – it will not cut it in absolute
terms. If you want to cut emissions, you have to find an alternative
technology. We are attempting to do that with our renewable energy programme,
but with the best will in the world, we cannot replace our coal-fired power
stations overnight.
