Johannesburg - Carbon tax could drop emissions by between 13 percent and 14.5 percent by 2025 and up to 33 percent by 2035, compared with business as usual, the National Treasury said yesterday.

The department published a carbon tax modelling report yesterday that assessed the impacts of the proposed carbon tax policy on reducing greenhouse gas emissions, economic growth, employment and industry competitiveness.

The Treasury said the study was conducted on its behalf under the Partnership for Market Readiness, an initiative administered by the World Bank to support nations in strengthening policy analysis and technical capacity to implement carbon pricing measures.

Adverse impacts

Treasury said the carbon tax was meant to contribute to a meaningful and permanent reduction in greenhouse emissions while minimising potential adverse impacts on low-income households and industrial competitiveness.

The Treasury said the effective carbon tax rate would vary between R6 and R48 per ton of carbon. “The carbon tax would make an important contribution towards reaching South Africa’s Nationally Determined Contribution commitments under the recently ratified Paris Agreement for emissions to peak in 2020 to 2025, plateau for a 10-year period from 2025 to 2035 and decline thereafter.”

The carbon tax would ensure that emission reductions were delivered alongside sustained economic growth.

The study was based on a baseline scenario that assumed average annual gross domestic product (GDP) growth of 3.5 percent from this year to 2035, inflation of 5.5 percent and population growth of 1 percent. The alternative baseline scenario assumed average annual GDP growth of 2.4 percent from 2018 to 2035.

In the latest financial stability review released on Wednesday, the SA Reserve Bank forecast economic growth of 1.2 percent next year and 1.6 percent in 2018.

Saliem Fakir of WWF South Africa said carbon tax was among many instruments that could be used to deal with the economy’s high carbon intensity. “WWF is supportive but believes that the introduction of the tax must be done in a way that supports economic goals but also achieves our climate targets.”

On the Treasury’s projections on the impact of carbon tax, Fakir said a measurable shift in behaviour was key.

“If we allow for the expansion of more cleaner technologies our electricity grid emissions factors can come down significantly. These modelling exercises are projections but we need to build in them real life situations and realism.

“We agree with the premises but say it is dependent on three things: behaviour change, new clean technology investments and growth in new economic sectors that are less carbon intense,” Fakir said.

He was sceptical of the department’s growth assumptions. He predicted an economic slowdown in the next three to five years.

“The key thing is there has to be political certainty and until that is resolved the state’s ability to make prudent investment, and the investment strike we currently see from business, will not be lifted as this all depends on addressing the current political uncertainty... I think Treasury is being too optimistic and if we get a credit downgrade that will also bring projections down.”