Fahamu (Oxford)

4 October 2012

South Africa: A Case for South Africa's Carbon Tax

opinion

A carbon tax could be one policy instrument to tackle climate change, poverty and unemployment if it is designed and used correctly.

"To expect governments funded and appointed by [the upper] class to protect the biosphere and defend the poor is like expecting a lion to live on gazpacho." - George Monbiot

In the wake of largely disappointing global summits such as Rio+ 20 and COP 17, and in the face of rapidly increasing global environmental degradation, an urgent wake-up call should be sounded that we need solutions to issues of sustainable development and climate change outside of inefficient and unyielding UN structures. One such potential solution, which is currently receiving considerable attention, is the implementation of carbon taxing, whereby greenhouse gas emitters are taxed in proportion to the amount of carbon dioxide or greenhouse gas equivalent that they produce.

As far back as 1978 Yale Economist William Nordhaus argued that the most effective way to deal with climate change is to implement such a carbon tax and since then at least 10 countries, along with a number of local and regional governments, have followed his advice. Along with Nordhaus many experts suggest that a carbon tax will be the most efficient way of bringing about economy-wide carbon reductions, as it would result in higher prices for carbon-intensive goods and services, creating a strong market pull by rewarding innovation and investment in renewable energy and low-carbon development. [1]

Seemingly seeing the light, IMF Chief Christine Lagarde has called for governments to begin implementing a carbon tax, and South Africa's government has long been discussing the almost economy-wide implementation of a carbon tax, which as things currently stands, unbeknownst to many South Africans, applies only to a small levy on electricity costs, and the purchase of certain motor vehicles. The development or expansion of a carbon tax in South Africa could easily be seen as a progressive move to secure a better and just future for all, especially given the failure of international institutions to regulate greenhouse gases, the many problems linked with carbon trading, and the numerous failings of the clean development mechanism. Indeed, a carbon tax seems, at first glance, a rather logical and straightforward way to internalise South Africa's (and the world's) vast ecological and social costs borne by the burning of fossil fuels. We must, however, be wary before heeding Lagarde's advice, for the devil is in the details, and we must examine the structure and motivations behind any proposed carbon tax, for an ill thought-out carbon tax could arguably wreak havoc rather than help us move towards embodying the chimera that is sustainable development.

THE FOSSIL AGE

The most important realisation, which should cause us to be cautious, is that fossil fuels and resource intensity, for all of their social and environmental ills, have in many ways become the lifeblood of modern industrial economies. Fossil fuels pulse through the lives of most people on Earth, and that is certainly no different for South Africa - at least for those South Africans who have access to the benefits that modernity brings. Indeed, as Gavin Bridge argues, access to fossil fuels is the defining aspect of the industrial era, our Fossil Era. Those who have access to the surpluses of energy provided by fossil fuels (as reflected in the 23,200 man-hours of energy each barrel of oil provides) have a vast scale and intensity of influence and power - a power, which has modified environments, expanded resource bases, generated the energy and economic income surpluses that enable advanced social divisions of labour, and driven industrial development and the concomitant rise in carbon emissions.

Although the fruits have been unequally shared (as reflected in a global Gini Co-Efficient of 0.8) the industrial era's unprecedented growth in consumption of natural resources has still provided and continues to provide real benefits for many. Over the last 20 years, during the peak of the fossil era, people around the world have on average become better educated, healthier and wealthier, according to the 2010 UN Human Development Report (UNDP 2010). Indeed Hans Rosling has shown quite convincingly how the industrial revolution has led to an overall increase of health and wealth across the globe. Thus considering how fossil fuels have come to be, in many ways, the (albeit poisonous) lifeblood of our economies a well-designed transfusion is needed if we are to begin the necessary transition to truly green economies without undoing the benefits of the resource-intensive economies we have come to rely on.

Another important consideration to bear in mind, when considering carbon taxing, is that it is not simply about a bunch of greenies trying to hijack our economy in order to ensure environmental and inter-generational justice. That of course is a large part of what can be achieved, but more than that, a carbon tax, if properly implemented, can be used as a lever towards a more just and equitable economy across this generation and into the future. Consider again that the benefits of industrial development have not been equitably distributed. Consider also, as Dan Hind points out, that the "triumph of [industrial]productivity has perverse consequences", in that the abundance of energy and mechanical labour provided by fossil fuels and associated technologies, core to a resource intense economy like South Africa's, has made more and more people economically unnecessary, shifting them to the margins of our economy, while those who have access to the fruits of the fossil fuel revolution richly reap its rewards.

Furthermore, as Huber argues, and as is evidenced by vast disparities across the globe, by decisively shifting productive forces from human labour to machines, fossil fuels generalised the conditions for a class monopoly over the means of production. A carbon tax through penalising such practices can help reverse trends towards the obsolescence of human capital, (i.e. help create more jobs, and more ecologically friendly ones at that). Through privileging labour-intensive non-polluting practices a carbon tax can be a key lever in creating (clean) employment, breaking down class monopolies, and bridging inequalities. Thus, inherent in discussions of a carbon tax, is not only concerns of intergenerational justice through addressing climate change, more than that, a well-implemented tax can help to ensure social justice by ensuring that those who are burning the resources of the present, often to the benefit of an elite few, at the expense of society and the environment, are penalised for their actions in a way that serves the interests of society at large through financing a just and equitable transition to a low-carbon, green economy based on a more labour-intensive and job-creating paradigm, rather than the resource and capital intensive polluting paradigm currently predominant.

SPECIAL PRICE AGREEMENTS AND CORPORATE SOUTH AFRICA

However, as Kern and Smith point out, the high-energy, fossil-fuelled economy is "a heavily incumbent energy system with a degree of political, economic and social embeddedness that makes it difficult to dislodge." Furthermore, in order to prevent the dislodging of this system, those who are at the helm of the immense power provided by fossil fuels will be reluctant to allow the introduction of any measures that might impede on their ability to harness that power, as a carbon tax might do. However, we must not confuse the objecting voices of those who want to protect their arguably unjustly privileged positions in society with those who object to a carbon tax because it is not structured to achieve social and environmental justice, for the two voices are very different as we shall see below.

In line with trying to preserve the benefits of unbridled fossil fuel use, big business has been reluctant to support the implementation of a carbon tax in South Africa. Michael Rossouw, executive director of Xstrata Alloys, recently argued against the implementation of a carbon tax stating that, "we have not learnt to decouple energy growth from carbon usage". Rossouw's argument is not surprising given the benefits fossil fuel use brings to such big corporates when the ecological prices are externalised and they are allowed to use the atmosphere as an open sewer.

In response we should of course ask: 'How will we learn to "decouple energy growth from carbon usage" without policies such as a carbon tax, and can we learn the required lessons fast enough to avert our continued (not insignificant) contribution to runaway climate change?' What is odd, however, is that Rossouw's resistance comes despite the fact that many big corporations(especially mining corporations such as BHP Billiton and Anglo) have preferential energy agreements with the South African government. More specifically, although Eskom [2] rather conspicuously refuses todivulge information on such preferential agreements, the National Energy Regulator estimates that the difference between domestic and industrial energy prices for those with such agreements is close to100 percent (and sometimes even close to1,333 percent [3] !). According to Earthlife Africa, because of these agreements Eskom sells electricity to such industries at below the average cost of production.

Furthermore, businesses who have such special pricing agreements (SPAs) are not affected by the significant tariff increases proposed by Eskom. Thus, as Hein Marais points out, Eskom effectively cross-subsidises industrial energy discounts through the elevated tariffs it charges household and regular business users. [4] Thus not only is big industry reaping the benefits of fossil fuels, furthermore, we are paying them three times to do so, once through subsidisation, again through purchasing their products (if one does) and again through the ecological costs associated with such industries using our atmosphere as an open sewer - and one can add a fourth payment through the arguably unjust exploitation of cheap labour. If such industries manage to avoid the costs of a carbon tax through special pricing agreements with the government - or as government proposed, through certain 'key' sectors being exempt from carbon taxing - that will only serve to deepen our subsidization of what are mostly extractive industries often owned largely by foreign interests.

Although perhaps surprising, this is not an unheard of occurrence in South Africa, as in 2008 our government was paying more in subsidies to amostly foreign-owned automobile industry than it was paying towards our own education system. Thus, the interests of foreign capital and elites were prioritised over our children's education. Some what similarly cheap energy sold to extractive foreign corporates also involves prioritising foreign capital interests over the future.

Given the arguably unholy alliance between Eskom and certain big industries, those who should be most worried about an improper application of the carbon tax are not so much those preferentially-treated big corporations but rather those outside of the selectively nurturing wing that such subsidies provide, namely the majority of South Africans. The imposition of a carbon tax upon such a terrain has the real possibility of deepening the subsidisation of big business and government by the majority of South Africans, who will have to bear the brunt of costs that such a tax imposes until South Africa transitions to a green economy. Considering that South Africa's transition to a green economy is painstakingly slow so as to almost go in reverse, those costs will most probably have to be borne for some time to come, especially as there's not much to motivate a large mining conglomerate to reduce its carbon emissions if it can emit them freely. Thus such an unholy alliance must be broken down if we are to implement a just carbon tax, or the carbon tax must be designed so as to avoid furthering the injustices perpetuated by such an 'alliance'.

POWER TO THE PEOPLE

A misconception often held is that the carbon tax will not affect the poor very negatively due to the fact that they do not spend as much on electricity as the middle and upper classes. However, such a belief is patently false, for the poor spend proportionately more of their income on energy, according to studies by the UN Development Programme. Furthermore, the potentially unequal effects of a carbon tax are important to remember in a place as unequal as South Africa where on one end of the scale you have an elite few South Africans who live life much like and sometimes better than many first-worlders, consuming so many resources such that if their lifestyles were extrapolated to all of humanity we would need 4.5-14 planets to satisfy their consumptive excess (Swilling 2006).

On the other hand you have a large number of South Africans who can barely amass the resources needed to survive. On a global scale, according to the World Bank Development Indicators (2008), more than 75 per cent of the world's consumption of goods was attributed to the richest 20 per cent. With a Gini Co-Efficient of .76 in comparison to the global co-efficient of .8, South Africa is one of the only countries with inequalities high enough to reflect global inequalities.

Tied into South Africa's unequal resource use - despite the fact that South Africa plays the Third World Nationalism card in global climate negotiations - its per capita carbon emissions is 10 tons per capita, which is considerably higher than the world average of 4 tons. Given that almost 90 percent of South Africa's energy is generated by coal power that is no surprise. However, generalising carbon emission to all of South African society is somewhat unfair, if not properly understood. The average South African consumes considerably less than this, and is much closer to the overall African average of 1 ton per capita per annum. This is because 30 percent of South Africans are either completely off the electricity grid or have extremely limited access to energy. This is a very close parallel to the 2.6 billion people (or one third of the global population) who have either no or limited access to energy and instead rely on biomass as a primary source of energy. [5]

Given such high levels of poverty, accompanied by lack of access to electricity and the proportionately high amount of energy that the poor do pay when they can access it, unless a way is found to reduce the impact a carbon tax might have on the majority of South Africans it will very likely disproportionately affect the poor, marginalising them further, and leaving them both literally and metaphorically in the dark. Credit is possibly due to the South African Government on this front, for in their National Climate Change Response White Paper they proposed that "measures will be taken, either in tax design or through complementary expenditure programmes, to offset the burden such a tax will place on poor households". Just how effective such measures will be and whether they will actually be implemented remains to be seen, but one thing is sure, if we are to ensure that the carbon tax is not violently regressive against the poor then this is a vital aspect that cannot be forgotten.

One possible suggestion, put forward by the Citizen's Climate Lobby, is a citizen's rebate, consisting of carbon fees derived from the carbon tax, paid to less well-off families to ensure that they survive the transition to a green economy. Many other suggestions abound as to how we could structure a tax so as to assist the poor avoid the negative effects of a carbon tax, and it is of utmost importance that in implementation of the carbon tax considerations of the poor are not side-lined as corporate interests try to draw the debate intheir favour.

WHAT OF THE ECONOMY?

Rob Jeffrey, an economist from Econometrix, has warned that a carbon tax could reduce the GDP of South Africa by 3 percent by 2021. In response it is worth considering three things. First, the current structure of the economy privileges a small sector of society, thus although a carbon tax might reduce the GDP it may increase welfare through redistribution. Second, according to the conservative estimate provided by the Stern Review on Climate Change the overall costs of inaction on climate change could result in an equivalent of over 5 percent global GDP loss each year. This furthermore is a rather conservative estimate, for consider as an example that this year's 6 droughts in the mid-west caused a 10 percent rise in global food prices - droughts, which, due to climate change, are predicted to become the norm over the coming century. [7] (For more detail on the effects of climate change see here).

It seems then that even if Jeffrey's economic forecast is right, that a temporary setback of 3 percent is the economically sound choice in the long-run. However, if the long-term argument is not enough, consider, third, that according to the United Nations University World Institute for Development Economics Research if revenues from carbon taxes are recycled in the form of tax breaks on income one can expect only a small negative impact on gross domestic product (GDP). Even better, the studies showed that if revenues were reinvested, there was a significant positive overall impact on GDP growth, and GDP growth in the direction of a labour-intensive, low-carbon paradigm. A study by Resources for the Future supports these findings stating that "a carbon tax could lead to overall economic growth, if the tax revenues are used in a way that promotes economic growth, such as cutting other taxes or reducing the deficit."

Not unrelated, the South African government is refusing to fully earmark the funds stood to be gained if and when it implements its carbon tax, citing good fiscal policy as its reason for refusing to do so. Of course, such an arrangement is good fiscal policy if your aim is to increase the government's coffers, for the tax would give the South African government the ability to potentially parasitically attach itself to the profits of the fossil fuel industry while not promising to use the money to create the sort of transition that such a tax is claimed to promote. That, of course, is the worst case scenario, and hopefully not one that will come to pass, but it is important to remember, as Fred Heutte recently warned, [8] that it is easy to see a carbon tax advancing because it is a significant way to generate funding for the government.

A potentially dangerous occurrence is that such a tax could end up contributing to government coffers and deficit reduction and being a cover for continuation of low tax rates on high earners and large companies... and, after all of that, although money for emission reduction programs would be necessary for political cover, they could easily be very limited. However, despite these worries which a vigilant civil society could help address, the Citizens Climate Lobby suggests, in comparison to carbon markets and other proposals, a carbon tax is still the "most efficient, transparent and enforceable mechanism to drive an effective and fair transition to a clean-energy economy". Of course, in the case of South Africa, where government funds have a tendency to grow mysterious legs, we must be wary.

A Small Step, but a step nonetheless - In response to a previous version of this article, it was argued that the carbon tax is too incrementalist to make a serious difference to the trajectory of the South African economy, and that critique, all other things being equal, is quite accurate. For as Patrick Bond points out South Africa's treasury office claims that the tax should start off at $10/ton CO 2 e moving to$25/ton CO 2 e in the future, which would supposedly be sufficient to motivate us to achieve our rather unambitious and arguably unjust (given our historic responsibility) reduction goals of 34 percent below business-as-usual by 2020. Firstly, that carbon price is arguably much lower than it could/should be according to recent research. Furthermore, the business-as-usual trajectory is horrifically polluting, so a 34 percent reduction of where we would have been by 2020 on the business-as-usual trajectory still leaves us as prominent polluters on the global stage.

Thus critics are right to point out that the carbon tax by itself cannot achieve what we need it to if we want to produce dramatic emission reductions, but are arguably not right to dismiss it out of hand. Yes, the carbon tax by itself will not get us to where we need to be, but there has never been a silver bullet to any crisis, never mind one as complex and 'wicked' as the climate crisis, a crisis compounded by the unemployment-, the inequality-, the HIV- and the many other crises we face in South Africa. A carbon tax could, however, be one policy instrument in our arsenal to tackle issues of climate change, poverty and unemployment if it is designed and used correctly. Thus we need to ensure that if it is implemented that it is done so properly. And perhaps, more proactively, civil society needs to bepushing for the right sort of tax, one that doesn't benefit large corporations over the interests of the people of South Africa, and perhaps even pushing for a stronger tax than that which is currently proposed. It is of course important to remember the limitations of the carbon tax though, for an economy like South Africa's cannot stop on a dime, and a carbon tax alone cannot shift the economy onto another course, but coupled with political will, strong civil society pressure and action, ar esponsible corporate face of South Africa and (perhaps a miracle) we may be able to turn this ship around. To give up hope on the carbon tax because it cannot do this by itself, may be a short-sighted and costly error to make.

To conclude, although much needs to be done to ensure that the South African carbon tax does what it needs to should it be implemented, if it is done correctly the tax has the potential to help shift South Africa from its current exploitative, unequal, resource- and capital-intensive paradigm towards a low-carbon, labour-intensive more equitable paradigm. A carbon tax may provide one of the many desperately needed instruments to help the increasingly unjust society of South Africa back on the road to justice across both current and future generations. Whether or not it will, depends on how South African civil society, government and business are willing work together to create a just carbon tax, an unlikely partnership, but perhaps not as unlikely as a lion living on gazpacho.

Alex Lenferna is a South African Fulbright Scholar pursuing a PhD at the University of Kansas, Philosophy Department.

END NOTES

[1] According to Resources for the Future's report on carbon taxes.

[2] A parastatal which holds a monopoly over South Africa's electricity provision.

[3] Thank you to Patrick Bond for point this out for me.

[4] Similarly nefariously on the global front, although through a host of other mechanisms, it is estimated that onetrillion dollars of subsidies are handed out to the fossil fuel industry annually.

[5] Thus while not perfectly correlated, South Africa is about as good a microcosm as one can get on discussions of carbon tax. This is an important consideration because many proponents of the carbon tax call for it to be appliedglobally as a mechanism for climate justice and associated wealth distribution, so reflecting on South Africa'scarbon tax may provide some lessons for global implementation, however unlikely that might be.

[6] 2012

[7] Cf. (Schwalm et al., 2012)(Willenbockel & Oxfam, 2012)

[8] This is from an email sent to the Climate Action Network, and regarding the implementation of a carbon tax inthe US, but is similarly applicable to South Africa.

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