Carbon Tax: input by Trade and Industry, National Treasury, Business, Environment

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Trade and Industry

19 August 2013
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

National Treasury noted that South Africa was currently facing a large number of environmental challenges that were bound to escalate as the size of the economy grew. The Climate Change White Paper sought to effectively manage climate change impacts through interventions that enhanced SA’s social, economic and environmental resilience contributing to the global effort. A facilitated behaviour change was proposed through the use of incentives and disincentives that included economic and fiscal measures. On the international scale, South Africa committed to reduce greenhouse gas (GHG) emissions by 34% by 2020 and 42% by 2025. There was concern that climate change was capable of reversing progress made on poverty alleviation. The National Treasury rationalised the carbon tax as a market based instrument of intervention that took into account the social costs of carbon emissions. The proposed carbon tax design features were:
▪ Tax rate placed at R120 per ton of CO2e above suggested thresholds with annual increases of 10% until 2019/20 that was to start 1 January 2015
▪ A basic tax-free threshold of 60% was proposed
▪ Additional tax-free allowance for process emission (10%)
▪ Additional relief for trade-exposed sectors (10%)
▪ Carbon offsetting allowed to reduce carbon tax liability with a maximum of 5-10%
▪ Overall tax-free allowance for an entity was to be capped at 90% of verified emissions
▪ Tax-free thresholds were to be reduced during the second phase.

National Treasury concluded that tax today was not just about revenue; rather it was about changing behaviour. South Africa’s commitment to meet all of its targets was strongly emphasised and applauded. It was important to spell out that this issue was one of high complexity and was directly connected to anti-poverty measures. Real climate change was guaranteed to affect the poor in the community, as they were often located in the more vulnerable areas.

Members were concerned with the correlation between economic growth and climate change. Some argued that yet another business tax was not the solution at all as it was highly unaffordable and why not make use of a carbon exchange policy like Australia. Comments were also made about green technology, the importance of local achievements before global ones, potential for a carbon exchange policy, incentives for improvements as well as finding the balance.

The second presentation by the National Treasury covered the economic impacts of introducing a carbon tax. It indicated that carbon tax affected the economy through three main channels: relative prices of inputs, technological change and recycling of revenues. All three of these channels were connected to one another. It was also argued that the carbon tax was not capable of increasing unemployment because the sectors with the highest percentages of employment within South Africa had low carbon intensity. A key aspect for the adjustment process and the success of the carbon tax was the availability and affordability of alternative technologies. Members’ questions included clarity on the electricity rebate to offset prices.

The Department of Trade and Industry said there were four main aspects associated with behavioural change: 1) reduction in energy intensity; 2) reduction in carbon intensity; 3) a structural change and 4) closing of carbon and energy intensive industries. South Africa’s production and trade activities were predicted to fall increasingly vulnerable to carbon policies and private standards. The adaption to climate change required a massive technological shift in the economy from a capital-intensive economy to a value-adding, labour intensive one. Automatic implementation of this transition was not possible to take place in the economy, particularly if it was to take a ‘one size fits all’ approach. The DTI suggested approaches such as the increase of the non-coal based energy generation, the promotion of a move from road freight to rail freight, provide tax penalties, provide credits or rebates to reward good behaviour and the provision of fiscal support measures to promote expansion and growth of the relevant sectors.

Members’ questions included the issue of South Africa’s competitive advantage, response to international commitments, sourcing technology, the mitigation of 123 optional measures, the transition from road to rail and the associated unemployment as well as the progress of DTI on incentives.

Business Unity South Africa (BUSA) said that South African business had already made significant progress in emission reduction. The overarching view of business was that the carbon price supported lower carbon emissions, carbon tax needed to be aligned with other mitigation measures, needed to operate within a global climate action, and it was imperative to understand the impact of any state action. The potential for change in behaviour was limited by the lack of choice in energy supply, the lack of availability of mitigation technology as well as engineering constraints. BUSA argued that the White Policy Paper did not recognise current and future carbon pricing instruments. The technology required to reduce GHG emissions was not available for all processes; however, reductions were still viable. BUSA’s perceived challenges with the carbon tax were increased prices of electricity, the high carbon tax compared to other jurisdictions as well as the timing of the tax.

Sasol supported the response to climate change but saw the need to respond to the challenges. These challenges included transition in a short to medium term, the financing of mitigation actions and the impact on the socio-economic environment. Sasol did not support the tax in its current form as a thorough analysis had not been performed of its impacts and alternative options, it was not aligned with South Africa’s broader mitigation policy and did not sufficiently take into account the ongoing mitigation and socio-economic challenges of South Africa. Individually, Sasol had reduced its carbon footprint significantly in South Africa. The current carbon tax design was not going to assist Sasol and the industry to meet climate change policy objectives. This was particularly because tax impositions were guaranteed to reduce the available funds to invest in low carbon feedstock alternatives.

In the discussion with BUSA and Sasol, members raised concerns  the position of BUSA and whether it thought the carbon tax to be a good or bad addition. In relation to Sasol, it was asked what discussions were had in regards to SA’s competitive advantage, other countries of operation and the role of the tax commission. BUSA said that it did not think that the tax in principle was a bad idea but that as it was conceived in the paper, it was in fact a bad idea. BUSA proposed that the integrated resource plan and the intended outcomes should be created relative to the particular industry in question. In this way it was possible to achieve a non-disastrous carbon tax.

Meeting report

The meeting was rescheduled at the last minute to an hour earlier without the knowledge of PMG. As such, input by the Mr Alfred Wills from the Department of Environmental Affairs was missed.

National Treasury on Reducing Greenhouse Gas Emissions, Carbon Tax Policy Paper
The National Treasury noted that South Africa was currently facing a large number of environmental challenges that included emissions of air pollutants, excessive emissions of greenhouse gases, and deteriorating water quality among others. It was argued that these challenges were likely to escalate as the size of the economy grew, which indicated a positive correlation between industrialisation and environmental degradation. Within the national climate change response white paper, South Africa’s response included two main objectives: 1) effectively manage climate change impacts through interventions that enhanced SA’s social, economic and environmental resilience; and 2) make a fair contribution to the global effort to stabilise greenhouse gas concentrations. In order to do so, an economic approach was at the core of the effort, which included carbon and economic incentives. More specifically, the idea of a facilitated behavioural change was proposed as one of the strategic priorities within the white paper. This implied the use of incentives and disincentives that included economic and fiscal measures, in hopes it promoted behaviour change towards a low-carbon South Africa. On the international scale, South Africa committed to reduce greenhouse gas (GHG) emissions by 34% by 2020 and 42% by 2025.

The National Treasury indicated that high levels of economic growth were required for the country’s development policy, however, it was also required that this was achieved in a manner that was both sustainable and of high quality. Despite the vast decline of people living in poverty that took place over the last century, there was an imminent concern that climate change was capable of reversing progress on poverty reduction. This was stemmed from the reality that most developing nations were dependent on natural resources that were impacted by climate change. In addition, those living in extreme poverty were also living in highly vulnerable areas that were affected harshly by climate change. The socio-vulnerability map in the attached document was an indicator that Africa was extremely vulnerable to the social impacts of climate change. Analysis of GHG emissions per capita indicated that South Africa ranked among the world’s biggest GHG emitters per capita. Graphs in the attached document portrayed a relationship where in the past few years, there was a steady increase of both South Africa’s GDP per capita as well as their CO2e emissions. From 2007-2009, GDP per capita and emissions were equal to one another. Some options for intervention included the use of legislative regulations that prescribed certain outcomes or the use of target outputs that limited entities to certain standards.

The National Treasury rationalised the carbon tax as a market based instrument of intervention that took into account the social costs of carbon emissions. It also sought to equalise the playing field between carbon intensive sectors and those who did not emit as much carbon. While this option did not set a fixed quantitative limitation to carbon emissions, the carbon tax was deemed capable of providing a strong price signal to both producers and consumers that forced them to change negative behaviours. However, a key disadvantage of this policy was the impact that it was bound to have on the poor as they were often hardest hit by negative environmental costs. It was therefore important for environmentally related fiscal policies to ensure that the policies were pro-poor; or if that was not possible, to ensure that the poor were not disproportionately burdened by the policies. Within the National Development Plan, it was stated that it was possible to both reduce GHG emissions from electricity production without a placed impact on the mining industry and it was also doable without an impact on employment levels.

National Treasury outlined the following as part of the proposed carbon tax design features:
▪ Tax rate placed at R120 per ton of CO2e above the suggested thresholds with an annual increases of 10% until 2019/2020 that was to start on 1 January 2015
▪ A basic tax-free threshold of 60% was proposed
▪ Additional tax-free allowance for process emission (10%)
▪ Additional relief for trade-exposed sectors (10%)
▪ Carbon offsetting allowed to reduce carbon tax liability with a maximum of 5-10%
▪ Overall tax-free allowance for an entity was to be capped at 90% of verified emissions
▪ Tax-free thresholds were to be reduced during the second phase.

With regards to the energy sector and carbon pricing, it was important to ensure that the associated costs of environmental challenges were properly reflected in the price of energy relative to the carbon intensity of each technology. Currently, the regulatory framework for determining the prices of liquid fuels such petrol and gas, did not allow for the addition of the carbon tax in any way; however, the electricity sector was able to pass the carbon tax to consumers. In terms of revenue recycling, there were three generic mechanisms used for structural adjustment: 1) soft earmarking where a programme was put in place to incentivise renewable energy uptake; 2) tax shifting, which entailed the reduction of other taxed; and 3) a range of environmental tax incentives. Tax incentives were also proposed as part of revenue recycling, which included various tax exemptions and allowances. The attached document outlined in more detail several priority flagship programmes that were included in the National Climate Change Response White Paper. Furthermore, the National Treasury worked closely with the Department of Environmental Affairs in the creation of the Green Fund. The primary goal of the Green Fund was to provide catalytic finance for green economy project of high quality and high impact. These were specifically projects that were not implementable without financial support. The Green Fund sought to respond to market weaknesses through the promotion of innovative and high impact green programmes and projects; the reinforcement of climate policy objectives through green intervention; the building of an evidence base for the expansion of the green economy; and the attraction of additional resources to support South Africa’s green economy development.

To conclude, Mr Ismail Momoniat, Deputy Director General at the National Treasury, noted that tax today was not just about revenue, rather it was about changing behaviour. He provided tobacco tax as an example of the ways in which an imposed tax was able to alter behaviours to a certain extent. South Africa’s commitment to meet all of its targets was strongly emphasised and applauded. It was important to spell out that this issue was one of high complexity and was directly connected to anti-poverty measures. Real climate change was guaranteed to affect the poor in the community, as they were often located in the more vulnerable areas.

Discussion
Mr G McIntosch (COPE) was pleased with the work of the National Treasury and strongly agreed with the need to work on GHG emissions. He appreciated the commitment to making a fair contribution to the global effort. There was concern with the correlation between economic growth and climate change and indicated that economic growth was a requirement for South Africa and as such, technologies were needed to manage and clean the emissions. There was a need to develop technologies to increase the efficiency of managing emissions.

Mr G Hill-Lewis (DA) noted that the presentation was jam packed with complicated numbers. He fully disagreed with the Treasury’s argument that there was a rhetorical choice between development processes or the climate. Everyone was in agreement that action was necessary to improve the environment, however, the discussion was geared more towards development versus yet another business tax. Furthermore, before the global scale can be reached, it was important to deal with the ongoing environmental issues within South Africa. In terms of whether the tax was the most appropriate solution to deal with these issues, he argued that it was not the solution at all and that it, instead, it was going to increase the issues as it was highly unaffordable. There was no comparable economy to South Africa’s that was currently implementing a carbon tax. Why not take on a similar carbon exchange policy as that of Australia’s?

Mr B Radebe (ANC) noted that it was pertinent not to forget that South Africa was still a developing country. Was it not wise for the Treasure to place more incentives towards energy efficiency and green technology? Tax incentives had the potential to create new technologies rather than the imposition of new taxes.

The Chairperson reminded the Committee and the Treasury that the difficult challenge was finding the balance between development projects and preserving the environment.

National Treasury on Economic Impacts of Introducing a Carbon Tax in South Africa
Mr Konstantin Makrelov, Chief Director: Economic Modelling and Forecasting, discussed what the economic impacts of introducing a carbon tax in South Africa were. Objectives of analysis for this research included:
- Assessment of the impact of carbon tax implementation in SA using five key criteria: emissions, sector performance and competitiveness, employment and investment, income inequality and economic activity
- Assessment of how carbon tax revenues were able to affect results
- The importance of cheap and easily available technology in the transition to a greener economy
- Illustration of the importance of mitigation by assessing the impact of retaliatory measures by the rest of the world against South Africa or changes in consumer behaviour of SA’s major trade partners
- Comparison of the outcomes when imports were also under a carbon tax
- Estimation of short and long term costs from immediate implementation of the tax as opposed to gradual implementation.

Mr Makrelov indicated that the carbon tax affected the economy through three main channels: relative prices of inputs, technological change and recycling of revenues. All three of these channels were connected to one another in various. The manner in which the government recycled revenue had an impact on technological change as well as the relative prices. The relative prices of inputs also impacted the amount of technological change, which the impacted the amount of revenue available that was for recycling purpose; a cycle of and within itself. If the carbon tax was recycled effectively and efficiently, then the impact was found to be rather small. Any negative effect of the carbon tax was explained by the fact that South Africa was a climate change taker as well as any past misallocation of capital. It was also indicated that sectors with the highest percentages of employment within South Africa had significantly low carbon intensity. For example, agriculture produced 0.146 tons of CO2 for a gross output of R1000 but had 9.4% of the country’s employment. Whereas electricity and gas produced 3.143 tons per R1000 gross output and had a small share of employment at 0.3%. As such, it was argued that given this correlation, the carbon tax was not capable of worsening unemployment. Given that the goal was to shift from a carbon intensive society to a non-intensive one, carbon intensive sectors were expected to lose their competitiveness to greener sector of the economy. A key aspect for the adjustment process and the success of the carbon tax was the availability and affordability of alternative technologies. Any policy that raised the cost of greener technology or limited its availability was ultimately due to increase adjustment costs. However, if the availability and affordability of these technologies was improved, then any negative impacts associated with carbon tax were possible to be offset. As such, it was argued that the debate should have focused on how to optimise the design, revenue recycling and complementarity between polices rather whether a carbon tax needed to exist.

Discussion
Mr Hill-Lewis was unclear on the idea of the electricity rebate to offset electricity prices through the tax as his understanding was that Eskom was also subject to the carbon tax like every other company in the economy, which would be passed on to the consumers.

Mr Cecil Morden, National Treasury Chief Director: Economic Tax Analysis, replied that there was an electricity levy for R3.5 million. There were two areas of litigation with this issue. The first was as the carbon tax was being phased in, exemptions had to be implemented and strictly emphasized. The other important litigation was the issue of the energy efficiency tax incentive that was worked on for some time, as SA was highly energy inefficient. This incentive was to encourage people to become more energy efficient. Industry was to be affected differently from individuals.

The Chairperson was obligated to leave the meeting for another meeting that took priority. Chief Whip Radebe appointed Mr N Gcwabaza in his place as acting Chairperson.

Department of Trade and Industry on the Carbon Tax Discussion
Mr Gerhard Fourie, dti Chief Director: Greenhouse Industries, rhetorically asked what the greenhouse gas issue in South Africa was. He noted that in the eyes of the National Treasury, a carbon tax was a strategy to alter behaviour in energy consuming sectors and not merely to raise revenues. It was explained that behavioural change in this context implied several things. First, it implied a reduction in energy intensity and in South Africa, electricity prices already provided a strong motivation for this aspect. Secondly, it implied that there was to be a reduction in the carbon intensity. Currently, South Africa ranked as one of the highest intensive countries in the world. However, the proposed carbon tax meant that Eskom faced higher costs in its operation. Thirdly, the behavioural change implied that a structural change was to ensure promoting value adding, labour intensive industries and less energy intensive sectors. In realistic terms, structural change required long periods of time. Lastly, this change implied that carbon and energy intensive industries needed to be closed down. However, was the South African economy capable of affording to lose such industries in the medium to long factor?

Mr Fourie provided the Committee with the example of a steel manufacturer (NCPC) where 45% of their operational cost was directed towards energy costs. In 2012, they were able to save a large amount of electricity valued at R51 million. Their energy consumption was reduced from 25.1 to 23.7 and completed 15 energy projects. Their overall savings was valued at R127 million in 2012. This company was therefore a prime example of the possibility for the success of energy reduction. Currently, South Africa was in a difficult position as climate change mitigation was imperative from the perspectives of climate change and industry. South Africa’s production and trade activities were predicted to fall increasingly vulnerable to carbon policies and private standards. South Africa was one of the top 20 carbon intensive countries in the world and also faced the disadvantages of high unemployment rates, poverty and inequality. In addition, electricity intensive sectors contributed a significant amount to South Africa’s exports. For example, mining contributed 43.4%, which played a key role in the economic progress of the country.

Mr Fourie noted that adapting to climate change required a massive technological shift in the economy from a capital-intensive economy to a value-adding, labour intensive one. Automatic implementation of this transition was not possible to take place in the economy, particularly if it was to take a ‘one size fits all’ approach. Carbon tax policies were not capable of completing the projects, as other policies were also required to complete the transformation. These included policies that promoted value-adding and labour intensive forms of production. The attached document presented a detailed suggested approach to improve emissions that included aspects such as the increase of the non-coal based energy generation, the promotion of a move from road freight to rail freight, provide both tax penalties and also provide credits or rebates to reward good behaviour. Other aspects of the suggested approach included the provision of fiscal support measures to promote expansion and growth of the relevant sectors. To conclude, it was important that a carbon tax regime took into account key structural features of the economy in order to avoid risks. The carbon tax also needed to be levied in a way that allowed for offsetting allowances or deductions.

Discussion
Mr Hill-Lewis agreed with the presentation but pointed out that it must also be emphasised that South Africa had a huge strategic advantage as a country with its abundance of coal. Given the high prices of electricity, it was evident that the coal was not being taken advantage of. It made sense for South Africa to use coal to produce electricity and it did not make sense to use cleaner electricity.

Mr McIntosh asked why South Africa must through away its competitive advantage.

Rev W Thring (ACDP) agreed more readily with the DTI in particular on its comments regarding import and export taxes. He argued that a carbon tax was created to favour developed nations more so than developing nations.

Mr Garth Strachan, Acting DDG, replied that the Minister of Trade and Industry had also made it clear of the negative issues of import fees and as such everyone was on the same page in this regard.

Mr Z Wayile (ANC) asked how was South Africa respond to international commitments and sustainability. How was South Africa expected to source the necessary technology and from where? Was it foreign technology? In relation to the 123 mitigating optional measures, what was the strategy to ensure that those measures pursued development goals and which of these elements were a priority? What were the necessary measures to move from road to rail? Was this transition not going to create unemployment?

Mr Strachan replied that there was no evidence that there would be any job losses. There were ongoing discussions with many companies as well as the Department of Transport, and many of the companies wanted to acquire technologies that had the capacity to facilitate a cost effective move back to rail. With regards to green technologies, the Department of Science and Technology played the leading role in that aspect. There was a considerable gap in the market and incentives were needed to motivate local companies to create and commercialise the necessary technologies. There was a public and private market failure to support technology.

Mr Radebe appreciated that the DTI outlined that more policies than just the carbon tax were necessary. It was important to incentivise the industry to move towards green technologies; how far was the DTI in that project?

Mr Strachan stated that due to time constraints, the responses were very brief in comparison to the complexity of the questions.

Business Unity South Africa (BUSA) on Carbon Tax Policy
Dr Laurraine Lotter, Convenor for BUSA on the Carbon Tax Paper, initiated the presentation by stating that South African business had already made significant progress in emission reduction. The overarching view of business was that the carbon price supported lower carbon emissions, carbon tax needed to be aligned with other mitigation measures, needed to operate within a global climate action, and it was imperative to understand the impact of any state action. The potential for change in behaviour was limited by the lack of choice in energy supply, the lack of availability of mitigation technology as well as engineering constraints. Additionally, concurrent with the beneficiation objectives, the shift to significantly lower carbon intensity was not possible. Within the current environment of business witnessed steady declines in the manufacturing trends as well as imports and export. Within South Africa’s 2012 exports report, 61% of exports were energy intensive sectors raking in R438 billion. Furthermore, the employment trends in manufacturing have dropped drastically since 2006 going from roughly 16.5% to approximately 13.5%. In regards to GHG emissions, 67.84% of total emissions stemmed from the energy industries, followed by 9.33% from transport and 8.48% from manufacturing industries and construction.

Dr Lotter argued that the White Policy Paper did not recognise current and future carbon pricing instruments. Furthermore, the technology required to reduce GHG emissions was no available for all processes; however, reductions were still viable. For example, within the chemical industry, significant reduction in emissions was seen with carbon black, titanium dioxide production, carbide production, nitric acid production and ammonia production. Carbon black and ammonia production reductions were done without any technology. This was of particular relevance for carbon black as it decreased from roughly 2200 to 800 greenhouse gas emissions from 2000 to 2010 without the use of any technology.

In terms of the challenges with the proposed carbon tax, Dr Lotter outlined that between 2014 and 2018, a potential 8% increase in electricity prices was estimated and in 2019, it increased to 9%. It was argued that South Africa was the first developing country to instil a carbon and given current global negotiations, this was premature. In addition, most regions were now moving towards trading schemes rather than a carbon tax and in order for the carbon tax to be effective in SA, it had to be higher than most other jurisdictions. Alternatively, it was recommended to adjust the timing of the tax in order to ensure that it met the requirements of the global agreement on mitigation expected to take place in 2015. It was also recommended as alternative approaches that the design was simplified and clarified, trade exposure and energy intensive sectors were provided with protection, removal of limitations on the use of offsets, desired reduction outcomes were used as basis of thresholds and that tax levels were aligned with levels of competing economies. Intense collaboration was needed in order to find a balanced approach.

Sasol submission on Carbon Tax
Mr Norbert Behrens, Group General Manager: Strategy and Planning, said that Sasol was an international company that delivered value to stakeholders through technology in the energy and chemical markets in South Africa and worldwide. Across the world, Sasol operated in 38 countries and employed more than 34 000 people. As a company, Sasol was committed to a long-term strategy of investment in South Africa until 2050, which included:
- Reduction of carbon footprint – current investment was R1.5 billion towards Natural Gas Power Generation unity; this created 800 jobs during the construction phase and 52 permanent jobs
- Growing production – R14 billion invested in Secunda Growth Project; R8.4 billion in FT Wax Expansion Project; R1.9 billion in Ethylene Purification Plan; R1.1 billion in Cobalt Catalyst Plant. These investments created 5 200 jobs during construction and 165 permanent jobs on project completion
- Ensuring long-term sustainability – R14 billion invested in the Sasol Mine Replacement Programme and exploration in South Africa and the region was still ongoing. 5000 new jobs were created in the construction phase, 4000 of which were retained

Mr Behrens argued that overall, Sasol supported a response to climate change that was based on accurate information and that identified the opportunities and constraints of the transition to a lower carbon intensive economy. However, Sasol argued for the important to recognise and proactively respond to some of the challenges. These challenges included the fact that the South African economy was inherently an energy intensive economy and that transition was not possible in the short to medium term due to lack of viable energy sources. As such, the needs of South Africa and the high demand for energy demanded the instilment of a long-term transition strategy. Furthermore, Sasol argued that the mitigation actions in all industries had to be introduced over time and required financing, technology as well as skills development from the international sector. Additionally, there was a severe impact on the socio-economic atmosphere in South Africa that was to result from the transition to a lower carbon economy. As such, several trade offs were required to achieve emission reductions as well as maintain progress with the national economic growth plan. With regards to the carbon tax, Sasol did not support the tax in its current form as there was not a thorough analysis performed of its impacts and alternative options, it was not aligned with South Africa’s broader mitigation policy and did not sufficiently take into account the ongoing mitigation and socio-economic challenges of South Africa. However, that was not to say that a lower carbon economy was not supported. On an individual level, Mr Behrens indicated that Sasol had substantially reduced its carbon footprint in South Africa, which was a result of natural gas imports from Mozambique. There were investments made into the construction of pipelines between Gauteng and Mozambique that facilitated these imports.

Ms Shamini Harrington, Principal Specialist: Climate Change, stated that in order to understand the role of fiscal policy within the carbon tax negotiations, it was imperative that international negotiations and national climate change policies were understood. The national policy outlined the government’s vision for an effective climate change response and the ways in which it was to be implemented by a multi-stakeholder group through the carbon budgeting approach.

Mr Henry Gilfillan, Strategy, argued that the current carbon tax design was not going to assist Sasol and the industry to meet climate change policy objectives. This was particularly because tax impositions were guaranteed to reduce the available funds to invest in low carbon feedstock alternatives. Sasol was concerned that there was no economic analysis conducted to analyse the downfalls of the proposed tax. There were also concerns regarding competitiveness and the impact on investment. Specifically, there was bound to be multiple carbon cost associated as electricity prices were undoubtedly going to rise, there was a non-renewable electricity levy, additional associated costs to meet the mitigation plan as well as the carbon tax itself. Mr Behrens concluded with Sasol’s proposed way forward. They awaited the outcome of the Department of Environmental Affairs carbon budgeting process, which was to be completed at the end of 2014. They also proposed that appropriate policy instruments to support carbon budgeting processes were designed by 2015.

Discussion
Mr Hill-Lewis commented on the BUSA presentation that it was not very supportive of the opening statement in support of the carbon tax as the presentation was against the tax. He understood that BUSA needed to maintain a good relationship with the Treasury, however it was not harmful to express opinion fully. From the presentations, there were two things that were memorable. One was the fact that the sectors that were to be most negatively affected were precisely those that were the most labour intensive in the economy, which are mining and manufacturing. These are the two sectors that need to be protected to reinvigorate South Africa. The second aspect was the fact that there was not a single competitive country that was putting down the same proposal as South Africa. He asked the Treasury about the modeling. The modeling proposed was not the same as the one in the policy paper. As such, why did the Treasury not present the model in the paper and can the Committee get this model?

Dr Lotter replied that BUSA did not think that the tax in principle was a bad idea but that as it was conceived in the paper, it was in fact a bad idea. BUSA proposed that the integrated resource plan and the intended outcomes should be created relative to the particular industry in question. She argued that it was possible to achieve a non-disastrous carbon tax.

Mr Thring directed the question to Sasol in regards to South Africa’s competitive advantage: coal. What discussions has the minister had with Sasol to reduce costs, particularly with regards to the import parity prices? Which other countries did Sasol operate in?

Mr Behrens replied that Sasol has no import parity prices as they were lifted over to years ago. To explain, import parity was a price set by the market. South Africa’s market was one of an open economy structure, which was fully supported by Sasol.

Mr Gilfillan replied that within Africa, Sasol operated in Mozambique, Botswana, Lesotho, Swaziland, Nigeria, Egypt and Gabon. He also pointed out that Sasol did not pay any of these nations any carbon prices. Similarly, they operated in the United States without any carbon price payments. As for their work in Europe, Sasol was obligated to participate in the emissions trading schemes, as Europe was a signatory.

Mr Radebe asked about the role of the tax commission within these discussions.

Dr Lotter replied that there was already work commenced by the commission, however the terms of reference were currently a bit narrow as the commission was currently only speaking of existing taxes. The carbon tax was a significant tax and had to be considered in the light of the whole tax regime.

Mr Gcwabaza, the acting Chairperson, asked that all outstanding matters or responses be submitted in writing.

The meeting was adjourned.

 

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