National Climate Change Response Strategy Policy: Department of Environmental Affairs briefing; Carbon Tax Proposal: National Treasury briefing

Meeting report

Chairperson's Opening Comments

The Chairperson noted the Minister and Deputy Minister were engaged in international obligations and the DG was ill and recovering from jet lag. Nevertheless the Department was present to engage the Committee on this government wide matter of dealing with the negative impacts of climate change in SA. There would also be engagement on carbon tax as part of the carbon budget. He also noted the need to report on nationally determined intended contributions ahead of the 21st Conference of the Parties (COP21). When it came to mitigating climate change impacts, government could not work alone but needed to consult with industry on how to move forward as a country, continent and as the world-community ahead of COP21. Even at government level, there were so many wings and pillars so the responsibility was not only on the Department of Environmental Affairs (DEA) to take up this issue which affected the most vulnerable in Africa and SA. The question was on how to coordinate with other government departments – everyone knew the energy sector, and specifically coal, was the biggest contributor to greenhouse gas emissions but the issue was how to reduce this. In plans there was a desire to reduce the reliance on coal from 81% to a reasonable percentage in the 40s and ensure the uptake of renewable energies in the ensuing period. The Department could not do this alone but needed to collaborate – after all, these were government-wide policies and not limited to certain departments. How was this coordination taking place? The Committee would call everyone to find how far their progress was in retrofitting and reducing emissions at both a public and private sector level. Were the goals on renewable energy being met? Was there a reduction on the reliance on coal? These questions could not just be directed at the Department. The Committee was only representing one aspect of Parliament and it was important for the institution as a whole to know what was happening ahead of COP21 – in anticipation of engagements at COP21 with other parliamentarians, Parliament needed to know what it was talking about. Climate change affected the people so it was important for Parliament to also speak to its people and consult with them on adaptation and mitigation scenarios being put on the table in terms of how it would affect them, the economy, job creation etc. If nothing was done, the consequences were too ghastly to contemplate. These consequences were already being seen in threats to the islands, agriculture and natural disasters.

Mitigation System: The National Climate Change Response Strategy Policy

Ms Judy Beaumont, DEA DDG: Air Quality and Climate Change, noted that some of the negotiating team were leaving to go to Bonne, Germany today for mid-year negotiations for a draft negotiating text for a new legal agreement in preparation for COP21 for the next two weeks. This was a critical time in the negotiations and the extent of progress made in Bonne over the next two and half weeks would indicate the kind of intensity of negotiations to take place between now and the 1 December. The Committee could be briefed on these mid-year negotiations once they were complete to give Members a sense of some of the scenarios emerging in terms of the different positionings of the different country groupings and blocs, to get a sense of where we might end up at the end of COP21, where the real down-to-the-wire negotiating issues were and further prep SA needed to do together with the Africa group to ensure the team was robust and a strong negotiating force in Paris. There was already extensive participation in a number of informal discussions around so called difficult and intractable negotiation issues to try to find where the landing zones might be. It might be good that these discussions were informal because it gave the negotiators a sense where conclusions could be made in Paris. From a SA perspective, work was being done in each province to set up provincial conferences to consult on SA’s position going into COP21, discussion document on intended nationally determined contributions and to focus on implementation at provincial level and opportunity for people on the ground to interact with this work and areas of vulnerability potentially. The conferences would be organised jointly between the provinces and DEA, but led by the province, and to provide opportunities for consultation to ensure that people on the ground were able to interact with these issues. The focus today was on emission reduction as part of a much bigger picture of reductions which included adapting to impacts of climate change. Specific vulnerability assessments were done with three provinces and provinces were then able to take the next step of adaptation planning in relation to the specific vulnerabilities outlined in the assessments. This work could also be presented to the Committee as this was interesting and cutting-edge work taking place which was one step closer to the ground. There was also detailed work occurring with monitoring and evaluation in terms of a system for South Africans to understand the impact and outcome of the work being done to mitigate the impacts of climate change, reduce emissions and monitor and track the kind of impacts SA was experiencing. This was collaborative work involving the SA Weather Service (SAWS), the Agricultural Resource Centre, the Water Research Centre etc. As part of nationally determined contributions for global emissions and adapting to the impacts of climate change, interesting and cutting-edge work was being done on costing implementation options that will be needed under difference global mitigation scenarios. This was really important work for Africa and SA because this block was arguing very strongly in the negotiations for a global adaptation goal which recognised that adaptation costs could not only be borne at a national level but to acknowledge the global dynamic – at the moment, the discussions in negotiations were on the global temperature goal and global emission reduction goal. This work could not be done alone and there was coordination through the intergovernmental committee on climate change and the medium term strategic framework which were the five-year commitments under the National Development Plan (NDP) – this was the accountability framework in which work with other national departments was occurring and it would be useful to hear the extent of progress made by the departments in terms of renewable energy and other aspects. The focus of today was on what instruments needed to be in place in order for SA to meet its commitment of a 34% and 42% reduction against business as usual emissions by 2020 and 2025 as per the Copenhagen pledge. SA needed therefore to put in place instruments which would encourage, incentivise, facilitate and regulate the reductions of emissions over a period of time. Carbon tax and budgeting was a key instrument along with a suite from different regulatory, technological etc instruments to facilitate behaviour change as part of an emission reduction system.

Ms Debra Ramalope DEA Chief Director: Climate Change Mitigation, provided an overview of the presentation and then went straight into looking at the Green House Gas Inventory (GHGI) as proportion of overall emissions. From here, it was clear the largest GHG emitters were power generation and manufacturing and construction while road transport sector was on the rise. Although this was 2009 data it was being updated.

In terms of the overall approach of SA’s GHG mitigation potential analysis, the objectives were to project national GHG emissions into the future, identify and analyse mitigation opportunities and present marginal abatement cost curves (MACCs), showing costs and greatest technical potential for emissions reduction from different technologies, assess the socio-economic and environmental impacts of the identified mitigation options (multi criteria analysis) and develop emission reduction pathways. The subsectors involved energy, industry, transport, waste and Agriculture Forestry and Other Land Use (AFOLU).

Looking at mitigation potential for emission reduction, the overall approach included assessing mitigation potential and defining desired emission reduction outcomes, use of a mix of mitigation policies and measures, including using the market (Carbon Tax), formulation of mitigation plans for sectors and sub-sectors and monitoring and evaluation. With SA’s GHG Mitigation Potential Analysis, a comprehensive analysis of mitigation potential of key economic sectors (Energy, Industry, Transport, Waste and AFOLU). The last comprehensive modelling was to develop mitigation scenarios in the SA economy was the Long Term Mitigation Scenarios (LTMS). Further objectives were to develop emission reduction pathways, a set of reduction trajectories over time, which was technologically achievable. A pathway merely identified what was technically possible without providing a detailed description of how that outcome would be achieved.

Ms Ramalopa then discussed projecting GHG emissions noting the “bottom up” approach for models constructed for each subsector. The projection used historic emissions from the Draft GHGI update (2010) to project fuel activity data from GHGI, electricity consumption data from the Department of Energy (DoE) Energy Balances, emission sources which were not included in the current GHGI were not included in projections due to a lack of data, GDP growth assumptions tied to the National Development Plan (moderate growth to 2050 = 4.2%) and a sensitivity analysis based on low growth (3.8%) and high growth (5.4%). The reference case was 2000 – 2050 and assumed no mitigation:

• “Without Measures” (WOM): 556 MtCO2e in 2010, reaching 906 MtCO2e by 2030, and 1,695 MtCO2e by 2050;

• “With Existing Measures” (WEM) - impacts of existing policy (e.g. IRP 2010) and measures; 27 MtCO2e lower in 2010; 102 MtCO2e lower in 2050.

Ms Ramalopa then spoke more to the emissions projection and sensitivity analysis showing high and low growth compared to medium growth along with MACC’s for commercial buildings highlighted where the most savings could be made or where the low-hanging fruits were. In this example, the construction of passive buildings with improved thermal design offered the largest single mitigation potential with the lowest MACC. Another example discussed was the power sector.

For a national mitigation system, the elements of a mitigation system included a Carbon Budget, Pollution Prevention Plans (Mitigation Plans), a Carbon Tax and Monitoring and Evaluation. A carbon budget was a means of regulating emission of GHGs and allowing for a GHG emission allowance. A carbon budget system would be in place for each company with a reporting system and a compliance process. The budget would follow a phased approach - the first phase will run from 2016 to 2020 (5 years) while the second phase would run from 2021 onwards (5 year periods). Supporting projects included mitigation technology plan to assess opportunities and barriers for the development and large-scale deployment of the key mitigation technologies with the Department of Science and Technology (DST) leading, a national employment vulnerability assessment to assess impact on jobs, by sector with the Department of Economic Development (EDD) leading, and a socio-economic impact to assess the impact of mitigation work.

Discussion

Ms T Stander (DA) wanted to know more about the implementation of climate change mitigation strategies at a provincial level – what plans were in place to ensure the provinces had the necessary capacity to do so? What legislative framework would be used to ensure there was implementation and enforcement at a provincial level? Had the Department conducted a cost benefit analysis of mitigation vs. adaptation strategies because there was debate on whether one was more cost effective than the other? Were the interim negotiations taking place in good faith ahead of COP21? The country needed to be realistic of its current energy crisis, postponed compliance, whether the energy sector would realistically comply with retrofitting and decommissioning of polluting stations, the plausibility of a carbon tax actually being passed due to possible adverse effects on business etc. Was SA being realistic of its current situation as a country in light of commitments made?

Ms Beaumont said DEA worked with provinces on an assessment of what capacity was in place at provincial level and certainly at this stage there was not enough capacity. The first step was to highlight the increasing obligation on provinces and to build mitigating climate change impacts into provincial planning. National could not do more than raise the profile around the functions needed and then the kind of capacity needed – provinces would need to do the prioritisation, budget allocation and human resources allocation. Political support was needed to elevate the matter. With the cost effectiveness of mitigation vs. adaptation, it was not possible to distinguish between the two. With the level of global emissions already built into the system, SA and southern Africa were already experiencing impacts of climate change with the noted increase in high temperatures, reduction in cold days, flood events, damage in coastal areas with the rise in sea, all which were observed by a number of entities. SA had to make its contribution to reducing global GHG emissions, allocate resources and to build into planning processes the ability to respond to the impacts of climate change and this meant looking at both adaptation and mitigation. The focus was to look at where the integration was particularly in agriculture, forestry and the nurturing of GHG sinks which the soil and vegetation which absorbed GHG emissions. This came from rehabilitation and restoring certain biodiversity systems particularly the grasslands and wetlands to reduce the loss of water. These kinds of initiatives needed focus. There needed to be a distinction between SA’s negotiation as a global player and efforts to ensureCOP21 achieved the outcomes called for in the Durban Platform. This outcome was a new legal agreement applicable to all parties and countries through a multilateral process for sufficient commitment to reduce emissions to achieve the global temperature goal of 2 degrees. At a global level, SA acted with the Africa group to ensure this outcome balanced developmental and climate change response priorities, balance mitigation and adaptation and that developing countries received sufficient financial support especially as Africa which was facing a temperature increase and severe threat to food and water security. SA needed to realise commitments made to reduce emissions while still acknowledging that it functioned in a developmental context where there were particular priorities of poverty alleviation and economic growth – this was a balance. SA’s nationally determined intended contributions was both on the side of adaptation and mitigation but SA would no retreat from the commitment made by President Zuma in Copenhagen in 2009 for the 34% and 42% reduction against business as usual by 2020 and 2025. This commitment would be put on the table again and demonstrate what SA was putting in place in order to move us towards achieving that aspiration commitment. The adaptation part required demonstrating to the world the kind of costs and investments SA already made and envisaged in terms of adapting to climate change. She looked forward to presenting this discussion document to the Committee when it was ready.

Mr P Mabilo (ANC) welcomed the plan to have provincial climate change conferences was step in the right direction and would enable meeting of a lot of role-players where it mattered most. He wanted a simplified and realistic account of where the country was in terms of GHG emissions. He noted many studies were conducted on the matter but were we within the desired emission profile identified for ourselves as part of the long-term mitigation scenario?

Ms Beaumont responded that the GHG inventory, from 2000-2010, demonstrated that SA’s current GHG emission was 544 mega tonnes and emissions increased by 21% of the same amount of time. The major driver for this increase was associated with a 27% increase in energy emissions largely from power stations and combustion installations in the big industry sites. There was also an increase on road transportation emissions and increased emissions from waste. If this was compared with the range of peak and plateau benchmark emission trajectory, there was a range to meet instead of a fixed line so that there was space and flexibility within which to demonstrate that emissions would start coming down. The top of the range was 583 mega tonnes in 2020 and 614 mega tonnes in 2025 –these numbers and range were it the national climate change response policy. The reality was that SA was quite tight. The next version of the GHG inventory (2012) was currently being done to be available next year – it was always difficult to get hold of the latest data from industry and then analyse it and do the calculations. We were always about two years behind in terms of the data using and what the current GHG inventory was reporting.

Mr S Makhubele (ANC) noted for some of the subsectors, there was no data on what work was being done and this meant the country would not be able to account for those emissions – what work was going on to develop this data so that whatever was happening could be accounted for and not be left out. With the low-hanging fruit in terms of emission reduction, did government widely have the same understanding? If not, was government awaiting the conclusion of the EDD impact analysis on jobs and the cost thereof? With the carbon budget, it was noted that not all the data was there and that there was no legal basis upon which to successfully launch such a budget – was there need for legislation or regulations in this regard? What would enable movement in this space and what was exactly meant by there being no legal basis?

Ms Beaumont said with the system being designed, carbon budgeting and tax, was one element of the system along with pollution preventing plans, mandatory reporting and motoring and evaluation. There was also the technical work done upfront with the Department of Energy using their integrated resource plan. With the current absence of a dedicated piece of legislation, DEA was using the legislation at its disposal, for example, the Air Quality Act (section 29: pollution prevention plans and regulatory procedures for mandatory reporting). National Treasury also had regulations it was intending to promulgate for a carbon tax. This question was the legal basis for carbon budgeting – DEA looked at various options and to get the first phase of the system in place by 16 January 2016, there was no ready legal instrument or too to use to give the carbon budget legal basis. This did not stop the process, in the view of the Department, or stop the establishment of the system which consisted of all of its elements. A piece of legislation was being worked on to consolidate all of these elements.

Ms Ramalope added regulations just published for stakeholder consultation would address the data gaps of companies. At the moment it was more of a gentleman’s agreement to obtain the data. It was even more of a challenge in the allocation of carbon budgets because there was no mandatory obligation for companies to release the data.

The Chairperson wanted to know if there was a technical team advising government widely. He wondered whether there should be oversight over the composition of such a technical team so that there was not oversight of little bits of climate change adaptation but babysitting of the 50-year mitigation scenario on the whole. It would be useful to zone into the other departments to see if they were doing their bit. The structure of policies needed to meet how well they were crafted especially in terms of government-wide implementation. There needed to be a structure which tied all the work government departments were doing to meet the overarching objectives of mitigating the impacts of climate change – if there was no such structure there could be a big problem. Where were the current discussions with industry in terms of their submission of mitigation plans – this discussion would inform the carbon budgets.

Ms Beaumont explained each department had its own set of technical advisers within the scope of the particular programme being led. All this came together in the intergovernmental committee on climate change which had representation mostly at the level of director and chief director. This technical team reported to the MINTEC structure and MINMEC and the economic cluster so there was a reporting structure. An oversight level which cut across the different sectors would be supportive of the work. This work was about political prioritisation, coordination, integration and allocating the necessary budget.

Mr Makhubele asked if there was a particular time by which work would begin on the low-hanging fruit that government was aware of.

Ms Ramalope replied that there were no timeframes for this – most of them were pushed through the flagship programmes.

The Chairperson said this why he asked what the structure was in government so that Parliament could concoct its own structure to oversee government’s one. All the relative Committees needed to sit together because DEA could not be the only one answering. Action plans were needed from the department’s party to the climate change response strategy. Until such an overarching parliamentary structure was created, there would just be talking.

Ms Beaumont agreed. With the obvious low-hanging fruits, like energy efficiency and public buildings, directly in the realm of reach of national, provincial and local departments. This would be a climate change response flagship conducted through an MOU with the Department, the Department of Public Works and DoE. The flagship was starting with the support of donor funding and the establishment of an energy efficiency fund which enabled provinces and local government to access the upfront funding needed to start the process of doing the necessary retrofitting whether it was changing the globes, air-conditioning etc o increase energy efficiency in public buildings. The reality was that thousands of public buildings were being looked at. Pilot projects were initiated and the target, with Public Works, was to aim for the first 10 000 buildings within the next three years. This was quite an ambitious exercise and required budget allocation, as it could not just exist on donor funding, and it required the necessary institutional capacity in place. This was one example. Some other examples were the renewable energy independent power producers etc. The timeframes for the other projects, led by other departments, situated in the medium term strategic framework, could be provided. The aim for this stage was to have a fully articulated national plan that outlined exactly what was being delivered by which department at which time – currently there were only elements of this national plan in the medium term strategic framework, the climate change response flagship programme and elements that DEA had direct responsibility for leading.

Ms Stander questioned the sensitivity analysis conducted on low economic growth – she was concerned about how even lower economic growth would impact SA as well as the ability of business to implement emission reduction strategies. She sought further explanation on the reference case assuming no mitigation and the impact of current mitigation strategies. Three cycles were planned to provide business with time to conduct their planning – she understood that each cycle was five years and she wondered if three cycles, or 15 years, was sufficient for business to do long term planning especially considering we were coming from a base where there was a lot of catch up to do. She was concerned that the environment and related matters were seen as not urgent and kept being pushed on the backburner. We already saw DEA contravene its own air quality management legislation in granting postponements in already declared hot spot areas, polluting industries bullying government saying it c/would not implement certain measures. When would we see a fully integrated national plan with legislation which had teeth that DEA and government would jointly agree to so that the Department would not back down? What were the plans to develop such a plan, by when and when would there be a consolidated piece of legislation to tackle this matter properly and efficiently? She wanted to know more about the dynamic between carbon budgets and carbon tax and their alignment. Currently SA was seen as heavily reliant on exporting raw materials when the focus should be on a shift to create new industries to create green energy – what was being done to move SA towards a green economy so that we could see the raw materials being utilised and converted into finished products? There were so many new opportunities in the green sector while coal was a dead-end resource where the quality was increasingly poor and it would run out one day. If the economy was shifted to renewable, sustainable industries, they could replace and create new opportunities for development, jobs, growth etc. Did the mitigation technology plan outline this direction?

The Chairperson wanted to know where the discussion was with industry now for the 34% in 2020 and 42% in 2025 target against business as usual. Where were we in reductions? Had the Department met with all sectors of industry? These discussions informed the pre-negotiations at Bonne? Where was progress in crafting the nationally determined intended contributions ahead of COP21?

Ms Beaumont answered that there needed to be a distinction between engaging as an international player as part of the African block and then engaging on nationally determined intended contributions because these were two quite distinct processes. The provincial conferences were happening straight after Bonne so the first one would be towards the end of June and then rest would follow until September. The discussion document on the nationally determined intended contributions would be available around 19/20 June – there was a first draft but additional information was needed for the adaptation part of it. Industry would be engaged immediately on this document. Industry would be engaged the week that the negotiating team returned from Bonne on intended nationally determined contributions and then a line of discussions with various role players would be set up before moving into provincial consultations. The key moment was the period basically between 2020 and 2025 when we expected emissions to bend the curve in this plateau period. The expectation was that it would not exactly happen in this period and we were likely to overshoot 583 mega tonnes – the question was then how SA could increase instruments at its disposal and increase programmatic efforts to reduce emissions in order to catch up. The reality was that it was not easy to reduce emissions which were on their way up and it required cross-sectoral coordination across government, industry and the different stakeholder groups to make this significant shift. A carbon tax was not enough by itself to reduce emissions which were why there was emphasis on a suite of instruments that enabled industry to plan, over the short, medium and long term, and make the needed investments. These instruments would also allow the capturing of efficiencies industry already achieved so there was credit given where it was due. These instruments needed to be mutually reinforcing and enable SA to make that transition to a lower carbon economy. The Department was in the process of putting together a discussion document which would conceptualise and frame the nature of the legal instruments needed in order to have a consolidated legal system on which to base mitigation. This discussion document would be complete toward the end of the year to give the outline of such a piece of legislation for Parliament’s consideration. It was absolutely incorrect to assert that the Department was contravening its own air quality legislation – the legislation provided for a postponement of the timeframes for compliance with emission standards. This provision was built into the legislation because of the challenge of a transition to a green economy. This postponement was directly applicable to air pollutants (sulphur dioxide, nitrogen oxides and particulate matter) which were distinct to GHG emissions. The postponements were not undermining the intentions of the legislation. The priority areas were a challenging space because of a variety and diversity of sources of air pollution including dust from burning of coal at the breathing level of heating and cooking, as well as for industry. These postponements were a very robust and technical exercise that the Department went through.

Ms Ramalope added that DEA was working very closely with industries particularly to provide the data on carbon budgets – it was not an easy process because one was basically telling people they could not continue with business as usual so there was a bit of resistance at time. With the sensitivity analysis, it was recognised that aggressive growth rates were used but the intention was to ensure there was consistency and alignment with all other government policies to allow for comparison. A sensitivity analysis would probably be run on the current growth rates because we were nowhere near the growth rates projected. The reference case showed the impact if we carried on with business as usual using the current interventions and measures implemented by government and industry i.e. excluding the carbon tax. With the mitigation technology plan and the shift towards renewables, the intention of the plan was to look at opportunities for new initiatives with renewable – the document would be made available as soon as it was concluded.

Carbon Tax Proposals: National Treasury

Mr Cecil Morden, National Treasury: began by taking Members through an overview of the presentation. He then looked at SA’s National Climate Change Response Paper (2011) and noted SA’s response to its economic and social challenges and to climate change include the voluntary commitment (at COP15 in 2009) to curb GHG emissions by 34% by 2020 and by 42% by 2025 below the business as usual trajectory with emissions peaking in 2020 – 2025, stabilising in 2025 - 2035 and declining in absolute terms from around 2035, subject to support from developed countries in areas of climate finance, capacity building and technology transfers. However, economic growth since the great recession in 2008/09 had been relatively weak. The question was how to reduce the need for higher levels of growth and the energy and carbon intensive nature of our economy with our desire and commitment to help reduce GHG emissions.

After noting that SA was in the top 20 of absolute global emissions, carbon emissions (metric tons per capita) were then highlighted for 2010 using World Bank data from 2014. According to the 2010 GHG inventory, the major categories for emissions included fuel combustion activities and the mineral industry. In terms of poverty impacts, over the last century, the world had seen a sustained decline in the proportion people living in poverty. However there was a growing concern that climate change could slow or possibly even reverse progress on poverty eradication. This concern was rooted in the fact that most developing countries were more dependent on agriculture and other climate-sensitive natural resources for income and wellbeing and that they also lack sufficient financial and technical capacities to manage increasing climate risk (adaption). Climate change was likely to lead not only to changes in the mean levels of temperatures and rainfall but also to a significant increase in the variability of climate and in the frequency of extreme weather-related shocks. Much of the poverty was expected to be concentrated in Africa and South Asia both of which would see more substantial increases in poverty relative to a baseline without climate change.

The NDP highlighted that “emissions of carbon dioxide and other GHG were changing the earth’s climate, potentially imposing a significant global cost that will fall disproportionately on the poor. Externalities referred to situations when the effect of production (and) or consumption of goods and services imposed costs or benefits on others which were not reflected in the prices charged for the goods and services being provided. There were both positive and negative externalities.

Mr Morden then looked at options for interventions noting that there command-and-control measures (regulations) which involved the use of legislative or administrative regulations that prescribed certain outcomes. These interventions target outputs or quantity, for example, minimum ambient air quality standards within which businesses must operate. The other intervention was market-based instruments.

With the rationale for a carbon tax/price, a carbon tax was a means by which government can intervene by way of a market based instrument to appropriately take into account the social costs resulting from carbon emissions. A carbon tax sought to level the playing field between carbon intensive (fossil fuel based firms) and low carbon emitting sectors (renewable energy and energy efficient technologies). The core policy mix would include a carbon price, energy efficiency and technology policies.

Distributional concerns included that the poor and low-income groups were often hardest hit by negative environmental externalities and there was a need to mitigate this impact. Historically the progression of carbon tax policy proposals began with the Environmental Fiscal Reform Policy Paper (2006), Carbon Tax Discussion Paper (2010), Carbon Tax Policy Paper (2013), Carbon Offsets Paper (2014), legislative process and alignment with carbon budgets (2015) and anticipated carbon tax implementation mid-2016.

An overview of the proposed carbon tax policy package was then presented and the tax base considerations were then briefly looked at along with the policy intent of the carbon offsets scheme.

Mr Morden then turned to the carbon tax modelling noting that several studies had been undertaken to estimate the impact of carbon pricing in SA on the economy. After touching on some of these studies and high level conclusions and results of the studies, it was noted that the carbon tax as currently proposed could reduce SA's GHG emissions by between 35% and 45% by 2035. The study however had not yet been made public and it was hoped this would be done by the end of July.

In summary, policy development and public consultation with regard to a carbon price/ carbon tax in SA commenced in 2010. The Climate Change Response White Paper (2011) provided the broader policy context for a carbon price/tax as one a suite of measures to address the challenge of climate change and the transition to a low-carbon economy. There were concerns about the impact of higher electricity prices on low income households and on the international competitiveness of SA firms (especially the mining and manufacturing studies) were uppermost. The emission trading schemes in China and the carbon tax initiatives in Mexico, Chile and other developed and emerging economies should be noted. The Carbon Tax Bill will be submitted to Cabinet for approval and publication for public comments within the next month and then the parliamentary process would begin.

Discussion

Ms Stander questioned externalities in terms of who would conduct the studies and bear the costs thereof. With the carbon off-setting, often it was manipulated so how would the cost of off-set measures be measured against the actual mitigation of reduction emission strategies? What was Treasury’s plan to lead the transition of SA from a carbon economy to a green economy?

Mr Morden responded that the externality studies had been done to estimate the cost of externalities. There were various such studies so an externality study would not be redone as the work had already been done. The studies were indicative of the consequences of climate change impacts along a wide range of costs. Treasury initiated one study on the impact of costs of climate change consequences on the local level while DEA had initiated another study with the assistance of the World Bank –this study would be hopefully available by end of July. With off-sets, there were quite rigorous requirements for how it would be monitored and Treasury would work closely with the DEA and DoE in this regard. The environmental fiscal reform agenda was an indication that Treasury worked hand in hand with the Department to try to deal with various environmental challenges. Treasury introduced the plastic bag levy to try to reduce the use of plastic bags – without a doubt this was a success and the levy really made a difference. There was also a levy on light bulbs to encourage citizens to start using newer technology. A very modest tax on motor vehicles was introduced as well and if the price was upped significantly more it would make people choose better – hopefully the carbon tax would replace this as a more comprehensive instrument. Government should also look at its procurement policy to ensure it became greener but he was not an expert on this.

Mr Makhubele, if memory served him well, noted that carbon tax attracted some controversies in some countries. What were the sorts of difficulties faced by other countries which made them move away from using carbon tax as an instrument? It was important for Members to make informed decisions as the process proceeded.

Mr Morden said any tax was controversial and carbon tax that much more because climate change was a global phenomenon and tax became very difficult when there was no global agreement. This explained the use of border tax adjustments to try to level the playing field. SA made a commitment to work towards the global agreement but this did not mean sitting and waiting while there was no agreement. Australia, like the US, was very ideological and there were vast divides between the left and right wing where the latter were denialists, like in the USA. Australia’s current Prime Minister was a climate change denialist so he took the decision to not implement a carbon tax. It was however safe to say that Australia was still committed to dealing with climate change through other measures which would actually be more costly for the economy. This was a political choice. Other countries like Mexico, Chile and China were taking small steps as well.

Mr Mabilo knew that Australia was abandoning the carbon tax. Was the timeframe for implementation of the tax by 2016 definite? If it was implemented in 2016, would it be implemented in its original form as outlined in the carbon policy tax proposal or would it be reintroduced for implementation with the necessary modifications? Were there studies to assess the impact of the carbon tax on existing levies, like the fuel one, and if so, what were the results of those studies? He found the presentation very informative.

Mr Morden said the Minister had committed to the 2016 timeframe but it depended on the parliamentary process but most of the policy background work had been done. The 2013 paper provided the basic framework. There were consultations on this paper so there might be small modifications on the broad framework on the policy structure. The fuel levy was not an environmental levy but it did play a role in environmental matters. This fuel levy was relatively modest compared to many other countries but it did shift behaviour.

The Chairperson asked if implementation of carbon tax would be continued outside of clarity on carbon budgets.

Mr Morden explained that Treasury indicated that the carbon tax would be the lead instrument for the first five years. The carbon budget was an evolving mechanism using information from companies to inform the budget. After these years the relative thresholds could be captured into absolute thresholds. The other possibility was to move towards an emission trading scheme and use the carbon budget just as an indicative monitoring tool rather than as a instrument of penalty.

Ms Stander noted with the externalities, she was specifically speaking about the impact of lung disease, land degradation, water pollution etc. all which had a cost on national expenditure and she wondered how this was taken into consideration when determining the carbon tax of R120 p/metric tonne. She understood there was no earmarking and she was interested to understand why there were no option to ring-fence the funds. Without imposing conditions, entities like Eskom, kept getting bail outs but failed to maintain or implement retrofitting on their coal-fired stations. Treasury would get a significant increase in revenue but how was this actually going to translate into reduced emissions and a safer, cleaner environment for our people?

Mr Morden replied by looking at the literature, there were various attempts to estimate the cost to the fiscus for all these effects of climate change. The benefit of a carbon price does not only help to reduce GHG emissions but also helped with other emissions. Tax could only play a role up until a certain point because there could be unintended consequences so it was important not to overplay the role. So the R120 p/metric tonne was very modest but a transition needed to start somewhere. To cover all externalities that R120 should probably be R1000 but this was impossible. Money could not be spent at will – there needed to be accountability and this was the role Treasury played. It was up to Parliament to ensure the money was allocated for the correct purposes.

The Chairperson noted there needed to be an overarching role for Parliament to oversee all matters relating to climate change to include all the relevant role-players. This overarching mechanism was to cut through all the overlapping areas so that actors were not operating in silos – the job would be done much better if the various components came together. The Chairperson asked if the next presentation of the Department included all departments who were relevant players in climate change. The Committee would be interacting with the other relevant Committees so that documents crafted and action plans of government were aligned and spoke to steps and plans to avert any climate catastrophe in the country. It was important that everyone met together as these were cross-cutting measures so oversight needed to follow that cross-sectoral fashion. It was important to work together to make the transition, reduce emissions and effect a plateau – this work could not be done in silos. He wished the Department well for the interim negotiations in Bonne. Africa as a whole was looking to the leadership of SA on these matters and we needed to give this leadership through actual demonstrable, scientific means otherwise this leadership role might be lost. Those that came could see how SA averted the catastrophe and the plans put in place as the government and Parliament of SA. After the Department provided the Committee with the information on the structuring of the intergovernmental technical committee, structures for parliamentary oversight could be developed for this important matter. These were difficult matters as the world community had not faced such a challenge which required everyone to work together in COP21. Whatever position SA took in the lead up to COP21 needed to come before Parliament – it could not come through the Committee. The position needed to be processed and debated before Parliament before it went to COP21.

Ms Beaumont thanked the Committee for the insight provided as it was really helpful in the work being done by the Department.

The meeting was adjourned.