Carbon tax policyCarbon tax policy

BUSA submission BUSA submission to Portfolio to Portfolio Committee on Trade and IndustryCommittee on Trade and Industry

August 2013August 2013

OverviewOverview

• South African business has already South African business has already made significant progress in emission made significant progress in emission reductionreduction

• Domestic mitigation options are limitedDomestic mitigation options are limited

• Economic impacts likely to be Economic impacts likely to be substantialsubstantial

Overarching business viewOverarching business view

• Carbon price supported in pursuit of lower carbon Carbon price supported in pursuit of lower carbon growth trajectory growth trajectory

• Imperative to understand impact of any state Imperative to understand impact of any state interventionintervention

• Carbon tax must be aligned with other mitigation Carbon tax must be aligned with other mitigation instrumentsinstruments

• Need to operate in context of global climate actionNeed to operate in context of global climate action• Proposed carbon tax is not only carbon priceProposed carbon tax is not only carbon price

Potential change in behaviourPotential change in behaviour

• Change required: reduce GHG emissionsChange required: reduce GHG emissions• Potential at firm level limited by:Potential at firm level limited by:

– lack of choice in energy supplylack of choice in energy supply– non availability of mitigation technologynon availability of mitigation technology– engineering constraintsengineering constraints

• Structure of the economy energy intensive and Structure of the economy energy intensive and trade exposedtrade exposed

• Shift to significantly lower carbon intensity not Shift to significantly lower carbon intensity not possible concurrent with beneficiation objectivespossible concurrent with beneficiation objectives

Current environmentCurrent environment

State of economyState of economy

Mitigation Mitigation

Manufacturing trends ( the dti, 2011)Manufacturing trends ( the dti, 2011)

Trade trends (the dti, 2011)Trade trends (the dti, 2011)

South African exports 2012South African exports 2012

Source: SARS unaudited trade statistics, BUSA calculations

Energy intensive sectors (R438bn)

Trends in economic activityTrends in economic activity

Employment trends in manufacturingEmployment trends in manufacturing

Trends in energy intensity and Trends in energy intensity and electricity sent outelectricity sent out

SA electricity efficiency vs average real SA electricity efficiency vs average real electricity selling priceelectricity selling price

Selected electricity prices Selected electricity prices

Contribution of sources to the total Contribution of sources to the total energy sector GHG emissionsenergy sector GHG emissions

Carbon priceCarbon price• Paper does not recognise current and future Paper does not recognise current and future

carbon pricing instrumentscarbon pricing instruments• Carbon tax on motor vehiclesCarbon tax on motor vehicles• Carbon price included in electricity price:Carbon price included in electricity price:

– Levy on non renewable electricity generation: Levy on non renewable electricity generation: R35/tonR35/ton

– Premium of R116/ ton COPremium of R116/ ton CO2 2 for renewable for renewable electricity generationelectricity generation

• Mitigation instruments being developed by DEA will Mitigation instruments being developed by DEA will have an implementation cost which results in a have an implementation cost which results in a price for carbonprice for carbon

• Biofuel levyBiofuel levy

Availability of mitigation technologyAvailability of mitigation technology

• Technology to reduce GHG emissions resulting Technology to reduce GHG emissions resulting in non energy process emissions is not available in non energy process emissions is not available for all processesfor all processes

• ExamplesExamples– nitric production: nitrous oxide emissions have nitric production: nitrous oxide emissions have

been already been significantly reduced been already been significantly reduced – Carbide and ammonia: slight efficiency Carbide and ammonia: slight efficiency

improvements possibleimprovements possible

Emission levels in the Chemical Emission levels in the Chemical Industry, 2000 – 2010.Industry, 2000 – 2010.

Technology

No technology

Technology

No technology

Desired emission reduction outcomesDesired emission reduction outcomes• Mitigation analysis currently in progress Mitigation analysis currently in progress • Mitigation options are generally limited in energy Mitigation options are generally limited in energy

intensive sectorsintensive sectors• Analysis will be used as basis for further detailed Analysis will be used as basis for further detailed

sectoral and firm level work to develop desired sectoral and firm level work to develop desired emission reduction outcomesemission reduction outcomes

• DERO’s will be implemented through mandatory DERO’s will be implemented through mandatory mitigation plansmitigation plans

• Energy efficiency targets will be implemented Energy efficiency targets will be implemented through mandatory energy management plansthrough mandatory energy management plans

Challenges with proposed Challenges with proposed carbon taxcarbon tax

ImpactImpact

Lack of policy alignmentLack of policy alignment

Source: EIA, Eurostat, Direct Energy, Regulated Services, Australian Energy and Market Operator, (2013 uses year to date data)

Impact of carbon tax on electricity CPI

9%

8% per annum

Effect of tax on electricity priceEffect of tax on electricity price

Source: StatsSA, BUSA calculations

Electricity price weight in CPI basketElectricity price weight in CPI basket

*Potential impact of Z factor not taken into account

•First developing country with a carbon tax

•Premature given global negotiations

•More regions moving to trading schemes

•Effective carbon price higher than most other jurisdictions

US

$ p

er t

on

CO

2

Illustrative effective carbon priceIllustrative effective carbon price

Electricity contribution to operating Electricity contribution to operating cost ( Megaflex tariff)cost ( Megaflex tariff)

Alternative approachesAlternative approaches• Global agreement on mitigationGlobal agreement on mitigation

– Expected in 2015Expected in 2015– Implementation in 2020Implementation in 2020– Adjust timing to ensure tax supports South Adjust timing to ensure tax supports South

Africa’s commitmentAfrica’s commitment• Desired emission reduction outcomesDesired emission reduction outcomes

– Expected in 2014Expected in 2014– Adjust timing to base thresholds on DERO’sAdjust timing to base thresholds on DERO’s

Alternative approaches (2)Alternative approaches (2)

• Simplify and clarify designSimplify and clarify design• Provide protection for trade exposure and energy Provide protection for trade exposure and energy

intensive sectorsintensive sectors• Do not limit use of offsetsDo not limit use of offsets• Use desired emission reduction outcomes as basis Use desired emission reduction outcomes as basis

of thresholdsof thresholds• Align tax level with levels in competing economiesAlign tax level with levels in competing economies

Way forwardWay forward

• Collaboration to find balanced approachCollaboration to find balanced approach