Transcript NATIONAL TREASURY

Environmental Fiscal Reform in
South Africa
CECIL MORDEN
NATIONAL TREASURY
March 2009
national treasury
Department:
National Treasury
REPUBLIC OF SOUTH AFRICA
OUTLINE
• Introduction
• Overview of the Environmental Fiscal
Reform Policy Paper, April 2006
• Public comments on the EFR policy
paper
• 2009/10 tax proposals
• Carbon tax and / or Cap-and-Trade
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INTRODUCTION
• High (er) levels of economic growth must be sustained to
facilitate significant reductions in the levels of unemployment,
poverty and income inequality.
• The National Framework for Sustainable development has identified
the following areas that require action:
– Excessive resource use for energy generation;
– Rising waste levels;
– Soil degradation;
– Poor local air quality; and
– Water scarcity and quality concerns.
• It’s not just the quantity of growth that matters but also quality, and
incorporating sustainable development considerations in policy
development and decision making is actively being pursued.
• The role of market-based instruments particularly environmentallyrelated taxes to complement regulatory measures is being explored.
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ENERGY AND CLIMATE CHANGE
• SA generates 90 per cent of electricity from coal - sufficient
low cost coal supplies and historical excess electricity
generation capacity manifests itself in low electricity prices
and a highly energy intensive economy.
• Coal-based electricity responsible for bulk of GHG emissions in
South Africa.
• SA ranks in the top 20 highest GHG emitters in the world and is
the largest emitter in Africa, accounting for 42 per cent of
continent’s carbon emissions.
• Energy pricing in SA – can we begin to partially internalise
externalities to facilitate a more efficient allocation of
resources that would not compromise economic growth, and
promote social and environmental benefits?
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ENVIRONMENTAL / ECONOMIC CHALLENGES
In an address in 2007 to the Curtin Public Policy Forum the secretary
of the Treasury in Australia, Ken Henry, listed eight medium-term
challenges that economic policy advisers (in Australia) should be
thinking about, these include inter alia:
(a) “increasingly challenging issues in the inter-relationship
between energy, climate change and water; and
(b) some deeply entrenched failures in environmental
management, including loss of biodiversity, partly due a
history of exploitation of the ‘commons’ ”.
He argues that:
“Market mechanisms will have to be used to do more, not less, of
the allocation task, but with more attention paid to the role of
government in defining property rights, pricing for externalities,
and representing the interests of future generations”.
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CLIMATE CHANGE POLICY IMPLICATIONS
(Stern report)
• Provide incentives (stick and carrot) to redirect research,
development and investment away from fossil fuels that are
currently more difficult to extract towards low-carbon energy
resources.
• Low resource costs of the remaining stock of fossil fuels have
to be factored into climate change policy.
• There is a significant element of rent in the current prices of
exhaustible fossil-fuel resources, particularly oil and natural
gas.
• Fossil-fuel prices could fall in response to the strengthening of
climate-change policy, partially undermining the effectiveness
of such interventions.
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CLIMATE CHANGE POLICY RESPONSES –
MITIGATION (Stern report)
•
•
•
•
•
•
Carbon pricing is essential for climate change policy.
Pricing carbon via taxes, tradable permits or regulation
means that people bear the full social costs of their
actions.
Encourages firms and households to shift away from high
carbon goods and services and to invest in low-carbon
alternatives.
However, range of other market failures and barriers means
that carbon pricing alone is not enough.
Technology policy is vital to bring forward the range of low
carbon and high efficiency technologies to reduce emissions
Policies on regulations, information and financing are also
important.
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ENVIRONMENTAL FISCAL REFORM IN SOUTH
AFRICA
• Environmental fiscal reform refers to the interface
between environmental and fiscal policy measures.
• An opportunity exists to undertake reforms to
existing MBIs and develop new environmental tax
instruments to achieve environmental goals.
• The Environmental Fiscal Reform Policy Paper
provides the foundation to build on and support
other environmentally related initiatives in South
Africa.
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WHY THE NEED FOR A POLICY PAPER ON
EFR? – April 2006
• Maintenance of a coherent tax policy
framework;
• Development of a coherent process and
framework to consider and evaluate
environmental taxes; and
• Consider both environmental and revenue
outcomes and the “double-dividend”
hypothesis.
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INTERVENTION OPTIONS
• Command-and-control measures:
– Use of legislative or administrative regulations that
prescribe certain outcomes;
– Usually target outputs or quantity, e.g. minimum
ambient air quality standards, within which business
must operate.
• Market-based instruments:
– Policy instruments that attempt to internalise
environmental externalities through the market by
altering relative prices that consumers and firms face;
– Utilise the price mechanism and complement commandand-control measures. Under certain circumstances MBIs
are considered more efficient than command-andcontrol measures.
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DEFINITION OF ENVIRONMENTALLY-RELATED
TAXES
• The OECD definition of an environmentally related
tax has been adopted:
“a tax whose tax base is a physical unit (or proxy
of it) that has a proven specific negative impact
on the environment”
• Although the definition does not make reference to
the intent of the tax, intent is important but should
not be used for classification purposes;
• The paper distinguishes between taxes and user
charges, however the difference is not always clear
cut in practice.
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TAXES VERSUS USER CHARGES
TAXES
USER CHARGES
No direct benefits accrue to
individuals in exchange for
payment.
A marketable service is provided
to identifiable beneficiaries.
Payments are enforced in
terms of legislation.
Direct and proportional benefits
accrue to beneficiaries in
exchange for payments.
Governments or organs of
state direct the use of
revenues.
Transactions take place in a
willing buyer willing seller
market.
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CRITERIA / DESIGN CONSIDERATIONS
• Environmental effectiveness – linked to the environmental
externality and aim for best design possible;
• Tax revenue – level of revenues and revenue use;
• Support for the tax – public support and acceptance is
important (e.g. tax payer morality);
• Legal, technical & administrative feasibility:
–
–
–
–
–
Define taxable commodity - tax base; or nature of incentive;
Setting the tax rate;
Tax avoidance and evasion;
Collection costs; and
Compliance costs.
• Legislative / international aspects – implications need to be
considered (also WTO, SADC);
• Competitiveness impacts – tax incidence is critical. May
require adoption of mitigating measures;
• Distributional impacts – mitigation and compensation
measures may need to be considered; and
• Adjoining policy areas – is the instrument capable of
contributing to other social and economic objectives?
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INTERNALISATION OF EXTERNALITIES –
COMPETITIVENESS ISSUES
• Internalising negative externalities comes at a price.
• Aims to internalise externalities to a socially optimal level
cannot be achieved overnight.
• There are “win-win” cases where more environmentally
informed business practices could lead to corresponding
improvements in competitiveness.
• Improved environmental performance may also improve
access to certain markets – notably in the export sectors.
• However, these benefits are not immediately possible in all
cases.
• A phased approach taking account of potential impacts on
competitiveness must be adopted to give specific sectors time
to adjust.
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DISTRIBUTIONAL ISSUES –
IMPACT ON THE POOR
• The poor and low-income groups are often hardest hit by
negative environmental externalities.
• Important for environmentally-related fiscal policy to ensure
that environmental instruments are pro-poor where possible,
or at least do not place a disproportionate burden on lowincome groups.
• A sustainable growth path should provide protection and
support to the poor.
• Development that meets the needs of the present without
compromising the ability of future generations to meet their
own needs.
• Tradeoffs to be well managed.
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DOUBLE DIVIDEND AND TAX SHIFTING
• Double dividend-hypothesis
– An improvement in environmental quality
is secured (the first dividend)
– Gains in economic efficiency and
employment could be realised (the second
dividend).
• Tax shifting (e.g. reduce payroll taxes)
can effectively minimise the overall
tax burden on affected sectors and still
create required behavioural incentives.
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EARMARKING
• For many stakeholders, there is a link between
revenues from environmentally-related taxes and
spending on the environment.
• The policy paper tries to maintain a clear separation
of revenue and expenditure sides of the budget.
• In general, “full” earmarking is not in line with sound
fiscal management practices.
• However, there is a need to consider different
incentive options (many of which include revenue
recycling in some shape or form – e.g. “soft”
earmarking – plastic bag levy).
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KEY MESSAGES
•
•
•
Market-based instruments (e.g. environmentallyrelated taxes, charges and incentives) can
complement and reinforce environmentally related
regulatory measures and at the same time
contribute towards fiscal objectives;
A framework is proposed to consider and evaluate
the use of market-based instruments;
The development of environmentally-related tax
and incentive proposals should, as far as possible,
be adequately integrated into a coherent fiscal
policy agenda;
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KEY MESSAGES (cont)
•
•
•
The ‘full” earmarking revenues from
environmentally-related taxes is not in line with
sound fiscal management practices.
However, incentives and the “soft” earmarking of
tax revenues, where appropriate, could be
considered; and
Special attention should be given to the possible
distributional and competitiveness implications of
environmental taxes and charges. The appropriate
design and phasing-in of such taxes could deal with
these two important aspects.
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COMMENTS RECEIVED
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
Botanical Society of SA
Business Unity SA
Cape Nature
Chamber of Mines
DEAT
DME
DWAF
Edward Nathan
Energy Intensive User Group
Eskom
eThekwini Municipality
Esemvelo KZN Wildlife
Fiscal and Financial Commission
Forestry South Africa
Game Rangers Association of SA
Heron
ISES
International Monetary Fund
19. Institute for Zero-Waste in Africa
20. Mintek
21. Mulholland
22. NAAMSA
23. Packaging Council of SA
24. Paper Manufacturing Association of
SA
25. Responsible Container Management
Association of SA
26. S.A National Biodiversity Institute
27. Sustainable Energy South Africa
28. World Wide Fund for Nature
29. Meakin and Company
30. University of Pretoria
31. Wildlife and Environment Society
of SA
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“POSITIVE” INCENTIVES
• The polluter-pays-principle, which states that those
responsible for negative environmental externalities should
bear the costs of internalising those externalities, underpins
most of the interventions proposed in the policy paper.
• Some organisations also recommended the application of the
provider gets principle where providers of public goods are
rewarded. This could take the form of positive incentives (e.g.
subsidies or tax relief) to promote environmentally beneficial
activities.
• Although the policy paper does elaborate on the potential role
that “positive” fiscal incentives could play in achieving
environmental outcomes, the need for and role of such
(positive) incentives will be considered.
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CURRENT ENVIRONMENTALLY-RELATED TAXES AND CHARGES
SECTOR
Transport
fuels
Vehicle
taxation
Aviation
taxes
Product
taxes
Electricity
Water
supply
LEVY (charge)
General Fuel Levy
150 cent per litre (petrol).
135 cent per litre (diesel).
cent per litre (biodiesel).
Road Accident Fund Levy
64 cent per litre.
Equalisation Fund Levy
Currently zero
Customs and Excise Levy
4 cents per litre
Ad Valorem Customs & Excise Duty
(X), CO2 component (Y)
(X) graduated rate based on the vehicle price with an upper ceiling of
20% Plus (Y) graduated rate based on CO2 emissions.
Vehicle Licensing Fees
Fees vary between different provinces – usually based on weight.
Aviation Fuel Levy
1,5 cents per litre on all fuel sales excluding foreign operators.
Airport charges
Charges imposed to fund the operation of the South Africa Civil Aviation
Authority (SACAA).
Air Passenger Departure Tax
R150 per passenger - international;
R80 per passenger to BLNS countries.
Plastic shopping bags levy
4 cents per bag
Incandescent light bulbs
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1 to 3 cents per watt (R3 per light bulb)
NER Electricity Levy
A levy per kWh is implemented on all electricity generated to fund the
National Electricity Regulator.
Tax on electricity production – non
renewable resources
2 cents per kWh as from 1 July 2009
Water Resource Management
Charge
Charge rates vary according to different users. The aim is to recover
costs associated with water supply and abstraction.
Water resource development and use
of water works charge
Charge rates vary according to different users. The charges aim to
recover the costs associated with the construction, operation and
maintenance of water schemes.
This levy earmarked to fund the operations of the Water Research
Commission.
Water Research Fund Levy
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Waste
TAX RATE
Waste Water Discharge Charge
System (proposed)
The WDCS is in the process of being developed. 3 components are
proposed for the system. 2 are cost recovery based charge and the
third a levy/ tax on waste effluent.
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REFORMS TO EXISTING ENVIRONMENTALLY
RELATED TAXES
• General Fuel Levy
– Petrol
– Diesel
– Biodiesel
• Motor Vehicle Taxes and Fees
– Excise duty – relatively low currently and based on the value of a
vehicle.
– Reforms to incorporate environmental criteria such as CO2
emissions, engine size and / or energy efficiency.
– Vehicle licencing fees
• Solid Waste Management – promoting the idea of the waste
management hierarchy. Possible instruments include:
– Product taxes (plastic bags levy, incandescent light bulbs, etc.)
– Deposit refund schemes (glass bottles, tyres?)
– Disposal taxes (landfill charges and / or taxes?)
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NEW ENVIRONMENTALLY-RELATED TAX
INSTRUMENTS
•
Electricity
•
•
•
•
•
Electricity consumption tax; and/or
Fossil fuel input tax.
Water supply and use – tax instruments probably less
appropriate than alternative allocative instruments
such appropriate pricing and / or tradable permits;
Waste water – DWAF has already taken the initiative
in this area and is in the process of developing the
Waste Water Discharge Charge System (WDCS);
Air Quality Act
Includes penalties or non-compliance fees.
•
Waste Bill
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Tax policy objectives for 2009/10
• Environmental Fiscal Reform
– MBI to support environmental objectives / initiatives
– Change behaviour – encourage energy efficiency and a less
carbon intensive economy
• Boosting household confidence, via PIT relief
– Fiscal drag and real tax relief, change in brackets, primary
rebate and some thresholds
• Support private sector investment
– Delay in implementation of the Mineral and Petroleum
Resources Royalty Act (2008) until 2010
– Industrial policy tax incentives announced last year to be
implemented in 2009
• Raising sufficient revenue as economy slows down
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Emission charges and taxes:
taking forward our 2008 announcements
• SA is a significant Green House Gas (GHG) emitter
• Coal combustions account for more than 40 per cent of carbon
emissions
• Recent reports the Economics of Climate Change emphasized
the use of appropriate market-based instruments (charges,
taxes, tradable permits and incentives) to support and
complement regulatory measures to address concerns wrt to
emissions in general and climate change in particular
• The National Treasury will in consultation with DEAT and other
stakeholders further investigate specific instruments to
address concerns about both climate change local air pollution
• The electricity levy should be viewed as a first step in this
direction
• Reforms to the ad valorem excise duty on motor vehicles to
include environmental criteria such as engine capacity, fuel
efficiency and level of emissions will be considered
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Environmental Fiscal Reform (1)
(1) Incentives for cleaner production – energy efficiency
•
It is proposed that investments in energy-efficient equipment should qualify for an additional
allowance of up to 15 per cent on condition that there is documentary proof of the resulting
energy efficiencies, certified by the Energy Efficiency Agency.
(2) Certified emission reductions to receive favourable tax treatment
•
The clean development mechanism established in terms of the Kyoto Protocol allows for
certified emission reductions (CERs) to be issued to recognise progress in reducing the release of
greenhouse gases into the atmosphere. There is, however, uncertainty with regard to the
income tax treatment of CERs, which could be one reason for the slow take-up of such projects
in South Africa. It is proposed that income derived from the disposal of primary CERs be tax–
exempt or subject to capital gains tax instead of ordinary income tax. Secondary CERs are to be
classified as trading stock and be taxed accordingly.
(3) Motor vehicle ad valorem excise duties
•
•
Policy measures to address the environmental and social costs associated with the transport
sector, such as reforms to vehicle and fuel taxation, seek to promote fuel efficiency, limit the
rapid growth of the number of vehicles on our roads and encourage the use of public transport.
Improved fuel efficiency is important in curbing the growth in greenhouse gas emissions. It is
recommended that the existing ad valorem excise duties on motor vehicles be adjusted to
incorporate CO2 emissions as an environmental criterion as from 1 March 2010.
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Environmental Fiscal Reform (2)
(4) Taxation of incandescent (filament) light bulbs
•
The introduction of an environmental levy on incandescent light bulbs to promote energy
efficiency and reduce electricity demand is proposed. Energy-saving light bulbs last longer,
require five times less electricity and result in lower greenhouse gas emissions. It is
recommended that an environmental levy of between 1 cent and 3 cents per watt (about R3
per bulb) be levied on incandescent bulbs at the manufacturing level and on imports from 1
October 2009
(5) Plastic bag levy
•
The levy on plastic shopping bags was introduced at 3 cents per bag in 2004/05. Together with
the agreement between government and the retail sector to charge for such bags, this levy
has helped to reduce waste. It is proposed to increase this levy to 4 cents per bag from
1 April 2009.
(6) International air passenger departure tax
•
The international air passenger departure tax, which stands at R120 per passenger on flights to
international destinations and R60 on flights to Southern African Customs Union member
states, was last raised in 2005/06. It is proposed to increase these amounts to
R150 and R80 respectively from 1 October 2009.
(7) Increasing the general fuel levy
•
Increase in the general fuel levy
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Ad Valorem emissions tax rate on motor vehicles
(Y)
Emission component
CO2 g/km
CO2 emissions tax
rate
100
0.0%
110
0.0%
120
0.0%
140
1.3%
160
2.7%
180
4.0%
200
5.3%
220
6.7%
240
8.0%
260
9.3%
280
10.7%
national treasury
300
12.0%
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320
12.0%
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Ad Valorem "luxury" excise duty rates on
motor vehicles (X)
Ad Valorem "luxury" excise duty rates on motor vehicles (X)
Retail Price
Current rate
Proposed rate
Deviation
50,000
0.5%
0.0%
-0.5%
100,000
1.7%
0.6%
-1.1%
150,000
2.9%
1.4%
-1.5%
200,000
4.1%
2.2%
-1.9%
300,000
6.5%
3.8%
-2.7%
400,000
8.9%
5.4%
-3.5%
500,000
11.3%
7.0%
-4.3%
600,000
13.7%
8.6%
-5.1%
800,000
18.5%
11.8%
-6.7%
864,500
20.0%
12.8%
-7.2%
1,000,000
20.0%
15.0%
-5.0%
1,312,500
20.0%
20.0%
0.0%
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CONCLUDING REMARKS
• MBIs can play a role in achieving environmental goals.
• Develop appropriate regulatory measures and institutional
capacities to properly monitor and enforce such interventions
and enhance their effectiveness.
• The effective (global and coordinated) implementation of
appropriate MBIs (environmentally-related taxes, charges and
incentives) is key to address some of the complex
environmental challenges we are facing – especially climate
change.
• Guard against the further “socialization” of private costs
(negative externalities) and the “privatization” of social
benefits (a potential problem with cap-and-trade), e.g.
windfall profits by energy sector in some EU countries.
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Thank you.
Questions ???
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A Carbon Tax vs. “Cap-and-Trade”
1.
2.
3.
4.
5.
6.
7.
8.
9.
EU Commission, 16 Jan 2009 SEC(2009)53, analysing the replies to the Green Paper on
market-based instruments for environment and related policy purposes.
The Case for a Carbon Tax, Richard N Cooper, Harvard University
The U.S. Climate Task Force: Addressing Climate Change without impairing the U.S.
economy. Robert Shapiro, Nam Pham and Arun Malik, June 2008
Carbon Fees with 100% rebate preferable to “Cap-and-Trade”, Laurie Williams and Allan
Zabel. (www.carbonfees.org)
Greg Mankiw of Harvard (http://gregmankiw.blogspot.com/2006/09/rogoff-joins-pigouclub.html).
Designing a Carbon Tax to reduce U.S. Greenhouse Gas Emissions, Gilbert Metcalf.
Working Paper 14375, NBER, October 2008. (http://www.nber.org/papers/w14375)
After Kyoto: Alternative Mechanism to Control Global Warming, William D. Nordhaus,
March 2006 – Yale University.
Carbon Taxes vs. Tradable Permits: Efficiency and Equity Effects for a Small Open
Economy, John Freebairn, University of Melbourne, February 2009.
Urban Emissions and Market-Based Administration: Burdens and Risks”.
Prof Janet Milne - Environmental Tax Policy Institute, Vermont
Law School, USA. The Ninth Annual Global Conference on Environmental Taxation,
6-7 November 2008, Singapore
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EU Commission, 16 Jan 2009 SEC(2009)5
• Concerns about volatility of carbon prices under the EU emissions
trading scheme (EU ETS)
• Using revenue from environmental taxation for income tax
rebates or financial incentives for low-income households to
move towards using energy-and carbon-efficient technologies
• EU Energy Taxation Directive (ETD) – amendments aimed at
clarifying the interaction between emissions trading and energy
taxation.
• The CO2 part of the tax should be similar across the EU and
should send similar signal to the EU emission trading scheme.
• Exempting ETS sectors from CO2–related minimum taxes (page
11)??
• Use of revenue from emission permit auctions to promote
innovative technology and research (page 15)
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Richard N Cooper – A Global Carbon Tax
•
•
•
•
•
•
“There are negative and positive arguments for introducing a tax on emissions
of greenhouse gases (GHGs)”.
“The negative argument is that the leading alternative, quantitative goals
with a trading regime in emission rights (cap-and-trade), is almost certainly
political unsustainable on a global basis”
“The key alternative is to focus on level of effort rather than on quantitative
targets, on the introduction, within an internationally agreed framework, of a
domestic tax on GHG emissions, revenues to accrue to the government of each
country where the emissions occur”.
“a common tax to be levied on the major sources of carbon dioxide emissions”
– phase in over a number of years to US$50 per ton carbon or US$14 per ton
CO2”.
Where the revenue is not needed, or where an increase in the total tax
burden is politically insupportable, the new revenues could be used to reduce
other taxes”.
“Reduction of emissions may not always be the most efficient way to limit
growing atmospheric GHG concentrations. Sequestration of CO2 from the
atmosphere should be included in the menu of permissible actions. Subsidies
(at the agreed CO2 tax rate) could be given for sequestration, or tax rebates
where the sequester is also the emitter”.
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Richard N Cooper
• “Atmospheric concentrations cannot be limited in
the next few decades without sequestration of
carbon dioxide from major emitters – carbon
capture and storage (CCS)”
• “It is much cheaper to design a new plant with CCS
in mind than to retrofit an existing plant for carbon
capture”
• “One way or another, the energy-consuming public
is going to have to pay higher prices to cut demand
for fossil fuels and to induce emission-reducing
technical changes in the energy system”.
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The U.S. Climate Task Force:
Addressing Climate
Change without impairing the U.S. economy. June 2008
•
•
•
•
There are three broad policy approaches to contain climate change:
“One strategy would use command-and-control regulations to cap CO2
and other GHG emissions by industry and producers”
“However, such regulation is highly inefficient, since it would impose
the same caps on energy use or emissions on producers who could
meet them at relatively little cost as it would on others who would
face much higher costs”.
“A second approach would cap emissions, while permitting producers
to sell and purchase permits to produce emissions up to their caps”.
“Those who could cut their emissions inexpensively will do so and sell
their permits to those whose cost of cutting emissions would be
greater than the price of the permits”
“While a cap-and-trade approach is less costly to an economy than
command-and-control regulation, many economist have concluded
that it could be a source of significant new volatility in national
energy prices, expensive to administer, prone to manipulation, and
very difficult to monitor and enforce - page 11”.
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The U.S. Climate Task Force:
Addressing Climate
Change without impairing the U.S. economy. June 2008
• “A third major alternative is to directly tax carbon or CO2
emissions”.
• “It would directly and predictably raise the relative price of
goods and services based on their carbon intensity”.
• A carbon tax would not create the new price volatilities,
administrative burdens, and large opportunities for evasion
and fraud that could characterize a cap-an-trade program”.
• However, a carbon-based tax approach cannot guarantee the
specified reductions in annual CO2 emissions promised by
command-and-control or cap-and-trade approaches. To
overcome this deficiency, a carbon-tax program could include
automatic adjustments in its rate to offset shortfalls in
forecast CO2 reductions – page 11”.
national treasury
Department:
National Treasury
REPUBLIC OF SOUTH AFRICA
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The U.S. Climate Task Force:
Addressing Climate
Change without impairing the U.S. economy. June 2008
• “Every approach to climate change – carbon taxes, cap-andtrade programs or regulation – ultimately involves higher
energy prices – page 3”
• “Apply a tax or charge to fuels based on their carbon content,
at levels required to reduce emissions sufficiently to move to a
path that over time would stabilize GHG concentrations in the
atmosphere at sustainable levels; and
• Use most of the revenues to reduce other taxes for people and
businesses (e.g. payroll taxes); 90 per cent, and 10 per cent
for investments in energy and climate-related R&D, and in the
deployment of climate-friendly fuels and technologies”.
• “This strategy would change the relative price of different
forms of energy based on their carbon content, so that people
and businesses have strong incentives to shift to alternative
and less carbon-intensive fuels, and more energy-efficient
technologies – page 7”
national treasury
Department:
National Treasury
REPUBLIC OF SOUTH AFRICA
39
Laurie Williams and Allan Zabel –
Carbon Fees, California
• Cap-and-Trade program in the US aimed at reducing SO2
emissions (acid rain?) from coal-fired power stations.
• Switching to powder river basin low sulfur coal, new
technology, new infrastructure.
• Problems: over-allocation, inaccurate measurement, price
unpredictability, windfall profits, market failure = safe harbor,
offsets.
• Carbon fees – gradually phased in on all fossil fuels at the first
point of sale following import or extraction.
• All fees to be placed in a Carbon Fees Trust Fund and promptly
distributed to the public (100% rebate).
• Carbon fees with 100% rebate are not taxes.
• Taxes are imposed for revenue purposes, rather than in return
for a specific benefit conferred or privilege granted. Sinclair
Paint Co v. State Bd of Equalization, 15 Cal 4th 866 (1997).
national treasury
Department:
National Treasury
REPUBLIC OF SOUTH AFRICA
40
Gilbert E. Metcalf:
Designing a Carbon Tax to reduce U.S.
Greenhouse Gas Emissions, NBER, WP 14375, October 2008
• A tax on GHG emissions at an initial rate of US$15
per metric to of CO2e that gradually increases over
time.
• A refundable tax credit for sequestered emissions
and other approved sequestration activities.
• A refundable credit for the embedded CO2 in
exported fuels and taxation imposed on the
embedded CO2 in imported fossil fuels.
• An environmental earned income tax credit on
personal income taxes equal to the employer and
employee payroll taxes on initial earnings up to a
limit. (pages 3 & 4)
national treasury
Department:
National Treasury
REPUBLIC OF SOUTH AFRICA
41
John Freebairn:
Carbon Taxes vs. Tradable Permits:
Efficiency and Equity Effects for a Small Open Economy, February 2009
• “In principle, a tax set at the marginal external cost (MEC) or a
tradable permit with the quota set at the quantity equating
marginal social benefits and costs (MSB & MSC) would result in
a net gain in economic efficiency, p.1”
• “In a static and perfect world the carbon tax and tradable
schemes are essentially the same with identical implications
for distribution and for efficiency, p.7”
• “In a more realistic world of imperfect knowledge and when
the relevant marginal abatement cost (MAC) and marginal
external cost (MEC) curves vary over time, some important
differences between the tradable permit system, essentially a
quantity based policy intervention, and a carbon or emission
tax, essentially a price based policy intervention, become
important, p.7’
national treasury
Department:
National Treasury
REPUBLIC OF SOUTH AFRICA
42
John Freebairn:
Carbon Taxes vs. Tradable Permits:
Efficiency and Equity Effects for a Small Open Economy, February 2009
• “The tax option results in stable extra costs for greenhouse gas
intensive products and production processes and incentives for
R&D, but with volatility in the reduction of emissions. The
tradable permit system results in the opposite of a stable and
guaranteed level of pollution, but with volatility of the permit
prices, p.8”
• “… there are some equity and fairness considerations of the
carbon tax which seem more likely to facilitate the negotiation
of a cooperative global agreement, p.13’
• “ … a case can be argued that a tax system which
automatically recycles money back to the developing country
government and is robust to different growth rates is more
appealing than a tradable permit scheme, and especially one
which allocates permits with respect to an historical
benchmark, p.13”
national treasury
Department:
National Treasury
REPUBLIC OF SOUTH AFRICA
43
John Freebairn:
Carbon Taxes vs. Tradable Permits:
Efficiency and Equity Effects for a Small Open Economy, February 2009
• “Failures of poor administration, and even corruption, of one
country are largely contained to that country with a pollution
tax. By contrast, with a tradable permit scheme, the failures
of one country will spread to other countries and then
potentially undermine the integrity of a global quota, p.15”
• Trade exposed energy intensive industries (TEEI) – transitional
/ interim assistance to early mover countries (product / origin
vs. consumption based system (treatment of exports and
imports), ‘carbon leakage’, pp.15-17
• “A harmonised carbon tax would seen to offer some
advantages relative to a tradable permit scheme, event though
current policy is following the latter option, p.18”
national treasury
Department:
National Treasury
REPUBLIC OF SOUTH AFRICA
44