Development strategy and policy analysis: The economics (and politics) behind South Africa’s carbon tax

South Africa announced in February 2012 that it will introduce a carbon tax to reduce the country’s high levels of greenhouse gas emissions and assist in the global effort to curb climate change. This makes South Africa one of the first countries, especially in the developing world, to introduce substantive national mitigation policy. This announcement is even more remarkable given South Africa’s dependence on carbon-intensive mining and heavy industry, which have long benefited from cheap coal-fired electricity. Given the structural changes that will need to take place, it is not surprising that the carbon tax has raised concerns from a number of interest groups in South Africa. Businesses worry about losing their competiveness in foreign markets; labour unions worry about job losses; and civil society is concerned about higher energy prices for low-income households.

In this seminar, the findings from two recent studies conducted by the South African National Treasury and the United Nations University’s World Institute for Development Economics Research (UNU-WIDER) will be presented (see WP45/2011 'Measuring the Carbon Content of the South African Economy'). The studies examine the economic implications of introducing carbon taxes in South Africa, including border tax adjustments and revenue recycling options. We will also review the policy process that has led to the carbon tax announcement; the ongoing process of designing an effective tax instrument; and the political considerations that shape South Africa’s carbon tax debate.

Presenters

Faaiqa Hartley and Konstantin Makrelov (National Treasury, Pretoria, South Africa)

Channing Arndt and James Thurlow (UNU-WIDER, Helsinki, Finland)