How should we be putting a price on carbon, particularly in developing countries? This volume takes up this contested issue and examines how different economic instruments might apply in developing countries, with a special focus on South Africa. The papers included address a variety of themes in this area: Emissions trading, carbon taxes, fiscal and non-fiscal instruments, policy and institutional dimensions, and lessons from the Clean Development Mechanism. Presenting the very latest research, the volume will be of interest to academics and policymakers in economics, policy and development.
A carbon tax should be considered among the range of instruments available to the South African government, economy and society, as part of a broad portfolio of mitigation actions. A carbon tax was one of the most effective wedges or mitigation options analysed for the Long-term mitigation scenarios (LTMS) for South Africa. The LTMS strategic option 'Using the market' reduced emissions roughly as required by Science, for several decades. The LTMS research indicated that the effectiveness increases, up to certain tax levels. South Africa might consider a tax starting around R100-200 / t CO2eq, escalating in future. Our paper presents results on research on a carbon tax in South Africa conducted in 2008 and was presented at the Climate Change Summit 2009. The efficiency with which a carbon tax achieves the goal of reducing GHG emissions depends on responsiveness and substitutability. This is shown more fully on the supply-side, while further work will be needed to fully understand the response to a carbon tax on the demand side. Careful design of a carbon tax (or other economic instruments considered) will be important to ensure that it is effective in meeting its objective – reducing GHG emissions. We propose a price discovery and adjustment mechanism that sets a band around the desired 'peak, plateau and decline' trajectory. Equity demands that poor households, in particular, be shielded from any burden. Off-setting incentives, such as food subsidies or reduced VAT on basic goods, should in finance measure that which will ensure that the package of tax and incentives is a net benefit to the poor – and not to treat the tax as a revenue-raising instrument. With appropriate design, a carbon tax can be a powerful instrument of mitigation in South Africa, and at the same time, contribute to socio-economic objectives.
A carbon tax should be considered among the range of instruments available to the South African government, economy and society, as part of a broad portfolio of mitigation actions. A carbon tax was one of the most effective wedges or mitigation options analysed for the Long-term mitigation scenarios (LTMS) for South Africa. The LTMS strategic option 'Using the market' reduced emissions roughly as required by Science, for several decades. The LTMS research indicated that the effectiveness increases, up to certain tax levels. South Africa might consider a tax starting around R100-200 / t CO2eq, escalating in future. Our paper presents results on research on a carbon tax in South Africa conducted in 2008 and was presented at the Climate Change Summit 2009. The efficiency with which a carbon tax achieves the goal of reducing GHG emissions depends on responsiveness and substitutability. This is shown more fully on the supply-side, while further work will be needed to fully understand the response to a carbon tax on the demand side. Careful design of a carbon tax (or other economic instruments considered) will be important to ensure that it is effective in meeting its objective – reducing GHG emissions. We propose a price discovery and adjustment mechanism that sets a band around the desired 'peak, plateau and decline' trajectory. Equity demands that poor households, in particular, be shielded from any burden. Off-setting incentives, such as food subsidies or reduced VAT on basic goods, should in finance measure that which will ensure that the package of tax and incentives is a net benefit to the poor – and not to treat the tax as a revenue-raising instrument. With appropriate design, a carbon tax can be a powerful instrument of mitigation in South Africa, and at the same time, contribute to socio-economic objectives. Keywords: carbon tax, South Africa, economic instruments, climate change mitigation, greenhouse gas emissions.
Climate change mitigation poses significant challenges for South Africa and its energy development, historically highly energy intensive. At the same time, the country faces a host of daunting development challenges, exacerbated by the legacy of apartheid. Examining both challenges, this paper considers how alternative conceptions of a development path can be achieved. In the short term, energy efficiency provides large potential for mitigation – and energy savings at the same time. Changing South Africa's fuel mix, dependent to three-quarters on coal, is at least a medium-term challenge. The minerals–energy complex is so central to the economy that it is likely to take decades to change dramatically. The most transformative change is to an alteration in economic structure, likely to take long to achieve. The article examines specific policy instruments that might be implemented to achieve such a transformation. A transition to a low-carbon economy will require a paradigm shift in industrial policy. It will require considered provision for sectors sensitive to changes in energy prices. Building up new, climate-friendly industries will be needed to sustain employment and investment. To enable a just transition, provision will have to be made for emissions-intensive sectors, if they are to be phased out over time. South African government has adopted a vision, strategic direction and framework for climate policy. Policymakers have begun to understand that the future will be carbon constrained and that South Africa's emission will have to stop growing, stabilize and decline before mid-century. The challenge of climate change is a long-term challenge, requiring immediate action. This article examines actions at near-, medium- and long-term timescales. Its focus is on the most transformative change, that of seeking to shift development paths.
Prior to 2020, the South African economy was facing major socio-economic challenges, struggling to eliminate poverty and reduce persistent inequality. The COVID crisis has deepened the financial crisis, with the last major agency putting the country's rating below investment grade, or 'junk status'. The recovery plan starts with rescue. The climate crisis is longer-term but still needs as urgent action as ever. The country is preparing to enhance its nationally determined contribution in an unprecedented context. Decarbonisation of the electricity sector is a priority – but in the SA context requires careful attention to communities and workers dependent on coal. The just transition transaction (JTT) is being developed in technical detail since 2019 by Meridian Economics (2020) and making the financial deal is work in progress. In brief, the transaction mobilises blended finance to fund the accelerated phase out of coal, thereby accelerating a transition from coal to renewable energy, and a portion of the concessional funds flows into Just Transition fund. This case study reflects on the JTT, seeking to understand its architecture, the potential to catalyse changes in the complex set of challenges in the electricity sector, by funding accelerated phase-out of coal and a just transition in South Africa, with broader implications for international climate finance. The time-scale of developing the transaction is fluid, while implementation of decommissioning would take many years. The purpose of the study is to understand the potential of a just transition transaction to accelerate the phase out of coal-fired power and to fund development projects. The purpose requires a specific focus, and it is important to understand what is included in the scope of this case study, and what lies beyond that scope.
A fair, effective, flexible and inclusive climate regime beyond 2012 will need several political balances. Mitigation and funding will be at the heart of the agreement. The IPCC's Fourth Assessment Report indicates that absolute reductions will be needed in Annex I (AI) countries and substantial deviation from baseline in some non-Annex I (NAI) regions by 2020. Although the latter was not explicitly quantified by the IPCC, the EU subsequently proposed a range for developing countries. Sharing the burden for mitigation is essentially zero-sum: if one does less, the other has to do more. We critically examine the implicit assumption that NAI countries would pick up the remainder of the required global effort minus the AI contribution. We suggest that greater levels of ambition can be achieved by turning the formula around politically, starting from the achievable 'deviation below baseline' given NAI's national programmes and appropriate international support. AI countries may have to exceed the IPCC ranges or pay for the remainder. For notional levels of NAI mitigation action, Annex I has to reduce by between –52% and –69% below 1990 by 2020, only dropping to a domestic –35% with commitments to offset payments through the carbon market. Given the large mitigation gap, a political agreement on the question of 'who pays' is fundamental. The carbon market will provide some investment, but it mainly serves to reduce costs, particularly in developed countries, rather than adding to the overall effort. Market-linked levies and Annex I public funding will therefore be crucial to bridge the gap.
This paper documents South Africa's electrification programme from the late 1980s to the present. The primary aim of the paper is to present the reader with an overview of the policy, institutional, planning, financing and technological developments and innovations that resulted in more than 5 million households receiving access to electricity between 1990 and 2007. Key aspects include the way in which a period of political change and policy disruption were essential to the programme's initiation, and the critical role played by organisations and individuals outside of national government in helping shape new electrification policies and strategies. In addition, the paper identifies the contribution of technology development in cost reduction and achieving the social aims of the programme. Several lessons may be drawn from the institutional and planning arrangements that the South African programme has developed, the significance of the development of appropriate cost-driven technical innovations and standards, and the acknowledgement of the social function of electrification and its funding from the fiscus (rather than through cross-subsidies).
