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CAN A CARBON TAX WORK?

Categories: HEADLINES, Environment & Bio-diversity
All indications are that South Africa will be getting a carbon tax – sooner than later, everything considered! With the tax burden already being high with government seemingly needing more money all the time, the general feeling is that government only wants more money from taxpayers and that it is not really about carbon emissions or climate change at all…

 

August and therefore woman’s month have come and gone. Question is: “Will it have a lasting impact on the lives of women?” I would like to believe it will – but only time will tell.

Although not completed as yet, thank-you to all those who complimented on the series of member-newsletters covering energy audits. Initial concerns that some may find it boring seem to be unfounded, with almost everyone learning or finding something useful.

There are those who believe that a way to manage carbon emissions is to introduce a carbon tax. The so called stick approach. There are others who are very quick to point out that it did not work in Australia and in other countries. However, no formal studies are available to provide an insight on why it did not work or if it really did not work? Is a carbon tax bad for a country and therefore for the world in general?

In 2008, the British Columbia Liberal Party introduced a tax on the carbon emissions of businesses and families, cars and trucks, factories and homes across the province. The party stuck to the tax even as the left-leaning New Democratic Party challenged it in provincial elections the next year under the slogan “Axe the Tax”. The conservatives won soundly at the polls.

Their experience shows that cutting carbon emissions enough to make a difference in preventing global warming remains a difficult challenge. But the most important takeaway for sceptics is that the policy basically worked as advertised.

British Columbia’s economy did not collapse. In fact, the provincial economy grew faster than its neighbours’ even as its greenhouse gas emissions declined. “It performed better on all fronts than I think any of us expected,” said Mary Polak, the province’s environment minister. “To the extent that the people who modelled it predicted this, I’m not sure that those of us on the policy end of it really believed it.” The tax, which rose from 10 Canadian dollars (±R111.68) per ton of carbon dioxide in 2008 to 30 dollars (±R335.00) by 2012, reduced emissions by 5 to 15 percent with “negligible effects on aggregate economic performance,” according to a study last year by economists at Duke University and the University of Ottawa.

The tax made fuel more expensive: A litre of gas, for example, costs 73 South African cents more. It encouraged people to drive somewhat less and be more careful about heating and cooling their homes. Businesses invested in energy efficiency measures and switched to less polluting fuels. Despite the price increases, voters warmed to the tax. Last year only 32 percent of British Columbians opposed the tax, down from 47 percent in 2009. Perhaps most surprisingly, so did big business. And for good reason. As it turns out, a carbon tax is the most efficient market-friendly instrument available against climate change.

“We were not very happy when it was first announced,” said Jock A. Finlayson, head of policy at the Business Council of British Columbia. “Now, within the business community there is a sizable constituency saying this is O.K.” Christopher Knittel, an expert on energy economics at the Massachusetts Institute of Technology, said a properly calibrated carbon price could effectively replace all the climate-related regulations businesses hate. That would create a clear incentive for businesses and consumers to use less fuel, invest in energy efficiency and switch to cleaner energy. The only other necessary action, in Professor Knittel’s view, would be more government support for research and development to accelerate the quest for new energy technologies.

In British Columbia, however, it wasn’t the efficiency argument alone that won people over. The pioneering legislation provided critical political cover by ensuring every single carbon tax dollar would be returned to families and businesses through a variety of breaks. The government plan to return about 1.7 billion Canadian dollars to businesses and families this year, more than the 1.2 billion dollars it expects to be collect though the carbon tax, which amounts to roughly 5 percent of the province’s total tax revenue.

With few exceptions, British Columbia’s carbon tax is the steepest and broadest in existence. While that sets British Columbia apart as a leader on the cutting edge, it is also part of its problem. For the policy to work best, it needs the rest of the world to catch up. Local leaders now recognise that they probably have to do more. Carbon emissions started rising again after the province froze the tax at 30 Canadian dollars in 2012. The tax needs to continually increase annually. This is where the support from business starts to break down. If British Columbia were to proceed on its own without providing some form of protection to its energy intensive industries, Mr. Finlayson argued, they would simply lose markets to producers outside its borders that pay lower or no carbon tax.

British Columbia could do with some help from the rest of the world. A huge number of countries, at COP21 in France last year, committed to cutting carbon emissions. The USA and China formally accepted and committed to such this past weekend. Many have carbon prices either pending or in place, though they are generally much lower. If more embraced a carbon tax, they would mitigate many of the concerns over competitiveness. In other words: “if everyone has it, no-one will unfairly benefit”.


That, however, would require everyone to recognise that the threat of climate change is not simply a hoax. That a carbon tax, if applied and used correctly, can work and be beneficial in many more ways than expected! One being job creation in the (our) green economy! If they do, British Columbia showed there is a market friendly way to do something about it. Will South Africa follow suit? Perhaps we will be forced to…

Warm Regards
Karel Steyn

SAEE President

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