Aug

Cleaner Fuels and Carbon Taxes

2011-08-01 15:10
The green light for the envisaged 400 000 bpd refinery at Coega is still being awaited from the Energy Minister Dipuo Peters

AT THE TIME of writing we are not much wiser or better informed as to when a firm decision will be taken on what and which cleaner fuel(s) will be imported or locally produced and when this will actually take place. The 60 days for comment is long past and all we have is that the DME is optimistic it can finalise the road to cleaner fuels before the end of December this year.

Energy minister Dipuo Peters has still to announce if she is satisfied that the incoming PetroSA CEO (when a permanent appointment is made) is sufficiently up to scratch to take on the mammoth task of building and completing the envisaged 400 000 bpd refinery near Coega. Her decision will be crucial if the green light is to be given for the go ahead.

While we ponder the outcome of the cleaner fuels roadmap, serious discussions about the introduction of carbon taxes are taking place between the Treasury, vehicle manufacturers and transport industry stakeholders. The recent Workshop convened by the Transport Forum in Johannesburg during early June provided some useful insights as to how the Treasury is planning its strategy to determine what it calls a transparent approach that is reasonable and fair to everyone including the less well off in the country.

Two presentations by Treasury researchers and analysts inform us that the level of taxation must not only be acceptable and affordable to our local industries but also internationally. As an example, should our carbon tax structure be seen to be prohibitive when it comes to importing goods and products, South Africa could be open to retaliatory taxes.

Regarding the question of affordability, the Treasury’s view suggests a level of taxation that ensures consumers react responsibly to the need to curb green house gases (GHG). In other words, if the tax is too low, the country will not succeed in reaching its target thus making us extremely unpopular and vulnerable.

The discussions made the obvious point in that now is the time to start taking on board greener technologies by way of hybrid and electric vehicles as examples. Greater use of biofuels and efforts to develop greener technologies and practices are called for. “We need to keep in mind that our economy will grow but so will the environmental challenges,’ says the Treasury.

Government interventions will include regulations, standards and taxes even although the OECD defines environmental taxes as being detrimental to the established tax base. Nonetheless, government believes that performance and technical standards along with pollution taxes will obligate polluters to reduce GHG by preventing and controlling such emissions. The DME is planning to introduce a national energy efficiency programme to regulate energy efficiency matters with options for developing taxes on certain fuels to encourage greater fuel efficiency and energy conservation. This, it is hoped, will be a powerful incentive for consumers and business to adjust their behaviour and level the playing field between fossil and biofuels.

Whatever the outcome of the ongoing deliberations, carbon taxes will be imposed. Possible methods to implement and administer these taxes are likely to be one of the following options:

  • Upstream: Levied on the import of, or production of feedstocks (crude oil, coal, etc) as an input tax. This option is easy to administer due to the relatively small number of importers and producers. However, it is difficult to determine a suitable tax on the different products derived from the feedstocks (diesel, petrol, paraffin, jet fuel are examples)
  • Downstream: Levy the tax on specific products at refineries and distributors as an output tax. This option is not so simple to administer due to the diversity of downstream sources. This especially so when mines, utilities and other entities are included
  • Piggybacking: Piggybacking environmental taxes on existing taxes is expected to be much cheaper to implement and administer. Think back on the introduction of perks tax. Government imposed responsibility on employers to set up the mechanism to collect the taxes. Another example is the management of foreign exchange for business transactions and travellers being devolved to commercial banks.

Lastly much thought is being given to finding the “correct’ level when the tax is introduced and whether it should start at a modest level increasing annually until the correct level is determined. It is expected that the initial targets to reduce GHG will not be achieved until the taxes kick in with better response from everyone concerned. With this in mind, consideration is being given to following the US and Australia where reporting the carbon footprint is mandatory. Fixing the level of taxation is complicated since determining even the average emissions that come out of the exhaust pipe is not an exact science.

Any estimate of the opening tax factor would be pure speculation. These comments are a mere snippet of the research and development of this matter already undertaken by the Treasury. If you are interested to gain access to more detail, go to the National Treasury’s website and search for Discussion paper for public comment –Reducing Greenhouse Gas Emissions: The Carbon Tax Option.

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