Should South Africa tax carbon emissions?

Since it is the poorest continent, produces less than 4 percent of global greenhouse gas emissions, and was not responsible for the build-up of CO2 in the atmosphere, there is a strong case that Africa should not have to constrain its growth by mitigating greenhouse gas emissions in the future.  The one exception may be South Africa, which produces 65 percent of Africa’s (and 1.5 percent of the world’s) emissions and, as a middle-income country, may have the capacity to curb emissions in the future.  In a recent paper, Delfin Go, Sherman Robinson, Karen Thierfelder and I explore the costs to the South African economy of a tax on carbon emissions. 

Noting that South Africa’s energy is heavily skewed towards coal, we compare a “pure” carbon tax as well as various proxy taxes such as those on energy or energy-intensive sectors like transport and basic metals, all of which achieve the same level of carbon reduction.  We find that the more targeted the tax to carbon emissions, the lower the costs to the economy. If a carbon tax is feasible, it will have the lowest cost by a substantial amount when compared to alternative tax instruments.  If the revenue generated by the tax can be used to reduce pre-existing tax distortions, the net welfare cost becomes negligible. Moreover, if South Africa were able to remove some of the other distortions in the economy, such as those that create high unemployment, the cost of carbon taxation would be negligible. In sum, the discussion of carbon taxation in South Africa can focus on considerations other than the economic costs, which are likely to be quite low.