The Economic Implications of Introducing Carbon Taxes in South Africa

Theresa Alton, Channing Arndt, Rob Davies, Faaiqa Hartley, Konstantin Makrelov, James Thurlow, Dumebi Ubogu
2012 unpublished
South Africa is considering introducing carbon taxes to reduce greenhouse gas emissions. We evaluate potential impacts using a dynamic economy-wide model linked to an energy sector model. Simulation results indicate that a phased-in carbon tax that reaches US$30 per ton of CO 2 by 2022 achieves the ambitious national emissions reductions targets set for 2025. Relative to a baseline with free disposal of CO 2 , constant world prices and no change in trading partner behaviour, the preferred tax
more » ... the preferred tax scenario reduces national absorption and employment by 1.2 and 0.6 per cent, respectively, by 2025. However, if South Africa's trading partners unilaterally impose a carbon consumption tax then welfare and employment losses exceed those of a domestic carbon tax. Border tax adjustments improve welfare and employment while maintaining the same emissions reductions. The mode for recycling carbon tax revenues strongly influences distributional outcomes, with tradeoffs between growth and equity.
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