Transcript enerbal show - Energy Research Centre (UCT)

Presentation at a side event on PUTTING A PRICE ON CARBON at the
2009 Climate Change Summit
Tuesday 3 March 2009
A Carbon tax for South Africa?
Andrew Marquard and Harald Winkler
Energy Research Centre
University of Cape Town
ERC
Why would we institute a carbon tax?
 To provide an economic incentive for reducing GHG
emissions
 This would (ideally) have two effects:
 A demand effect, which would incentivise
consumers to use less GHG-emitting goods and
services
 A substitution effect, which would incentivise
switching from more to less carbon-intensive
processes / energy carriers
 As a result, the economy would ultimately shift from a
high-carbon to a low-carbon economy (ideally
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Is it this easy?
Not very:
 Need to make important decisions, such as:
 scope of tax (which sectors and gases to include)
 tax level (how many Rands/ton of CO2-eq)
 What to do with the revenue
 How to relate to other taxes (revenue neutrality)
 Different sectors respond differently, depending on
available lower-carbon alternatives and their costs
 Different parts of society are affected differently
(distributional effects), which needs to be taken into
account
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International experiences

Some international experience, especially in Scandinavian
countries, which imposed forms of carbon taxation from the
early 1990s

Drivers differed – GHGs, but also reducing income tax

Impact was to curb emissions growth (in comparison to
baseline) – did not lead to absolute emissions reductions

Imposed in a variety of ways (directly on emissions, partly on
energy content, etc)

Frequently, specific sectors were given lower rates or
excluded entirely (energy-intensive industries, power sector)

Other measures still required (energy efficiency and
renewables programmes and policies) – combination of these
measures in Denmark was most effective
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How would a carbon tax affect South Africa?
 Tentative answers to this question have been arrived at
though a number of modelling exercises:
 The Long-Term Mitigation Scenarios process used
both an energy model and an economy-wide
model to investigate the effect of a carbon tax
 NIRP3 modelled the impact of a carbon tax on the
electricity system
 Other economic studies (Van Heerden et al 2006)
 Models have limitations, but are good at providing an
insight into the response of the economy / energy
system to a carbon price
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Impact of a CO2 tax on emissions (2003 Rands)
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Marginal impact of tax levels (2003 Rands)
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LTMS: Growth Without Constraints – power sector
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LTMS: impact of an escalating CO2 tax on the power sector
160
120
Solar tower
Wind
100
80
60
PWR nuclear
40
20
Existing coal
0
20
03
20
06
20
09
20
12
20
15
20
18
20
21
20
24
20
27
20
30
20
33
20
36
20
39
20
42
20
45
20
48
GW installed capacity
140
Existing coal
IGCC
PWR nuclear
Solar trough
Biomass
Mothballed coal
OCGT liquid fuels
PBMR
Solar tower
Pumped storage
Super critical coal
OCGT nat gas
Hydro
Solar PV
FBC
CCGT
Landfill gas
Wind
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LTMS: Growth Without Constraints – liquid fuels
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LTMS: impact of an escalating CO2 tax on the liquid fuels
sector
6000
5000
4000
3000
Existing synfuels
New crude oil
refineries
2000
1000
Existing crude
oil refineries
20
03
20
06
20
09
20
12
20
15
20
18
20
21
20
24
20
27
20
30
20
33
20
36
20
39
20
42
20
45
20
48
0
Existing crude oil refineries
New crude oil refineries
Existing synfuels
New synfuels, CTL
Biofuels
Gas to Liquids
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Other model results
 NIRP3 – modelled the electricity system, and found that
a tax level of R200/ton (2006 Rands) was sufficient to
incentivise low-carbon alternatives
 Economy-wide modelling:
 LTMS static modelling – tax above R200 has
negative economic effects, but distributive effects
are positive up to R200 (2003 Rands)
 LTMS dynamic modelling – impact of escalating
tax is economically positive, employment effects
positive
 Van Heerden et al – recycling revenue, e.g. food
price subsidies, leads to a ‘triple dividend’ (reduce
GHGs, grow economy and reduce poverty)
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Policy issues to be addressed
 More detailed investigation of the effectiveness of a
carbon tax in reducing GHG emissions
 Tax-setting and adjusting mechanisms
 Equity, distributional impacts and addressing poverty
and development
 Combining a tax with incentives and recycling of
revenues
 Legislative compatibility
 Technical and administrative viability, including the tax
base and definitions of taxable events
 Competitiveness effects and a structured approach to
energy-intensive exporting sectors
 Adjoining policy areas
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3 Key Issues: 1 – setting the tax level
 Problem is to set the lowest tax level which will achieve
policy aims, i.e. incentivise economic behaviour in
such a way that emissions follow a desired emissions
pathway
 Therefore need to know cost of mitigation, but this is
only know fully ex-post
 A solution to this problem is to have an adjustment
mechanism – set initial tax in accordance with
expected response, then adjust if emissions stray
outside of preset bands
 Carbon price would react to emissions levels, as in a
carbon market, premised on responsiveness of
economy
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Tax adjustment mechanism
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3 Key Issues: 2 – avoiding impacts on the poor
 Two impacts:
 Direct impacts – more expensive energy carriers,
especially electricity – households would use less
and potentially shift to more harmful fuels.
 Indirect impacts – structural effects, effect on
services such as transport
 Impacts best addressed by a) enhanced service
delivery programmes (household energy policy, energy
regulatory policy, transport) which have significant
sustainable development benefits, and b) options for
revenue recycling.
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3 Key Issues: 3 – energy-intensive industries
 Problem of current energy-intensive industries which
compete internationally – in South Africa, very energyinefficient – in some instances, unable to adjust to
higher energy prices
 Special dispensation is possible, but it should exclude
ALL new investments (this may create barriers to entry,
but less likely since industries are export-oriented)
 Price signal to consumers should be preserved
 Possible solution: Swedish solution – existing energyintensive industries can pay reduced tax or no tax in
exchange for embarking on MRVd energy efficiency
programme – can use international benchmarks
 Criteria would have to be carefully developed to avoid
exempting bulk of emissions
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Conclusion
 A carbon tax would incentivise emissions reduction,
but would require careful consideration of a number of
key issues, including:
 Tax level and mechanisms
 Impact on poor households
 Impact on energy-intensive industries
 Issues such as revenue-neutrality and revenue
recycling have a significant impact on the broader
effects of a carbon tax
 ‘partner programmes’ are important, will enhance the
response of the economy, cut costs for firms, and
offset negative impacts
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Thank you
Energy Research Centre
University of Cape Town
www.erc.uct.ac.za
ERC