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South Africa: Carbon tax plan including RE targets and incentives

The national treasury has been given a mandate to investigate the introduction of a carbon tax as well as a cap-and-trade system that will form part of the government's strategy to build a climate change policy.
The form of the tax has not been defined yet, but it is envisaged that it will start at low levels and escalate to higher levels by 2018.

The carbon tax proposal was first outlined in a May government study that mapped out scenarios for mitigating emissions, which were projected to quadruple by 2050 from a base of 440 million tons in 2003.

The plan, endorsed by the cabinet last week, was announced yesterday by environmental affairs and tourism minister Marthinus van Schalkwyk, who believed that it would be viewed by the world as "quite progressive", especially for a developing country. The government warned that more stringent mandatory targets for energy efficiency were on the way, and promised ambitious targets for renewable energy.

The climate change proposal would substantially change the structure of the economy over the next four decades, said Van Schalkwyk.

South Africa's reliance on coal to generate electricity makes it one of the world's dirtier emitters of carbon dioxide and other greenhouse gases per capita. But the framework proposes a policy that favours sectors using less energy per unit of economic output - a fundamental departure from policy that marked South Africa as a cheap investment destination for large users of electricity.

According to the plan, more ambitious and mandatory energy efficiency targets will be set with the input of industry. This year most of Eskom's 138 largest industrial users have had to cut electricity usage by 10 percent.

The plan proposes to incentivise renewable energy through a feed-in tariff, due to be finalised by the middle of next year. It will set undefined targets for electricity generated from renewable and nuclear sources within two decades.

It proposes setting targets for cutting transport emissions via stringent and escalating fuel efficiency standards, passenger modal shifts towards public transport, and aggressively promoting hybrid and electric vehicles. It suggests diversifying the energy mix away from coal, while shifting to cleaner coal.

A more concrete climate change policy is expected next February, while a final policy is due to be adopted at the end of 2010, after international talks for a global climate change pact in Denmark at the end of next year. Van Schalkwyk said the government was committed to a full legislative, regulatory and fiscal package on climate change by 2012.

South Africa's goal is for absolute emissions to peak between 2020 and 2025, to stabilise for a few years, and thereafter to decline. For the next decade or more, absolute annual emissions will grow from about 450 million tons of carbon dioxide equivalent to about 550 million tons, partly due to Eskom's continued reliance on coal in its new build programme.

The government's target falls in line with its position earlier this month at the Group of Eight summit in Japan, where Van Schalkwyk strongly criticised developed countries for falling short of commitments required to prevent catastrophic global warming that would result if average world temperatures rose more than 2°C above pre-industrial levels.

Van Schalkwyk said yesterday that mitigating climate change would cost less than having to adapt to it. Economy-wide modelling demonstrated that this could be undertaken without any job losses.

Additional information:
News date: 29/06/2008

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