Analysis of the Economic Implications of a Carbon Tax
"Why might South Africa consider a carbon tax? The purpose would be to reduce greenhouse gas(GHG)emissions. A carbon tax would achieve this through two broad effects – a demand effect, reducing energy demand due to higher prices, and a substitution effect, with switching from more to less carbon intensive fuels. The implications and impact of a carbon tax in the South African context – it aims to serve as an introduction rather than an exhaustive analysis, and therefore does not draw any comparative conclusions on the suitability of a carbon tax by comparison with alternative instruments such as cap and trade systems. Before turning to the specific topic of this paper, a carbon tax, some background is given on economic instruments and carbon markets. Following this, existing attempts to model the impact of a carbon tax on the South African economy are discussed, followed by a discussion on policy challenges and some existing proposals."