Comments on the Carbon Tax Policy Paper issued by National Treasury in May 2013

"Climate change is real and already being observed – and it is a problem with some specific features. Climate change is a long-term problem requiring urgent solutions. For South Africa and globally, it is primarily an energy problem, that is, reducing GHG emissions from the use and supply of energy. Given how central energy (and forests in some countries) are to economic activity, that means climate change is not only an environmental problem, but deeply a question of our socio-economic development path. And it is not a question we can escape: because even if the costs of climate action might seem large, the one thing we do know about the costs of inaction is that they are even larger, and would be paid mostly by the poor. Climate change is also a collective action problem – solutions only work if all countries act, and resist the temptation to free-ride on the efforts of others. This does not mean that all countries need to do exactly the same. The key task of developing countries over the next decade, is to slow the growth of our emissions. It is necessary to now start to shift very large systems, to avoid being locked into a high-emissions, high-climate-impact world. This includes investments in infrastructure with long life-times, but about which decisions are being made now. We understand the approach to introducing the system in a phased manner. But then the design needs to be more ideal, and appropriate to at least starting to bend the emissions curve. Given the low levels of the tax, the certainty and simplicity of absolute thresholds, and the greater marginal mitigation effect that can be achieved with the same burden to firms (unless emissions grow), there is a compelling case at low effective tax rate to apply absolute thresholds at the outset. Such thresholds could be agreed as part of a process of determining eligibility for transitional assistance."