TOWARDS FINDING THE TAX INCIDENCE OF CARBON TAXES IN SOUTH AFRICA
Jan H van Heerden
Heinrich Bohlmann
OUTLINE OF THE PAPER
• The Problem• Possible Solutions• Previous Study• The Data• Adjusting the Model
• Policy Simulations• Results• Conclusion• Further work
THE PROBLEM• South Africa ranks amongst the first world countries in
the world in CO2 pollution, and its footprint looks bad
CO2 per capita: 1999
0
5
10
15
20
25
India
Mex
ico
Portu
gal
Slovak
Rep
ublic
Ita
ly
Poland
South
Afric
a
Korea
United
King
dom
Czech
Rep
ublic
Austra
lia
United
Sta
tes
Ton CO2 per capita
CO2/95 pppUS$ GDP: 1999
0
0,2
0,4
0,6
0,8
1
1,2
kg CO2/95 pppUS$ GDP
Emissions intensity
Source: International Environmental Agency (IEA). 2001. Key world energy statistics. Paris: IEA. (www.iea.org/statist/key2001/keyworld-2001.pdf)
GHG Emissions M-Tons - 2009
Rank Country M - ton %
1 China 7 711 25.40%
2 United States 5 425 17.80%
3 India 1 602 5.30%
4 Russia 1 572 5.20%
5 Japan 1 098 3.60%
6 Germany 766 2.50%
7 Canada 541 1.80%
8 Korea, South 528 1.70%
9 Iran 527 1.70%
10 United Kingdom 520 1.70%
11 Saudi Arabia 470 1.50%
12 South Africa 450 1.50%
13 Mexico 444 1.50%
14 Brazil 420 1.40%
15 Australia 418 1.40%
16 Indonesia 413 1.40%
17 Italy 408 1.30%
18 France 397 1.30%
19 Spain 330 1.10%
20 Taiwan 291 1.00%
21 Poland 286 0.90%
POSSIBLE SOLUTIONS
1. Carbon Emissions Tax
Actual measured emissions; or
2. Proxy tax bases:
A. Fossil Fuel Input (Upstream): where fuels enter the economy based on the carbon content of the fuel.
B. Output Tax (Downstream): (i) At point where fuel is combusted.
(ii) May be based on average emissions of production processes.
Previously
• In 2004/5 the Dutch government funded a project (PREM) to search for double dividends in the environment and economy of South Africa.
• We used a static CGE model to simulate the effects of carbon, fuel and energy taxes in the country.
• We found triple dividends with some tax and recycling combinations (environment, economy and poverty)
• Van Heerden, et al., Searching for Triple Dividends in South Africa: Fighting CO2 pollution and poverty while promoting growth, The Energy Journal, 2006
This paper
• Gives preliminary results of a World Bank project to search for double dividends in the environment and economy of South Africa.
• We use a dynamic CGE model to • expand the electricity industry from being a single
producer and distributor of electricity to a few generators and one distributor, and
• simulate the effects of a fuel input tax in the country.
THE DATA (1)
• Updated 2011 database of South Africa
• Core data taken from the 2011 SU tables (StatsSA)
• Database aggregated to 45 sectors, with the electricity
sector then split between 8 generators and 1
transmitter/distributor based on available data.
THE DATA (2)
Electricity Supply, R
Leontief
up to Electricity Other costs Primary factors
CES
Good 1 (not electricity)
Imported Good 1
Domestic Good 1
CES
Good N (not electricity)
Imported Good N
Domestic Good N
CES
Land Labour Capital
CES
Labour type 1
Labour type O
up to
CES
Good 1 from region 1
Good 1 from region 2
Good 1 from region R
up to Labour type 2
NEM
CES
Generation 1, NEM region 1
Generation M, NEM region 1
Generation M, NEM region N up to
Source: MMRF document from http://www.copsmodels.com/archivep.htm#tppa0080
Database split of the electricity sector
• We used the procedure followed by the MMRF model of CoPS:
• Database split.docx
THE MODEL (1)
• Change in revenue dR= T.dX + X.dT • T is rate and X is base
• But % change in X is x = 100*dX/X
• Therefore dR = TxX/100 + X.dT• = Rx/100 + X.dT• dR affects government revenue and dT all prices
THE MODEL (2)• ! Leontief demand for inputs !
• Equation E_x1_sa # Demands for commodity composites # (all,c,COM)(all,i,IND52) x1_s(c,i) - [a1_s(c,i) + a1tot(i)] = z(i);
• Equation E_x1_sb # Demands for commodity composites #(all,c,COM45) x1_s(c,"ElecSup") - [a1_s(c,"ElecSup") + a1tot("ElecSup")] = z("ElecSup"); ! CES demand for inputs !
• Equation E_x1_sc(all,c,GEN) x1_s(c,"ElecSup") - a1_s(c,"ElecSup")
• = z("ElecSup") - SIGMAGEN(c)*[p1_s(c,"ElecSup") + a1_s(c,"ElecSup") - p1_gen];
POLICY SIMULATIONS
• The modelling exercises focus on two pieces of government policy in South Africa
• Integrated Resource Plan (IRP) for Electricity (2010-2030)• http://www.doe-irp.co.za/content/IRP2010_updatea.pdf
• Carbon tax of R120/ton CO2e from 2016• http://www.thedti.gov.za/parliament/Reducing_greenhouse_gas.pdf
Baseline forecast (1)
Baseline forecast
RESULTS: Carbon tax/no recycling
CONCLUSIONS
• Implementing a CES demand function for generated electricity by the supplying industry causes a switch to green electricity but not nearly enough. Currently the supplier merely uses coal generated power much more efficiently and not enough substitution takes place.
• The carbon tax by itself – especially with all the exemptions for the first five years – is not enough. Regulation of coal generated power, as well as pro-active stimulation of green generation together with the tax will be necessary to reach the targets.