S. Africa May Lower Power Levy to Curb Carbon-Tax Effect

South Africa is considering reducing duties on power from non-renewable sources to counter the effects of a planned carbon-emissions tax on growth, the National Treasury said.

“The impact on the country’s economic growth is shown to be largely neutral if accompanied by effective revenue-recycling measures,” the Pretoria-based Treasury said in an e-mailed statement today. “One of the ways to recycle the expected carbon tax revenue is by reducing other taxes.”

A duty of 120 rand ($13) per metric ton of carbon will apply on 40 percent of a company’s emissions from Jan. 1, 2015, rising by 10 percent each year through 2020. The effective tax rate will range from 12 rand to 48 rand per ton once the tax-free thresholds and other relief measures are accounted for, the Treasury said. It may lower an existing levy on electricity made from coal and nuclear energy, it said. South Africa produces 80 percent of its power from coal.

The country delayed introducing the carbon tax from April this year after metals companies such as ArcelorMittal South Africa Ltd. and Gold Fields Ltd. objected. The nation in 2009 said it would try to cut emissions 34 percent by 2020 on condition that developed countries offer money and technical assistance. South Africa released 547 million tons in 2010, and the transport, oil refining and power generation industries comprised more than 80 percent of emissions in 2000, the Treasury said.

South Africa will raise about 15 billion rand annually from the tax, Cecil Morden, the chief director of tax policy at the Treasury, told reporters at the release of the carbon tax discussion policy paper in Pretoria today.

Emissions Trading

The government of Africa’s biggest economy will investigate the feasibility of an emissions-trading system, which will complement the proposed carbon tax by 2025 or sooner, the Treasury said.

“An emissions-trading system needs a certain number of traders and sufficient trading volumes for the market to operate efficiently,” it said. “The oligopolistic market structure of the energy sector in South Africa may fail to meet these requirements which make the market very ‘thin’.”

The lack of a viable number of industry players “is likely to limit the opportunities for domestic trade in a purely South African trading scheme,” it said.

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