Climate Change
Friday, 12 October 2012 10:20

Carbon tax: active engagement is critical

The active engagement of CO2-emitting companies will be critical as the government prepares a White Paper on Carbon Tax.

A study produced by Frost & Sullivan, the global growth partnership company, reveals that the active engagement of CO2-emitting companies will be critical as South Africa prepares its White Paper on Carbon Tax. Informed industry adaptation will be imperative to survive the proposed new legislation.

Currently the South African industry is extremely coal-reliant, with an estimated 90% of CO2 emissions resulting from coal production. The entire economic system is geared towards coal dependency, with an abundance of relatively inexpensive natural resources.

Various options are now being investigated to accelerate moving away from this dependency. The proposed carbon tax will have significant financial consequences for selected industries in South Africa who are either unprepared to implement the carbon tax or unable to mitigate its effects.

A new analysis from Frost & Sullivan (http://www.energy.frost.com), Analysis of the Carbon Tax Market, investigates the impact of this tax as well as the current and future factors that industry players need to be cognisant of in order to prepare future budgets and strategies to survive the proposed tax.



“The ultimate competitiveness of South African businesses affected by the proposed carbon tax needs to be urgently evaluated – not only by the relevant business, but also by government,” said Frost & Sullivan’s Team lLeader for e=Energy and Power, Johan Muller. “As an investment destination, South Africa stands to be seriously affected by the proposed carbon tax if the status quo is upheld.”

South Africa is a developing country with a hybrid economy attracting foreign investors for a variety of reasons (generally, the relatively low cost of operation and resource availability). By imposing a carbon tax, the economic results would vary greatly, depending on the industry.

“Certain industries, motivated by profit considerations, would open plants in other countries where there is no (or less) carbon taxation, since the carbon tax would effectively influence their competitiveness to a great extent,” said Muller. “Other companies not being able to pass on the cost to the consumer may have to close down.”

The consumer will also be affected negatively should the full price increase be passed onto them by certain industries that have indicated their inability to shoulder the new financial burden imposed by the tax. This will have negative effects on various developmental levels in South Africa.

“Businesses need to understand the elasticity of their product, possible mitigating options of the carbon tax, their specific market share and growth paths,” advised Muller. “Subsequent to a complete analysis of the business, submissions should be made to the government at the appropriate time in order to provide input regarding the direction of the carbon tax. This would have the result of possibly affecting some exemptions and taxation scales in favour of the specific industry, to not only protect the specific industry, but also the South African economy as a whole.”

Informed industry adaptation will be imperative to survive the proposed carbon tax. Strategies for the medium-to long-term should include in-depth discussions and evaluations of certain liabilities, as well as potential liabilities such as the carbon tax.

Anyone interested in gaining more information on this study should send an e-mail with their contact details to Samantha James, corporate communications, at This email address is being protected from spambots. You need JavaScript enabled to view it..