Tax Policy to Reduce Carbon Emissions in South Africa

36 Pages Posted: 20 Apr 2016

See all articles by Shantayanan Devarajan

Shantayanan Devarajan

World Bank Middle East and North Africa Region

Delfin S. Go

Development Prospects Group, The World Bank

Sherman Robinson

International Food Policy Research Institute (IFPRI)

Karen Thierfelder

United States Naval Academy - Department of Economics

Date Written: May 1, 2009

Abstract

Noting that South Africa may be one of the few African countries that could contribute to mitigating climate change, the authors explore the impact of a carbon tax relative to alternative energy taxes on economic welfare. Using a disaggregate general-equilibrium model of the South African economy, they capture the structural characteristics of the energy sector, linking a supply mix that is heavily skewed toward coal to energy use by different sectors and hence their carbon content. The authors consider a"pure"carbon tax as well as various proxy taxes such as those on energy or energy-intensive sectors like transport and basic metals, all of which achieve the same level of carbon reduction. In general, the more targeted the tax to carbon emissions, the better the welfare results. If a carbon tax is feasible, it will have the least marginal cost of abatement by a substantial amount when compared to alternative tax instruments. If a carbon tax is not feasible, a sales tax on energy inputs is the next best option. Moreover, labor market distortions such as labor market segmentation or unemployment will likely dominate the welfare and equity implications of a carbon tax for South Africa. This being the case, if South Africa were able to remove some of the distortions in the labor market, the cost of carbon taxation would be negligible. In short, the discussion of carbon taxation in South Africa can focus on considerations other than the economic welfare costs, which are likely to be quite low.

Keywords: Environmental Economics & Policies, Transport Economics Policy & Planning, Taxation & Subsidies, Energy Production and Transportation, Environment and Energy Efficiency

Suggested Citation

Devarajan, Shantayanan and Go, Delfin S. and Robinson, Sherman and Thierfelder, Karen, Tax Policy to Reduce Carbon Emissions in South Africa (May 1, 2009). World Bank Policy Research Working Paper Series, Vol. , pp. -, 2009. Available at SSRN: https://ssrn.com/abstract=1407951

Shantayanan Devarajan (Contact Author)

World Bank Middle East and North Africa Region ( email )

1818 H Street, NW
Washington, DC 20433
United States

Delfin S. Go

Development Prospects Group, The World Bank ( email )

1818 H Street
Washington, DC 20433
United States

Sherman Robinson

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

Karen Thierfelder

United States Naval Academy - Department of Economics ( email )

589 McNair Road
Annapolis, MD 21402
United States

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