The Economic Implications of Introducing Carbon Taxes in South Africa

UNU-WIDER 05/2012; WP/046.

Posted: 26 Nov 2014

See all articles by Channing Arndt

Channing Arndt

United Nations - World Institute for Development Economics Research (UNU/WIDER)

Theresa Alton

Independent

Rob Davies

Independent

Faaiqa Hartley

Independent

Konstantin Hristov Makrelov

Independent

James Thurlow

UNU-WIDER; International Food Policy Research Institute (IFPRI)

Date Written: May 2012

Abstract

South Africa is considering introducing carbon taxes to reduce greenhouse gas emissions. We evaluate potential impacts using a dynamic economy-wide model linked to an energy sector model. Simulation results indicate that a phased-in carbon tax that reaches US$30 per ton of CO2 by 2022 achieves the ambitious national emissions reductions targets set for 2025. Relative to a baseline with free disposal of CO2, constant world prices and no change in trading partner behaviour, the preferred tax scenario reduces national absorption and employment by 1.2 and 0.6 per cent, respectively, by 2025. However, if South Africa’s trading partners unilaterally impose a carbon consumption tax then welfare and employment losses exceed those of a domestic carbon tax. Border tax adjustments improve welfare and employment while maintaining the same emissions reductions. The mode for recycling carbon tax revenues strongly influences distributional outcomes, with tradeoffs between growth and equity.

Suggested Citation

Arndt, Channing and Alton, Theresa and Davies, Rob and Hartley, Faaiqa and Makrelov, Konstantin Hristov and Thurlow, James, The Economic Implications of Introducing Carbon Taxes in South Africa (May 2012). UNU-WIDER 05/2012; WP/046. , Available at SSRN: https://ssrn.com/abstract=2530899

Channing Arndt (Contact Author)

United Nations - World Institute for Development Economics Research (UNU/WIDER) ( email )

Katajanokanlaituri 6 B
Helsinki, FI‐00160
Finland

Theresa Alton

Independent ( email )

Rob Davies

Independent ( email )

Faaiqa Hartley

Independent ( email )

James Thurlow

UNU-WIDER ( email )

Katajanokanlaituri 6B
Helsinki, FIN-00160
Finland

International Food Policy Research Institute (IFPRI) ( email )

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

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