Original Research

The economic and environmental effects of a carbon tax in South Africa: A dynamic CGE modelling approach

Jan Van Heerden, James Blignaut, Heinrich Bohlmann, Anton Cartwright, Nicci Diederichs, Myles Mander
South African Journal of Economic and Management Sciences | Vol 19, No 5 | a1586 | DOI: https://doi.org/10.4102/sajems.v19i5.1586 | © 2016 Jan Van Heerden, James Blignaut, Heinrich Bohlmann, Anton Cartwright, Nicci Diederichs, Myles Mander | This work is licensed under CC Attribution 4.0
Submitted: 03 May 2016 | Published: 09 December 2016

About the author(s)

Jan Van Heerden, University of Pretoria, South Africa
James Blignaut, University of Pretoria, South Africa
Heinrich Bohlmann, University of Pretoria, South Africa
Anton Cartwright, African Centre of Cities, University of Cape Town
Nicci Diederichs, Futureworks Consulting
Myles Mander, Futureworks Consulting

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Abstract

The economic and environmental effects of a carbon tax in South Africa: A dynamic cge modelling approach
South Africa’s National Treasury released its Carbon Tax Policy Paper in May 2013. The paper proposed a R120/tCO2-equiv. levy on coal, gas and petroleum fuels. Here, we model the possible impacts of such a tax on the South African economy using the computable general equilibrium (CGE) 53-sector model of the University of Pretoria’s Department of Economics. The model shows that the carbon tax has the capacity to decrease South Africa’s greenhouse gas (GHG) emissions by between 1 900MtCO2-equiv. and 2 300MtCO2-equiv. between 2016 and 2035. The extent of emissions reductions is most sensitive to the rate at which tax exemptions are removed. Recycling of carbon tax revenue reduces the extent of emissions reductions due to the fact that economic growth is supported. The manner in which carbon tax revenue is recycled back into the economy is therefore important in terms of the extent of emissions reductions achieved, but not as significant as the influence of different exemption schedules. The model shows the carbon tax to have a net negative impact on South Africa’s gross domestic product (GDP) relative to the baseline under all exemption regimes and all revenue recycling options assessed. The negative impact of the carbon tax on GDP is, however, greatly reduced by the manner in which the tax revenue is recycled. Recycling in the form of a production subsidy for all industries results in the lowest negative impact on GDP.


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Crossref Citations

1. Greening the South Africa’s Economy Could Benefit the Food Sector: Evidence from a Carbon Tax Policy Assessment
Sifiso M. Ntombela, Heinrich R. Bohlmann, Mmatlou W. Kalaba
Environmental and Resource Economics  vol: 74  issue: 2  first page: 891  year: 2019  
doi: 10.1007/s10640-019-00352-9