Minerals Council South Africa, the representative body for the mining industry in the country, has called on government to delay the implementation of the new carbon tax.
“The Minerals Council would like to see a delay of at least five years in the implementation of the carbon tax to allow sufficient time for government to address the design challenges and the finalisation of the appropriate regulations,” Minerals Council environment head Stephinah Mudau tells Mining Weekly.
“The Minerals Council embraces the industry’s obligation to lower emissions,” she assures. “Member companies have made significant progress in terms of implementing various mitigation options, including energy efficiency, a shift to renewable energy and the use of low- carbon-emissions technology, among others. Adaptation is equally important, as the mining industry is vulnerable to the impacts of climate change.”
The US Tax Policy Center explains the carbon tax concept thus: “Emissions of carbon dioxide and other greenhouse gases (GHGs) are changing the climate. A carbon tax puts a price on those emissions, encouraging people, businesses and governments to produce less of them.”
It is not clear who originally came up with the idea of a carbon tax. The first country in the world to implement such a tax was Finland in 1990, followed by Poland that same year. The first emerging- market country to implement a carbon tax was Mexico in 2014, followed by Chile in 2017 and then, at the start of this year, Argentina. South Africa is poised to be next.
In a briefing last month, Mudau pointed out that the South African economy had not achieved, and was not achieving, its projected growth rates. Consequently, the country was likely to see its GHG emissions decline by 13% to 14.5% by 2025 and by 26% to 33% by 2035 without the carbon tax being implemented. The reductions would bring South Africa’s GHG emissions below the national benchmark trajectory.
Meanwhile, mining in South Africa has become a marginal industry. While its input costs in rand terms rose at a yearly average rate of 8.2% between 2013 and 2018, its selling prices increased by an average of only 4.3% a year over the same period. Within the broader industry, it is the gold and platinum mining sectors that have been particularly stressed. In 2017, 69% of gold and 52% of platinum-group metals (PGMs) mines were operating unsustainably. Nevertheless, the gold and PGMs mines employed 287 970 people, or 62% of the country’s total mining workforce. A carbon tax of 10c for every litre of carbon dioxide would, if it had been applied in 2017, have caused a net loss of 3 703 direct jobs and 6 836 indirect jobs in the mining sector.
“The Minerals Council’s biggest concern with regard to the carbon tax is the design of the tax and the socioeconomic impacts that the tax will have on various sectors of the economy, including mining,” highlights Mudau. “It adds yet another layer to the industry’s already extremely heavy cost burden at a time when most of the mines that are the heaviest users of power – the deep-level gold and platinum mines – are already operating marginally or at a loss. This concern is exacerbated by the fact that, in our view, South Africa’s GHG emissions are already below levels required for the country to meet its obligation to reduce carbon emissions, and the carbon tax will not facilitate further reductions.”
“The call for a delay in implementing the carbon tax is very surprising,” says University of the Cape Town Energy Research Centre’s Professor Harald Winkler, speaking to Mining Weekly in his personal capacity. “The research into this was first commissioned by the National Treasury in 2003. The carbon tax is the result of a very long process. A carbon tax policy discussion document was circulated in 2013. A first draft Carbon Tax Bill followed in 2015, with a second draft published in 2017. There was a very extensive process of consultation.”
A carbon tax puts a price on GHG emissions, and so uses the power of price mechanisms to bring about change, he notes. The alternative to using taxation as a means of reducing GHG emissions is to introduce regulations to limit the quantity of emissions. “One would expect the private sector to prefer pricing, which is a powerful way of changing corporate behaviour.”
“The Minerals Council seems to oppose whichever climate change measures are proposed, whether carbon tax or budget,” he observes. “Other industry groups have shown similar attitudes. With sluggish growth, we’ve seen emissions not grow, but not decline. The carbon tax has been delayed for several years now by several Finance Ministers. I don’t understand why the Minerals Council opposes it.”
He stresses that, in practice, the carbon tax will be charged at a very low rate. On paper, it is set at R120/t of carbon dioxide equivalent, or tCO2-eq. (Carbon taxes are calculated per ton – that is, by mass, and not per litre, or volume, as the Minerals Council seems to have done, he points out.) In practice, the carbon tax will be far below that. “Companies will, in reality, be paying R48/tCO2-eq at most because of the allowances they can claim. Straight off, a basic 60% allowance will apply to all companies. But some companies will qualify for allowances that will total up to 95% of the tax, which means that they will be paying only R6/tCO2-eq. Our research shows that, to be effective, a carbon tax rate of R100/tCO2-eq to R200/tCO2-eq is needed. Even that level is probably too low, with a price of $40 to $80 needed by 2030 to achieve the Paris temperature target globally.”
The Minerals Council has other concerns, which are centred on regulatory and reporting matters. In her media briefing, Mudau pointed out that South Africa’s carbon offsets regulations were still at the consultation stage, while performance benchmark regulations and trade exposure regulations had not even entered the consultation stage. The proposed renewable- energy premium had not been published, which meant that mining companies could not determine the total costs they would have to bear. The reporting system for GHGs, essential for verifying GHG emissions, had not been finalised. Moreover, the carbon-tax payers and the GHG reporting entities were not aligned. All this meant that the carbon-tax payers still faced considerable uncertainty about their actual tax liabilities. However, Winkler points out that a carbon offsets paper was published in 2014, although he questions the environmental integrity of such measures.
The Minerals Council further argues that there is a lack of alignment between the polices of the relevant government departments. Despite government assurances, the National Treasury’s carbon tax policy still does not align with the Department of Environmental Affairs’ (DEA’s) proposed carbon budget system, which forms part of the draft Climate Change Bill. Further, while the carbon tax is meant to be administered in terms of the Customs and Excise Act, the carbon tax period and the Customs and Excise Act accounting period are not aligned.
Winkler observes that the National Treasury and the DEA have clarified that, once there is a legal basis for carbon budgets, the tax will apply to emissions above that level. He argues that marginal emissions will need to have a higher tax rate.
Government intends to implement the carbon tax in phases. Phase 1 will run from June 1 this year, when the tax is to be implemented, to December 31, 2022. The tax allowances that companies will be able to claim will apply during this period. Phase 2 will then run from 2023 to 2030. During Phase 2, the various tax allowances will be reduced in stages. The Minerals Council has notes that, although government has promised consultations on the Phase 2 regime, these have not yet started. This hampers corporate planning with regard to future tax liabilities and acts as another constraint to investment. “The Minerals Council would like to see an extended Phase 1 period where, in effect, there are no additional costs imposed on the industry and on the economy as a whole,” affirms Mudau to Mining Weekly.
But Winkler observes that all these points were raised previously – in more than a decade of consultation on these matters. “The time for urgent action on climate change is now,” he says. “If the Minerals Council still opposes the carbon tax, what measures [does it] propose? Simply claiming that the mining industry is taking voluntary action without any clear targets and measuring, reporting and verifying progress in quantitative ways is no longer a defensible position.”
The Minerals Council sums up its position on the carbon tax in a brochure it published recently. “A good cause (the battle against climate change) pursued through the wrong method (carbon tax) at the wrong time (a time of already deep financial stress),” it says. “While the Minerals Council embraces the notion of long-term carbon pricing and various mechanisms to facilitate the transition to a low-carbon economy, we are of the view that the carbon tax has the potential to erode profitability by increasing costs and, hence, result in a shrinking sector. The result . . . would be further job losses, which would further exacerbate South Africa’s structurally high unemployment rate.”