In an article on Scitizen, Prof Tim Haab raise an important question on carbon tax policy with important implications for South Africa as well:
Proponents of carbon taxes like to say that taxes are preferred over cap-and-trade because taxes raise revenue that can be used to reduce distorting taxes on labor and capital. If a country has a budget surplus or a minor deficit, we'd say OK. But there is prima facie evidence that taxes on labor and capital are too low, not too high. In the U.S. we have a big budget deficit that is basically a big tax increase on our kids and grandkids. This big tax increase is discounted away, sure, but we think it is an important long-term problem, just like climate change. If a carbon tax raises revenue, the additional revenue could be used to reduce the budget deficit. This dissolves the efficiency claims about a preference for a carbon tax over cap-and-trade. If carbon tax revenues should not necessarily be used to reduce taxes on labor and capital then it is no more efficient, due to additional revenue, than cap-and-trade.
With proposed environmental taxes and a growing current account deficit in South Africa, we may be well-advised to broaden the focus of the current discourse beyond the carbon tax versus labour-income tax debate.