Wednesday, June 4, 2008

Carbon taxes for South Africa?

South Africa is currently considering a carbon tax. In a world where carbon is rapidly becoming a liability it will make sense to correct for such market failures. The question is whether carbon taxes are the best way to go in achieving this. 

Removing perverse subsidies encouraging the use of fossil-fuel based energy may have a far bigger impact for instance.  Capping the amount of carbon that a country/sector or firm can emit and auctioning the rights to emit is another way of managing the carbon question.  

Without advocating one instrument above the other at this stage it will be prudent to have a far broader process of evaluating all options, especially given South Africa's very high carbon-intensity and the lock-in these instruments will have on future policy.  

The last thing we need is a non-effective carbon tax that only serves as a political gesture and will in fact do more harm then good.  

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