Carbon tax with no offsets, may damage mining
A Minerals Council South Africa survey undertaken in August 2019 of 18 of the larger mining companies across the sector confirms the significant costs that will be incurred as a result of the introduction of carbon tax.
Across the companies surveyed, carbon tax costs are estimated at as much as R517 million a year in phase 1. In the absence of the offsets allowed in phase 1 (as this information is still not known), the carbon tax liability for these 18 companies is estimated to increase to R5.5 billion per year in phase 2.
CEO, Roger Baxter says: “The Minerals Council both understands and recognises the science of climate change. We recognise the role of fossil fuels in climate change, and that a shift to renewable energy sources is a global and national imperative. We fully support South Africa’s commitment to reducing GHG emissions in line with the Peak, Plateau and Decline (PPD) trajectory and Nationally Determined Contributions (NDC) under the Paris agreement.
“But the planned carbon tax, in the absence of any other climate change measures in the overall ‘toolbox’ that includes incentives and not only disincentives and necessary supporting regulation, is likely to be damaging to carbon intensive sectors with no pathways for offsets. The significant uncertainty associated with phase 2 of the implementation of the carbon tax will be materially negative for South African mining, in the absence of any tax-free incentives.
“We believe that the transition to a low-emissions economy should be balanced and supported by a competitive tax system which is critical for investment in capital intensive industries such as mining. Mining projects involve high-risk exploration outlays, large upfront capital commitments, long-life assets, sophisticated technologies and long lead times to profitability.
The socio-economic implication of the tax and regulatory uncertainty which negatively impacts on the competitiveness of the mining industry are remained significant concerns. In the past decade, South Africa’s economy grew by an average of only 1.5% a year.
This has contributed to a continuous decline in GHG emissions per unit of GDP in a context where: 1: The composition of South Africa’s growth shifted away from carbon-intensive industries, like mining and manufacturing, towards less carbon-intensive sectors like financial services and retail; and 2: The 523% increase in the electricity price in the past decade, in materially damaging the competitiveness of the mining and smelting industries, further contributed to the decline in carbon-intensive sectors.
It is therefore highly likely that South Africa will achieve its Paris agreement commitments without implementing measures such as a carbon tax.
