Carbon tax revenues could be harnessed to help South Africa’s poor

By Harald Winkler & Andrew Marquard, Energy Research Centre, University of Cape Town**

Climate change needs urgent action by all countries, and by all means. All countries agreed in the Paris Agreement to keep temperature “well below 2℃” and pursue efforts to keep global temperature increase below 1.5℃. Virtually all countries have nationally determined contributions, but currently these are on a path to 3℃ or more. The negative impacts of climate change increase as the temperature increase – and the poor suffer the most.

As part of its contribution to the global effort on climate change, South Africa is introducing the Carbon Tax Act. It comes into effect on 1 June 2019 and is a great step for the country; it also puts South Africa in the company of a steadily-increasing number of countries that are pricing carbon. There are 46 national jurisdictions and 28 subnational jurisdictions that have implemented a price on carbon, or are scheduled to do so, according to the Carbon Pricing dashboard created by the World Bank

Companies in South Africa will now pay a small amount each time they emit a ton of greenhouse gases. Putting a price on carbon is a key way of responding to the climate emergency. It will also raise awareness and improve reporting on emissions. The tax revenues should be used to ensure benefits to poor communities, and the tax will need to be increased over time to provide a long-term price signal to decarbonise the economy.
How it works

The carbon tax is being introduced at a much lower rate than needed in the longer term. The nominal amount of carbon tax that a company will pay is R120 per ton CO2-eq.

But multiple allowances, including a 60% “basic” tax-free allowance, means big emitting companies pay at most R48/ton. The tax is payable by companies which exceed the threshold of carbon emissions. Other further “allowances” mean that several of South Africa’s major emitting companies will pay a minimum of R6/ton. At current exchange rates, that is as little as $0.42/ton, much lower than required globally.

The High Level Commission on Carbon Prices recently reported that by 2030, countries should be looking at a carbon price of US$50–100/tCO2. Given the rate of change of key technologies for mitigation, the appropriate tax level will have to be periodically assessed. But there is no doubt that South Africa’s current tax rate is too low to transform the economy.

The tax will be paid by companies to the South African Revenue Services (SARS). As for other taxes, SARS collects the revenue for the general fiscus. Revenue should be used for two purposes, which should be funded on budget.

To fund programmes that provide access to cleaner and safer energy to the poor. Poor households should pay less for energy under a carbon tax-revenue scheme, rather than more.

Energy-intensive firms should be able to claim transitional assistance if they pay the full tax, contribute to socio-economic development, and agree to reduce where they can. The assistance would be money clawed back by the company, to fund lower-carbon activities – until this is no longer needed.

How the tax could be used

Most important from an ethical point of view is that the tax should be implemented in a way that ensures poor communities pay less for energy. This can be done by using revenues to fund programmes to reduce energy poverty.

Various scenarios exist for carbon tax revenues, depending on whether companies on average pay R6 or R48 per ton CO2-eq. The revenues could fund the national budget for electrification – if companies paid a “medium” carbon tax of R30 per ton.

Another option is that hundreds of thousands, and up to tens of millions, of households could be given 5kg liquified petrolum gas free each month, extending free basic electricity to other energy.

A few hundred thousand better houses – warmer in winter with better insulation and with fewer health impacts due to use of cleaner fuels indoors – could be funded from carbon tax revenue. Or the country could decide to subsidise at least 100 000 rooftop solar systems per year for poor households.

The carbon tax should be complemented by other mitigation measures, such as carbon budgets for companies and a cap on greenhouse gas emission from electricity in the integrated resource plan, the country’s national electricity plan.

Given the climate emergency, all these measures need pursuing and the understanding of how they best relate to one another. Many other countries have carbon taxes, emissions trading, indirect carbon pricing and regulations, and South Africa could learn from their experiences. These countries include the EU, Scandinavian countries, China, India and increasing numbers of developing countries.

Whatever approach it takes from here, South Africa’s decision to introduce a carbon tax should be hailed as an important milestone in the transition to a low-carbon and climate resilient economy and society.

** Published under Creative Commons License. Original post can be read here

We need a sustainable African Continental Free Trade Area (AfCFTA)

Last week marked an important milestone for Africa, when the African Continental Free Trade Area (AfCFTA), came into effect on 30th May. AfCFTA has major implications for Africa’s development, if its is well implemented. AfCFTA could potentially create a single market for goods and services for Africa’s 1.2 billion people, with a combined GDP of $ 2 trillion. At this scale, Africa could truely be on its way to realising its potential.

One of the major challenges hampering Africa’s development is the poor intra trade on the continent, which is at a dismal 16%. This figure might just seem like a statistic, until you try to cross any African border, whether its from Tanzania to Zambia or from Nigeria to Benin, the chaos that you encounter, corrupt officials and general insecurity is just all too stark to ignore.  So the the AfCFTA is way more important than one could imagine.

From a purely economic perspective, according to UNECA (UN Economic Commission For Africa), AfCFTA could raise trade on the continent by 15% to 25%. This could truely signal Africa’s prosperity, or is it?

Much as improved intra trade on the African continent is highly desirable, the potential for it to revolutionarise the Africa has to be tappered against other barriers and negative externalities the continent faces, like climate change.

Agriculture is Africa’s main economic driver, with very few countries having diversified into other sectors like manufacturing and services. As a result, alot of the intra-trade in Africa will still be based on agricultural goods and services as the main offering of some countries. Agriculture on the hand will be highly impacted by climate change, as increase in temperature will result in reduced yields, prevalence of diseases and extreme events such as drought and flooding. Agriculture also uses a very large amount of water, which is going to be even more scarce.

Therefore for AfCFTA to be effective, it needs to promote sustainable trade on the African continent, to enable businesses effectively adapt to the impact of climate change, while ensuring that its impact on the environment are minimised. It will be extremely callous to ignore the need for sustainable trade in promoting a united Africa, as the continent will be one of the hardest hit by climate change.

 

Global meeting: Building an inclusive green economy

Preparations are well underway for the forthcoming Green Economy Coalition Global Meeting, which will take place in Cape Town South Africa, from January 8th – 9th 2019.

The Green Economy Coalition’s annual Global Meetings are vibrant, delegate-led events, dedicated to exploring the future of the green economy. They bring together representatives of business, finance, NGOs and citizen’s groups from around the world in order to debate and decide how we can help to make the economies of the future equitable, inclusive, and people-focused.

This year, our particular focus is ensuring that everyone gets a stake in the green economy. We know that the green economic transition is necessary, urgent, and already underway. But we need to ensure that the new green economy improves the lives of ordinary people everywhere.

This year also marks an organisational milestone for the GEC: our tenth anniversary as a network. With 7 country programmes now up and running around the world, our partner organisations will be sharing their stories from the frontlines of the green economic transition: evidence of real and positive improvements, with the potential to achieve scale across nations, and change lives.

Co-hosted with our South African partners, The African Centre and Trade & Industrial Policy Strategies (TIPS), we will be taking stock of the global transition and planning our next steps together as the largest civil society movement for fair, green economies.

This year we also hold our meeting back to back with the UN-PAGE Ministerial meeting, on 10 – 11th January, Cape Town. If you are interested in attending the PAGE Ministerial, please make sure you have registered for passes here.

 

South Africa Green Economy Barometer- 2018

5 out of 10 for South Africa’s transition to a green economy

The South Africa Green Economy Barometer 2018 provides a snapshot of the transition to a fair, green economy. It is drawn from evidence of policy progress as well as the insights of civil society organisations who are tracking the transition on the ground. One thing is clear: South Africa’s brown economic model is struggling.

South Africa’s economy is overly reliant on fossil fuel-based energy and transport systems and carbonintensive industries. These sectors are failing to provide enough jobs, with over 38% of the population currently unemployed.

South Africa Green Economy Barometer 2018 Final WEB

The South Africa water innovation story

The current global water crisis is creating a heightened level of awareness around the need for effective water management.
Policy makers, private companies and consumers are starting to realise the need for immediate and sustained action. Even
though water is widely recognised as being essential for life, its management has seldom been truly effective. In addition,
the value of water is not adequately reflected through its cost to consumers. The significance of water to everyday life only
becomes apparent during periods of acute water shortages, such as droughts and other natural disasters that threaten the
assurance of supply.

This report  track the ‘journey’ of various water-related innovations in South Africa from research and development to
commercialisation, so as to understand the effectiveness of the South African innovation ecosystem. More specifically, the
case studies unpack the experiences of individual innovators (this is explored more in the larger document of this report),
including challenges encountered and the kind of support they require or have received.

Dowload Full Report

The transition to a clean energy future is inevitable, lets embrace it!

Summary

  • The African Centre for a Green Economy welcomes the signing of the 27 renewable energy power purchase agreements after a two year delay.
  • The IPP’s should build strong partnerships with the local communities that go beyond mere compliance to create sustainable meaningful inclusive impact for all.

Cape Town, 5th April 2018 – The African Centre for a Green Economy (AfriCGE) welcomes the signing of the 27 renewable energy power purchase agreements by the Minister of Energy Jeff Radebe after a two year delay which has caused a lot uncertainty in the sector. We are glad the South African government has honoured its commitment to transitioning to a clean energy future as part of it efforts to combat climate change, as per the Paris agreement.

We are cognizant of the recent threat from the National Union of Metalworkers of South Africa (NUMSA) not to vote for the ANC in the 2019 general elections because of the perceived losses of jobs resulting from the pursuit of clean power. We however categorically reject this view. The potential for job creation from the Independent Power Producers (IPPs) is very clear and will not result in the demise of other energy sources. Even though in the long the goal should be to decouple SA’s economy from an energy intensive trajectory.

It is therefore important for the country to chart a clean economy trajectory considering that the impact of climate change will be catastrophic especially among the poorest and most vulnerable. The transition to a green economy presents opportunities, but with potential implications for the future of work. Change is however inevitable, so instead of NUMSA fighting this transition, they should embrace it and prepare their members accordingly.

We therefore call on all stakeholders including the trade unions to partake in this transition journey, and to reskill their members to capitalize on these emerging opportunities.

IPPs too, have a big responsibility to make sure that they impact local communities positively, to not only guarantee their social license to operate, but to also build a truly inclusive economy in South Africa. We therefore call on the IPPPs to build strong partnerships with local communities that go beyond mere compliance to one anchored on creating shared value for all.

Executive level training on mainstreaming green economy

Executive level training on ESG related issues

Primary Beneficiaries: CSI Executives, LED managers, CEO’s of REC’s and mining companies, Stakeholder relations managers

Broad focus on mainstreaming ESG related issues

Specific focus on Local Economic Development strategies for mining and renewable energy companies

Learning Outcomes

  1. Measuring impact/metrics
  2. Developing effective strategies for local economy development
  3. Effective participation and stakeholder engagement
  4. Strategies for diversification & beneficiation of LED interventions
  5. Effective stakeholder engagement at the local level

Proposed duration: 3 days

Proposed cost: R 12,000

Proposed Partner: Bertha Centre, Graduate School of Business

For more info on the detailed module breakdown, send queries to: training@africancentre.org

Moving the money: Climate change adaptation and entrepreneurship

There is an increasing recognition that entrepreneurship plays a critical role in driving climate change adaptation. Recognising that business as-usual can no longer suffice in the sustainability transition, the need for innovation has become extremely important. Business model innovation both for existing and emerging enterprises, offers an opportunity to test new concepts that can drive a low carbon development trajectory, while creating decent job opportunities for the multitudes of unemployed young people.

The role of small and medium enterprises (SME) in charting the transition is paramount, partly because SME’s are responsible for most job creation, but crucially are key for testing new business models. Large business are difficult to transform in most cases because of well established business processes that might be deemed effective, especially for companies that are profitable.

Even though the role of SME’s in climate adaptation is well recognized, they face insurmountable challenges, more especially access to finance. Due to the nature of ‘green’ enterprises, they often can’t meet the funding criteria of traditional financial institutions such as commercial banks. There is a dearth of generous and patient capital that is willing to fund untested business models, regardless of the potential impact they hold. This has greatly impacted on the deployment of innovative mechanisms and solutions for climate change adaptation.

Impact investing has emerged as a key pathway for financing green enterprises, even though its real ‘impact’ is yet to be felt on the ground. It has been estimated that impact investment as an asset class is worth $50 billion, in the US alone. In South Africa, it was been estimated that close to $4.9 billion of impact investments have flowed into the country, according to the Global Impact Investing Network (GIIN).

So why is funding not reaching onto the ground, more specifically to the Base of the Pyramid (BoP), where the impact of climate change is going to be felt the most?

The poor dealflow, could almost solely be attributed to a broken ecosystem, where financiers and entrepreneurs are not interfacing effectively to understand each other’s needs. Governments and development agencies are pre-occupied with policy formulation without any foresight on implementation, leaving the poor and vulnerable victims of climate change to fend for themselves.

It’s encouraging to see that some key stakeholders have recognised the problem and are attempting to fix the broken system.

As part of this effort, UNEP and the government of Flanders, recently convened a dialogue that brought together key stakeholders from government, development agencies and the entrepreneurship support ecosystem in South Africa. As expected lack of funding for SME’s, poor deal flow of bankable projects and lack of innovative partnerships, were outlined as major bottlenecks in financing climate change adaption.

More of this kind of discourse is required, but talk is also cheap. We need a critical mass of change agents that are willing to work directly with entrepreneurs and communities on the ground to effectively channel resources. Unfortunately this is not the case as most of the incubators and accelerators that purport to support enterprise development are out of touch with the needs of local entrepreneurs.

Catalysing systems change through sustainability leadership

On 2nd May 2017, we convened a policy dialogue at the Durban ICC to explore how sustainability leadership can address inequality and poverty alleviation in Africa. The event brought together delegates from industry, academia and industry to review the role of sustainability leadership in addressing inequality, systems change and expanding inclusion to address current and future development challenges. The significant outcomes from the dialogue are summarized below.

A key outcome highlighted was the realisation that there was indeed a sustainability leadership crisis in Africa. This stems from a lack of clear understanding and clarity about what sustainability leadership entails and how it can effectively be carried out. The conversations at the dialogue stressed the importance of partnerships as key to driving sustainability leadership. There is also a need for accountability and an active citizenry in seeing that leadership is adhered to and checked. A key take home on this subject was that leadership is not a title.

On the issue of financial inclusion, a key outcome was the need to improve regulation pertaining to financial inclusion in Africa. The discussion identified lack of adequate regulation to support the uptake of fintech in Africa. Numerous examples were given on how lack of regulation can be detrimental to the use of fintech. African governments should adopt legislation quickly to keep up with the ever increasing pace of innovation. Lastly the conversations identified the need to take into consideration culturally sensitive models as a way of increasing financial inclusion

The discussion around social entrepreneurship as a driver of systems change uncovered numerous pertinent challenges that need to be addressed. The participants emphasized financing, political environment and a lack of opportunities as affecting social entrepreneurship. They also recommended partnerships and working as collective as key to driving systems change. A quote following from this session was, “there is no us without us.”

Furthermore, regarding technology in education, a key outcome from the conversations was that there is a myriad of opportunities that exist in this space especially in as far as capacity building is concerned. The participants identified opportunities that lie in agriculture, early childhood development as some areas for innovation. However, they also highlighted challenges that exist for instance lack of support for uptake.

The renewable energy sector was identified as one of the key solutions towards solving the energy crisis that in Africa. The conversations highlighted that African innovators need to explore ways to expand access to energy on the continent. However, renewable energy legislation requires community development and localisation. The focus should not only on job creation but on the development of small businesses in localities.

Special thanks go to the event sponsors; Green Economy Coalition (GEC), Asciona Energy, Barloworld and Old Mutual without whom this dialogue would not have been possible.

Today 15th March marks our 5th Anniversary

Today is our 5th anniversary as the African Centre for a Green Economy (AfriCGE), and what an incredible journey it has been. It’s very fulfilling to see what began as an idea on a piece of paper come to fruition. Believe it or not the idea to set up the Centre was first conceived more than 10 years ago in 2006 in Beijing, China of all places, where I first met my co-founder Dr Sepo Hachigonta.

We were both PhD students at the University of Cape Town, pursuing studies in related fields, and were on the same American scholarship, but we hadn’t known each other. A random meeting at a student conference led us to realize that, as emerging African leaders we need to proactively build alliances to be at the forefront of providing sustainability leadership on the continent.

It was on this basis that the Centre, was founded as a platform for emerging leaders on the continent to be at the forefront of driving sustainability leadership. Over the last 5 years, we have seen tremendous growth both in the support we have been able to provide to emerging leaders and how we have been able to assert our influence on key issues related to sustainability, poverty alleviation, inclusive growth etc.

Over the next 5 years, we will amplify our influence even more in pursuit of achieving the Sustainable Development Goals (SDGs). By harnessing the vast talent of young people on the continent, the Centre will continue to be a platform where we will drive green innovation and investments in Africa. Through radical experimentation, we will continue to pursue innovations that help to create opportunities for the most vulnerable, while advocating for inclusive and sustainable growth on the continent.

We have always thought of ourselves at the Centre not only as thought leader, but as action oriented establishment, not afraid to test new ideas or to pursue ventures that we think are impactful. We know a lot about what is needed to bring change, what is lacking is radical action on the ground.

Through our entrepreneurship program, the New Economy Accelerator (NEA) and our Impact investments Fund, we are going to move into a phase where our focus will shift building tangible enterprises that create jobs and advance the ideals of a new economy on the continent.

Many people have supported us in this journey, and continue to do so, thanks so much for helping us pursue our goals as an institution. Thanks also to the amazing team, without whom none of the ideas that were conceived could have gone into execution.

Regards,

Mao Amis

Founder