The 2009 budget expands on the principles of environmental fiscal reform introduced in the 2008 budget. Introducing a tax should target unsustainable spending, but to be fair, government should also support the reduction of cost of sustainable alternatives.

The positives:

Carbon tax
In this year’s budget, a carbon tax is introduced on the sale of new vehicles. The current “luxury” tax on vehicles will be adjusted and a carbon component of up to 12% for inefficient vehicles will be introduced. Buyers of the most efficient vehicles will pay less tax.
The fuel levy
The fuel levy, already the biggest existing “environmental” tax (environmental in the sense that it is levelled on a natural resource), has been raised by 23-24 cents and funds deriving from this increase would be directed to municipalities for spending on public transport and roads. It is a counter-cyclical response to the sharp decrease in the oil price over recent months. It will not make a large change to fuel demand, but helps to anticipate the expected future increase in oil prices.
Lightbulb levy
Inefficient incandescent light-bulbs will face a levy of R3. This comes after government and Eskom worked with industry to significantly cut the cost of efficient Compact Fluorescent Lights, from an original price of R60-80 to R13-20 in 2004 and R10 in 2006.
Rewarding energy efficiency
On the incentive side, an accelerated depreciation allowance of 15% will give tax breaks for investments in energy efficiency that can be verified by the Energy Efficiency Agency.
Clarity on tax exemption for carbon credits
The taxing of income from the sale of carbon credits for projects that reduce greenhouse gas emissions was clarified: the credits will not be taxed when first sold by the project owner, but credits traded after this initial sale, will be. This encourages the generation of carbon credit and greenhouse gas savings, but not speculation in carbon credit.

The negatives:

While these are all very positive moves, WWF’s biggest concern is that public funding, including provisions in this budget, continue to provide support to some of the most environmentally risky industries including:

• motor vehicle manufacture (R870 million in production subsidies over three years)
• airlines (R1.6 billion lifeline to SAA)
• mining (a 10-month deferral of mining royalties worth R1.8 billion).

In addition, government will guarantee a total of R176bn of Eskom’s debt in order to reduce the cost of finance for its R343bn investment, two-thirds of which will be spent on giant new coal powerstations.

“WWF does not support the planning basis for the present Eskom expansion, or the selection of conventional coal technology as a result of such planning. However, if this public investment were accepted as a ship that’s already sailed, there is still a case to be made that the same provisions should also be available to guarantee the finance of clean, renewable energy,” says Peet du Plooy, WWF’s Trade and Investment Advisor in South Africa.

“It would not be reasonable in a country that pursues climate leadership, to exclude the renewable energy sector from the same much-needed finance support that government is extending, via Eskom, to investment in fossil fuel infrastructure.”

On the positive side, an additional R6.4 billion will be made available for public transport, roads and rail infrastructure. Ensuring that this is channelled more towards public transport and rail infrastructure rather than roads, would make this stimulus more sustainable.

“Government should complement taxes with incentives, particularly in a strained economy,” says du Plooy. “A tax on emissions-intensive industries like private cars or fossil-fueled electricity, should be balanced with incentives for job-intensive, low-emissions alternatives like public transport and renewable energy.”

A 2c/kWh levy on non-renewable electricity was announced in the 2008 budget, but its implementation was deferred to middle-2009. A complimentary incentive for electricity from renewable energy – a feed-in tariff – is expected to be finalised by the National Energy Regulator in 9 March. This will be paid for by electricity users rather than tax payers, but as in the case of efficient lightbulb cost reduction strategy, the feed-in tariff supports the scaling up of renewable energy, thus reducing costs for these technologies over time.

“It is encouraging to see innovation in our tax system to account for the full cost to society of our individual investment decisions. We now need to see the same full costing applied to our national decisions on public investment, if we are to grow and transform into a truly sustainable economy.”

For further information contact:
Peet du Plooy
Trade and Investment Advisor
WWF South Africa
pduplooy@wwf.org.za
073 559 4796

About WWF
WWF is one of the world’s largest and most respected independent conservation organisations, with almost 5 million supporters and a global network active in over 100 countries. WWF’s mission is to stop the degradation of the earth’s natural environment and to build a future in which humans live in harmony with nature, by conserving the world’s biological diversity, ensuring that the use of renewable natural resources is sustainable, and promoting the reduction of pollution and wasteful consumption. See www.wwf.org.za for more information on the organisation’s activities in South Africa.

WWF stands for the World Wide Fund for Nature. The organization prefers to be referred to just by the acronym.