South Africa’s carbon tax may be ineffective in cutting the country’s greenhouse gas emissions on its own, a report by a major consulting firm has warned.

The levy could be too low and the fact that it only applies to Scope 1 (direct) emissions, leaving Scope 2 (energy supply) and Scope 3 (value chain) emissions untouched, may not sufficiently deter emitters, PwC said in the paper published Thursday.

“There is therefore uncertainty about the effectiveness of this measure alone to reduce carbon emissions,” the authors wrote.

“Moreover, there is a need for transparency in terms of the use of taxes collected in this way as per the expectation that they should be ring-fenced for initiatives that further support South Africa’s move to net zero.”

South Africa’s carbon tax started at 120 rand ($8.09) per tonne in 2019, and is currently priced at R127.  However, with a generous basic allowance and other available exemptions, companies can easily bring the effective rate down to R6.35-50.80/tonne, including through the use of offsets, PwC noted.

In contrast, experts say carbon prices in other markets including the EU, California, New Zealand, and South Korea have had to rise to levels of at least $15-20 before triggering abatement.

South Africa’s charge covers virtually all areas the economy, including most stationary and non-stationary greenhouse gas sources.

It is intended to help the country meet its Paris Agreement pledge to peak its GHGs in 2020-25, plateau for a 10-year period from 2025 to 2035, and then cut them from 2036 onwards.

PwC remarked that South Africa is both one of the world’s major polluters and is amongst the countries that experience the impacts of climate change very acutely.

“South Africa is one of the largest contributors to climate change in relative terms. While carbon intensity decreased by 2.4% globally in 2019, South Africa recorded an increase in carbon intensity of 1.3%, the second consecutive year of increase.”

The report said this solidifies South Africa’s position as the most carbon-intensive economy in the G20, with a carbon intensity of 599 tCO2 per $1 mln of GDP – more than double the global average of 286 tCO2/$M.

PwC said that in order to meet Paris’ 2C temperature goal, South Africa will need to cut its emissions by around 60-75% by 2050, with approximately $700 bln in investment required to achieve that.

The report cited Climate Action Tracker findings that South Africa’s NDC is highly insufficient and, if the rest of the world made similar commitments, global temperatures would rise by 3-4C – well above Paris’ 1.5-2C target range.

“South Africa appears to face more sociopolitical challenges relating to politics, power and vested interest as well as the need to be sensitive to the societal impact of decarbonisation, and therefore a need to focus on a just transition. With one of the world’s highest unemployment rates, job protection is at the top of government’s agenda,” PwC added.

“However, there will be no jobs on a dead planet.”

In a separate report published last year, PwC estimated an annual decarbonisation rate of 11.7% was now needed to keep warming below 1.5C, representing more than five times the 2.4% reduction level reached before the pandemic.

Current energy consumption and CO2 emissions trends indicate that the global carbon budget for a 1.5C limit would be used up by the end of this decade, according to PwC’s Net Zero Economy Index, the tenth annual tracker of decarbonisation in the G20 economies.

It found that 2019 global energy-related CO2 emissions increased by 0.5% while economic growth was 2.9%, as global energy consumption increased by 1.3%.

This 2.4% drop in carbon intensity last year is above the long-term average decarbonisation rate of 1.5%, but it falls significant behind what is needed to meet the 1.5C limit countries agreed to strive for under Paris.

By Mike Szabo – mike@carbon-pulse.com