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UNU-WIDER WP/2012/46 The Economic Implications of Introducing Carbon Taxes in South Africa

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WP/046 The Economic Implications of Introducing Carbon Taxes in South Africa

South Africa is considering introducing carbon taxes to reduce greenhouse gas emissions. We evaluate potential impacts using a dynamic economy-wide model linked to an energy sector model. Simulation results indicate that a phased-in carbon tax that reaches US$30 per ton of CO2 by 2022 achieves the ambitious national emissions reductions targets set for 2025. Relative to a baseline with free disposal of CO2, constant world prices and no change in trading partner behaviour, the preferred tax scenario reduces national absorption and employment by 1.2 and 0.6 per cent, respectively, by 2025. However, if South Africa’s trading partners unilaterally impose a carbon consumption tax then welfare and employment losses exceed those of a domestic carbon tax. Border tax adjustments improve welfare and employment while maintaining the same emissions reductions. The mode for recycling carbon tax revenues strongly influences distributional outcomes, with tradeoffs between growth and equity.
WIDER Working Paper
WP/046 The Economic Implications of Introducing Carbon Taxes in South Africa
Theresa Alton, Channing Arndt, Rob Davies, Faaiqa Hartley, Konstantin Makrelov, James Thurlow, and Dumebi Ubogu
Publication date:
May 2012
ISBN 13 Web:
Copyright holder:
Copyright year:
carbon tax; growth; employment; income distribution; South Africa
D58, H23, O13, O44
Development strategy and climate change / Climate change and mitigation policy
UNU-WIDER gratefully acknowledges specific programme contributions from the governments of Finland (Ministry for Foreign Affairs) and Sweden (Swedish International Development Cooperation Agency—Sida) for the Development under Climate Change programme. UNU-WIDER also acknowledges core financial support to UNU-WIDER’s work programme from the governments of Denmark (Ministry of Foreign Affairs, Danida), the United Kingdom (Department for International Development), and the governments of Finland and Sweden.

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