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Carbon Tax Threatens South Africa's GDP with 9.3% Decline (Central Bank)

Tuesday, 21 May 2024 15:37
Carbon Tax Threatens South Africa's GDP with 9.3% Decline (Central Bank)

(Ecofin Agency) - The introduction of carbon taxes by key trading partners could severely impact South Africa's exports. The country relies on coal for over 80% of its electricity.

South Africa's GDP growth could be significantly hampered if widespread carbon taxes are imposed on its exports in the coming decades, the South African Reserve Bank (SARB) warned in a report released May 20.

The SARB stated that carbon taxes on all products by all key trading partners could reduce South Africa's exports by 10.1% and slash its GDP by 9.3% by 2050. This scenario could also result in the loss of 2.6 million jobs by mid-century. However, the impact might be less severe under scenarios where fewer trading partners implement carbon taxes on a limited range of products.

Despite the potential economic hit, the report suggests that these risks could accelerate South Africa's transition to a greener economy. Although the country contributes only 1% to global greenhouse gas emissions, its carbon intensity is the highest among the G20 nations. The country generates about 80% of its electricity from coal.

“The impacts can be offset if South Africa reduces the carbon intensity of production more rapidly,” the SARB highlighted in its Bulletin of Economic Notes.

A carbon tax is an environmental tax based on the amount of CO2 emissions produced during the consumption of goods, services, or resources. Its primary goal is to encourage companies and consumers to adopt low-carbon production and consumption methods by increasing costs for polluters. This tax also serves as a trade defense measure, aiming to level the playing field between domestic companies and those in countries without carbon pricing.

Europe implemented a carbon tax in October 2023, with a three-year transition period during which only reporting obligations apply. Payments will start in 2026. The European Carbon Border Adjustment Mechanism (CBAM) initially covers seven sectors: cement, steel, iron, aluminum, fertilizers, electricity, and hydrogen. This list is expected to expand over time.

Other major trading partners of South Africa, including the United States, Canada, and Japan, are also considering introducing carbon taxes in the coming years.

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ECOFIN AGENCY offers a selection of articles translated from AGENCE ECOFIN. Founded in 2011, Agence Ecofin is a leader in Francophone Pan-African economic news, particularly in West and Central Africa. The agency publishes daily news on nine African economic sectors: Public Management, Finance, ICT, Agribusiness, Energy, Mining, Transport & Logistics, Communication, and Training.

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