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Informed Industry Adaptation will Be Imperative to Surviving the Proposed Carbon Tax
Currently the South African industry is extremely coal-reliant, with an estimated 90% of CO2 emissions resulting from coal production. The entire economic system is geared towards coal dependency with an abundance of relatively inexpensive natural resources.
Various options are now being investigated to accelerate moving away from coal dependency. In this context, the proposed carbon tax will have significant financial consequences for selected industries in South Africa who are either unprepared to implement the carbon tax, or unable to mitigate its effects.
Frost & Sullivan’s “Analysis of the Carbon Tax Market” highlights the impact of this tax and the current and future factors that industry players need to be cognizant of, in order to prepare future budgets and strategies to survive the proposed tax. “The ultimate competitiveness of South African businesses affected by the proposed carbon tax, needs to be urgently evaluated by not only the relevant business, but also by Government,” said Frost and Sullivan’s Team Leader for Energy and Power Johan Muller. “As an investment destination, South Africa stands to be seriously affected by the proposed carbon tax if the status quo is upheld.”
South Africa is a developing country with a hybrid economy attracting foreign investors for a variety of reasons (generally, the relatively low cost of operation and resource availability). By imposing a carbon tax, the economic results would vary greatly, depending on the industry.
“Certain industries, motivated by profit considerations, would open plants in other countries where there is no (or less) carbon taxation, since the carbon tax would effectively influence their competiveness to a great extent,” said Muller. “Other companies not being able to pass on the cost to the consumer may have to close down.”
The consumer will also be affected negatively should the full price increase be passed onto them by certain industries that have indicated their inability to shoulder the new financial burden imposed by the tax. This will have negative effects on various developmental levels in South Africa.
“Businesses need to understand the elasticity of their product, possible mitigating options of the carbon tax, their specific market share, and growth paths,” advised Muller. “Subsequent to a complete analysis of the business, submissions should be made to government at the appropriate time in order to provide input as to the direction of the carbon tax. This would have the result of possibly affecting some exemptions and taxation scales in favor of the specific industry, to not only protect the specific industry, but also the South African economy as a whole.”
Informed industry adaptation will be imperative to surviving the proposed carbon tax. Strategies for the medium- to long-term should include in-depth discussions and evaluations of certain liabilities as well as potential liabilities such as the carbon tax.
If you are interested in more information on this study, please send an e-mail with your contact details to Samantha James, Corporate Communications, at samantha.james@frost.com.
Analysis of the Carbon Tax Market is part of the Energy & Power Growth Partnership Services program, which also includes research in the following markets: overview of the South African Electricity Industry (2010 Update), The IRP2010: A Frost & Sullivan Impact Analysis and South African Solar PV Market. All research included in subscriptions provide detailed market opportunities and industry trends that have been evaluated following extensive interviews with market participants.
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