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Tax policy to reduce carbon emissions in south Africa, Volume 1
 
Author:Devarajan, Shantayanan; Go, Delfin S.; Robinson, Sherman; Thierfelder, Karen; Country:Southern Africa;
Date Stored:2009/05/18Document Date:2009/05/01
Document Type:Policy Research Working PaperSubTopics:Environmental Economics & Policies; Energy Production and Transportation; Environment and Energy Efficiency; Transport Economics Policy & Planning; Taxation & Subsidies
Language:EnglishMajor Sector:Public Administration, Law, and Justice
Rel. Proj ID:3S-Za Econ Modeling On Wage Subsidy And External Shocks -- -- P104299;Region:Africa
Report Number:WPS4933Sub Sectors:General public administration sector
Collection Title:Policy Research working paper ; no. WPS 4933Volume No:1

Summary: Noting that South Africa may be one of the few African countries that could contribute to mitigating climate change, the authors explore the impact of a carbon tax relative to alternative energy taxes on economic welfare. Using a disaggregate general-equilibrium model of the South African economy, they capture the structural characteristics of the energy sector, linking a supply mix that is heavily skewed toward coal to energy use by different sectors and hence their carbon content. The authors consider a "pure" carbon tax as well as various proxy taxes such as those on energy or energy-intensive sectors like transport and basic metals, all of which achieve the same level of carbon reduction. In general, the more targeted the tax to carbon emissions, the better the welfare results. If a carbon tax is feasible, it will have the least marginal cost of abatement by a substantial amount when compared to alternative tax instruments. If a carbon tax is not feasible, a sales tax on energy inputs is the next best option. Moreover, labor market distortions such as labor market segmentation or unemployment will likely dominate the welfare and equity implications of a carbon tax for South Africa. This being the case, if South Africa were able to remove some of the distortions in the labor market, the cost of carbon taxation would be negligible. In short, the discussion of carbon taxation in South Africa can focus on considerations other than the economic welfare costs, which are likely to be quite low.

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