NO ONE who has been following business news in recent months can have failed to notice that the local steel industry has huge challenges. So why is the government planning a new tax that has the potential not only to cripple steel makers, but to affect all of our businesses with increased costs and an extra layer of compliance?
I talk, of course, about the planned carbon tax, final details of which may emerge in next week’s medium-term budget policy statement.
The government made a genuine effort to consult business from the start, and those consultations can still continue as the legislation moves through the parliamentary process. However, my big concern is that many companies may have just failed to tackle the issue. Maybe it’s because they find it too complicated, or maybe it’s because they just hope it will go away.
Certainly, many companies globally have factored in carbon pricing. A new study by carbon pricing experts CDP looked at more than 1,000 companies globally and noted that, in the course of just one year, the number of companies using an internal price of carbon had tripled.
The study covers many of the largest companies in SA — and many of those with the largest emissions. Local companies that are already using an internal carbon price include Sasol, Group Five, Exxaro, Barclays Africa, Barloworld, Transnet, MTN and ArcelorMittal.
A wake-up call is overdue for those South African firms that may be dragging their feet, as it will be too late when this tax arrives and starts digging into their profits. My fear is that there has been so little input from industry as a whole in discussions on the planned tax that policy makers think the carbon tax will be no big deal for most businesses, which is not the case.
Each company should run its own numbers, and this is likely to provide the ammunition to dispel the belief among policy makers that the carbon tax is generally supported by business. Once the carbon tax is factored into the planning, some projects would just not go ahead.
The Treasury has indicated that fiscal incentives for energy efficiency are to be boosted with the proceeds from the carbon tax.
This should mean a company will always look at how energy efficient a project will be, and how government carbon incentives to increase energy efficiency can be built into their financial planning. There is certainly a compelling case for any revenue from a carbon tax to be used to boost the scale of incentives.
The case business should be making is a strong one. The government is focusing on revitalising the manufacturing sector, and we have a plan to nurture the development of 100 black industrialists. How will a carbon tax affect all of this? In my view, negatively, especially in the short to medium term. And what about the way in which a company faces this, and other complicated fiscal and regulatory challenges? I suggest that in order to ensure an efficient response to the carbon tax tsunami, the matter should become the direct responsibility of financial directors.
Any carbon tax will continue to grow, and firms must look forward and plan not just for day one, but also for how it will be hitting a company five years from now. The tax is bound to be phased in, so will initially not be as severe as it will grow to be.
Carbon taxes are already in force in dozens of countries, but they vary widely in size and effect. As a recent World Bank report noted, carbon pricing is only one instrument in a state’s portfolio for driving down emissions. Other policy instruments include the removal of fossil fuel subsidies, infrastructure investments in transportation and energy, renewable energy portfolio standards, and energy-efficiency standards.
Too many in business so far have turned a blind eye to the looming carbon tax. Unless they wake up to the dangers and the opportunities, they will live to regret it.