The Carbon Tax Act 15 of 2019 and the double-dividend hypothesis

Abstract

The subject matter of the research conducted in this mini dissertation is carbon tax within South Africa. It investigates the Carbon Tax Act 15 of 2019 to determine whether it is suitable for the South African economy. The tax was implemented in South Africa to send a strong signal to producers and consumers to change their polluting behaviour, reduce their carbon emissions and initiate the transition to a low-carbon economy. Pigouvian taxes such as carbon tax have the potential to correct market failures and negative externalities by reflecting the true costs of carbon intensive activities in the price of carbon products. The ‘double dividend hypothesis’ is a foundational principle of carbon tax, it assumes that the carbon tax is capable of achieving double and perhaps in special cases, triple benefits for the economy and society at large. Placing a price on carbon emissions increases the price of carbon-intensive goods, consequently polluters are required to pay for their emissions. Decision-making is heavily influenced by price; therefore, the carbon tax corrects the defective behaviour by incentivising the public to consider the cost of carbon emissions going forward. An improvement in environmental outcomes as behavioural patterns change and shift to renewable and greener energy alternatives, and an improvement in economic and social welfare funded by revenue generated from the tax gives rise to the double benefit. The triple benefit comes in where the carbon tax also reduces poverty.The increase in revenue from carbon tax could improve economic efficiency and reduce the overall burden on the tax system. The tax will have widespread effects, many of which cannot accurately be predicted before some time has been allowed for it to be operational. This study considers the framework of carbon tax within South Africa and critically evaluates whether it is capable of achieving the double dividend.