South Africa's new CO2 emissions tax aims to encourage the purchase of fuel-efficient vehicles. The tax applies to domestic sales of new passenger cars and is levied at R75 (before VAT) for every gram of CO2 emitted per kilometre driven (g/km) above a threshold of 120g/km. The tax will be extended to double-cabs in March 2011 (at R100 a g/km above 175g/km) and other light commercial vehicles will follow. Minibus taxis may be included in future. The National Treasury is also considering the use of annual vehicle licence fees, differentiated by emissions levels, and higher fuel levies to incentivise people to switch from their current cars to more fuel-efficient alternatives.
It has been argued that this tax is unfair. It requires consumers to pay indirectly for transport carbon emission without extensive public transport alternatives. There are also few truly fuel-efficient vehicles available locally (only two models fall below the threshold) since sufficient quality fuel to utilise the latest technologies is not available in South Africa (and unlikely to be for some years). Furthermore, the tax threshold is lower than in the UK (165g/km) and France (155g/km) where modern fuel alternatives are available. It has also been argued that the tax may be ineffectual. An average price increase of around 2-4% is unlikely to significant affect purchasing decisions in the long term, and is much smaller than the 27% import tariff on motor vehicles that consumers already bear. The tax also doesn't incentivise people to drive less or in a more fuel-efficient way; whereas an increased fuel tax would. Consequently, many commentators view the tax as a revenue-generating instrument masquerading as an environmental tax.
These criticisms are overstated. While the coordination of tax changes with improvements in fuel technology and public transport could have been better, it is hardly within the Treasury's ambit to enact fuel quality standards and drive busses. The South African government has adopted an ambitious emissions trajectory to pursue, underpinned by targets put forward in the Copenhagen Accord. To remain on this trajectory climate policies need to be adopted early and must include carbon taxes. Waiting for future fuel and public transport improvements would have put South Africa behind the climate change policy curve. The Treasury should therefore be applauded for taking a leading role in fighting climate change.
Although the tax probably isn't large enough to change consumer behaviour directly, it will make consumers aware of the climate change implications of their vehicle purchases - and the possibility that current decisions could have future repercussions should an additional fuel levy or differentiated annual license fee be implemented. This realisation should influence purchasing decisions now. It may, however, have been wise to start with a higher threshold that moved down over time as more fuel-efficient cars became available locally. This would have given consumers more opportunity to altogether avoid the tax; thereby allaying fairness concerns and reducing the impression that the tax was predominantly aimed at raising revenue.
Finally, it is important to note that this new tax simply aims to reduce vehicle emissions. The Treasury is currently considering a broad-based carbon tax which will increase the price of products that are carbon-intensive to produce, like cars). If implemented as a tax on coal, which seems likely, it may also increase the cost of fuel (23% of local fuel is produced from coal-to-liquid technology). The emissions tax is thus just one instrument in a suite of policy instruments that will be required to reduce South Africa's greenhouse gas emissions.
For the Government's efforts on climate change to work, it is critical that South Africans respond appropriately. It is therefore disappointing that the Treasury's discussion document on the use of carbon taxes in South Africa and the green paper on climate change by the Department of Environmental Affairs were not finalised and made public before the vehicle emissions tax was implemented. A clear indication of the future policy direction will enable consumers and producers to adjust their behaviour pre-emptively, making current policies more effective. It would also help to allay feelings of been "caught out" by policy changes such as the "surprise" introduction of the CO2 vehicle emissions tax.
