Research Repository

The impact of an environmental tax on electricity generation in South Africa

Seymore, Reyno, Adams, Philip, Mabugu, Margaret, Van Heerden, Jan and Blignaut, James Nelson (2010) The impact of an environmental tax on electricity generation in South Africa. Journal for Studies in Economics and Econometrics, 34 (2). pp. 1-18. ISSN 0379-6205

Full text for this resource is not available from the Research Repository.

Abstract

In the 2008 budget of the Minister of Finance, the South African Government proposed to impose a 2 cents/kilowatt-hour (c/kWh) tax on the sale of electricity generated from non-renewable sources; this tax is to be collected at source by the producers/generators of electricity. The intention of this measure is to serve a dual purpose of protecting the environment and helping to manage the current electricity supply shortages by reducing demand. The objective here is to evaluate the impact of such an electricity generation tax on the South African, SACU and SADC economies. The paper firstly considers the theoretical foundations of an electricity generation tax supported by international experiences in this regard. This section also contrasts the suitability of a permit with a tax system to achieve CO2 emission reduction. We subsequently apply the Global Trade Analysis Project (GTAP) model to evaluate the impact of an electricity generation tax on the South African, SACU and SADC economies. We simulate the proposed tax as a 10 percent increase in the output price of electricity. We assume a closure rule that allows unskilled labour to migrate and a limited skilled workforce. As expected, the electricity generation tax will reduce demand. Due to the decrease in domestic demand, export volume increases and import volume decreases, this is despite a weaker terms of trade. We also found that unemployment for unskilled labour increases and wages of skilled workers are expected to decrease. A unilateral electricity generation tax will benefit other SACU and SADC countries through an improvement in relative competitiveness, as shown by the improvement of the terms of trade for these regions. If, however, the benefits of pollution abatement are internalised, then electricity generation tax is expected to yield a positive effect on the South African economy.

Item Type: Article
Uncontrolled Keywords: electricity generation tax, South African, tax system, environment improvement, economic development
Subjects: FOR Classification > 1402 Applied Economics
FOR Classification > 1403 Econometrics
Faculty/School/Research Centre/Department > College of Business
Related URLs:
Depositing User: Ms Julie Gardner
Date Deposited: 17 Jun 2014 06:13
Last Modified: 18 Jul 2014 00:02
URI: http://vuir.vu.edu.au/id/eprint/24673
ePrint Statistics: View download statistics for this item
Citations in Scopus: 1 - View on Scopus

Repository staff only

View Item View Item

Search Google Scholar