Isra-Mart srl : Australia, SA mull carbon tax fallout

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Southern hemisphere mining giants Australia and SA have much in common, including a major debate raging about the fallout that can be expected if the governments of both countries press ahead with plans to introduce comprehensive taxes on carbon emissions.

While the issue is not grabbing the headlines in SA, it is receiving huge column centimetres in Australian newspapers, with strong warnings from companies such as BHP Billiton and Anglo American that a carbon tax would seriously compromise their profitability and new project investment pipeline.

Australia is planning to introduce a carbon tax with effect from July 2012 as a stepping stone to a fully-fledged carbon emissions trading system within three to five years. It is expected that the tax could be introduced at about Aus$20/ton (about R140/ton).

In SA, taxing carbon emissions is still in the consultative stage, although a workshop presented by the National Treasury in March suggested that 75 rand/ton could be a kick-off point, gradually increasing to about 200 rand/ton. South Africans are already subject to an ad valorem CO2 emissions tax on new passenger vehicles.

This year's Budget review document stated that the design features of a proposed tax and a schedule for its introduction would be unveiled along with the next Budget in February 2012.

Having just visited Australia, this writer can confirm that Australia is all abuzz about the carbon tax.

Marius Kloppers, the South African head of BHP Billiton, was last week quoted by The Australian newspaper as telling Prime Minister Julia Gillard that Australia's go-it-alone-approach would be a "dead weight" on high-polluting industries.

He said that any carbon tax should be designed to cut emissions, not simply raise revenue, and needed to be trade-friendly. Kloppers added that Australia should not penalise its trade-exposed industries by imposing a carbon tax ahead of its international competitors.

Similarly, Anglo American CEO Cynthia Carroll recently informed Gillard that Anglo American was worried that a carbon tax would be applied to "fugitive" emissions of methane gas liberated during coal mining.

Anglo American plans to spend about US$4 billion on four coal projects in Australia, but Carroll has warned that a carbon tax could half the value of these proposed projects.

Significantly, Verve, Western Australia's biggest electricity generator, said at the weekend that the Australian federal government's proposed carbon tax would do nothing to change its carbon dioxide emissions until the tax hit Aus$60/ton-Aus$70/ton (between R420 and R490). At this level, cleaner burning gas would become competitive with traditional coal-fired power. However, at any level, the tax would increase the cost of electricity generation, which would be passed on to consumers.

Although the proposed carbon tax has not yet kicked up as big a stink in SA, there have been some strong warnings issued by mining and other industry players.

Steel producer ArcelorMittal said earlier this year that if a carbon tax had been in operation during 2010 it would have equated to almost 50% of the company's 3.5 billion rand of earnings before interest, tax and depreciation.

The company said a carbon tax would not only affect its profitability, but also its competitiveness against international steel producers.

On March 29, the CEO of the International Air Travel Association (IATA), Giovanni Bisignani, wrote a letter to Minister of Transport S'Bu Ndebele, urging him to strongly oppose proposals for a carbon tax.

In the letter, he said IATA did not support taxes as a way of addressing emissions, although aviation accounted for about 2% of the world's man-made carbon emissions.

In his opinion, the industry would rather invest in emission reduction measures, which would be undermined if a tax was introduced.

Bisignani said a global framework was needed to address climate change and carbon emissions, stressing that unilateral punitive measures should not be imposed at national level.

Local travel industry executives are also not in favour of the carbon tax as they say it will seriously affect the country's competitiveness as a long-haul tourism destination.

They are more in favour of a global framework for carbon taxation that is being developed by the International Civil Aviation Organisation, of which SA is a member.

A major concern in the South African industry is that carbon tax revenues would not be "ring-fenced" for energy efficiency projects or green energy development and would simply be swallowed up in the general fiscus.

SA's two biggest carbon dioxide emitters are Eskom and Sasol, together accounting for about 352 million tons last year. Both are big consumers of coal.

Sasol has conceded that SA needs to make the transition to a lower carbon economy, but believes that the design of carbon tax policy requires careful consideration and analysis, taking the country's development needs into account.

The bottom line is that 2012 looks like a watershed year for carbon tax and its future in both Australia and SA.