Putting a Price on Carbon 2009 Climate Summit March 2009, Midrand Michael Goldblatt

2 General Response Very useful starting point for the debate in South Africa –Sound review of available research in SA and international experience –Key decision and design elements outlined –Discussion needs to be moved out of the corridors of National Treasury Useful research agenda presented Clarity in the discussions is crucial because of the huge vested interests (regulators and regulated), misconceptions, large fiscal impacts (5% of national revenue), competitiveness impacts –Map out a discussion process –Clarify relationship to SA negotiating position, contribution to post-2012 mitigation efforts and global carbon markets

3 Carbon Tax Modelling –Valuable review of the pertinent work conducted in SA –Would like the model drivers and assumptions to be more transparent Difficult in a paper of this nature but needed –Tax incidence is not sufficiently explained or analysed (market structure) Practical approaches and innovative ideas with respect to tax setting –More detailed analysis required – concerns with free-rider problems in the context of an effective duopoly of emitters Use of revenue –Interesting insights from the modelling with respect to distributional impacts –Greater detail on options required Poverty reduction and mitigating tax impacts Useful options emerging internationally (USA, Australia…) –Relationship to fiscal policy important Carbon tax is a declining revenue stream Flexibility is hard in the context of fiscal requirements Some differences of opinion over subsidies to firms unable to respond –Why keep them in the system? Agree in large measure with the policy and design issues outlined –Relationship to global carbon markets

4 Emissions Trading Again, very useful starting point and laying out of the key issues and debates Dynamic efficiency bears more thought and discussion. –Relates to many aspects of design such as system stability, cap setting etc. Market structure crucial –As with tax. Needs more analysis and discussion. Affects costs pass through, gaming/market power, market control requirements etc.. –Need more insight into price pass through and incidence Target setting –Further lessons would be valuable –Some mixed messages Pragmatic discussion on lead times and information revelation –Our regulators need to appreciate the lead times and set well defined and clear policy development processes –Difference of opinion on information revelation. Believe that this will only occur through regulation (cf. country studies). Australian process of reporting phase first is useful Linkages to PCP understood and interesting to consider –Some significant concerns through related to Eskoms interests and the likely changes in the power price cycle

5 General Critiques Seen in the context of very useful research papers Some confusion between the relative administrative and information requirements of a tax vs. emissions trading. –There is probably less difference than suggested Similarly – there are likely to be very similar price impacts of both instruments –The incidence of these impacts needs to be better understood as well as impacts on poor households –Revenue recycling needs to be considered under ET as with tax Similarly – scheme stability is equally important/unimportant under both approaches Analysis of dynamic impacts and which instrument or approach introduces the best dynamic incentives –Needs to be seen in the context of investment paths and technology transfer –Some conflicts within the papers Impacts on consumer behaviour, transport and urban planning –Principal- agent problem (who makes the investment decision) –Will be increasingly important

6 Future Research Agenda Much of the agenda usefully laid out in the papers Possibly greater attention to –Tax incidence –Market structure –Relationship to global carbon markets Impacts on SA ability to receive carbon revenue Fundamental research and analytical research. –Fundamental: elasticity of demand, substitutability, technology transfer and turnover… –Analytical: market structure, global markets, revenue use Eskom –Government has to ensure that Eskom information and planning is revealed (ISEP and others) –Eskom is 100% state owned – affects fiscal and scheme design considerations

7 Future Research Agenda British High Commission Project –Comparison between instruments (and combinations) –Relationship to global carbon markets –Tax setting mechanisms –Tax incidence (analytical not modelled) –Market structure considerations –Revenue recycling and poverty alleviation –Legislative requirements –Administrative requirements and costs –Recent ET schemes (CPRS, WCI..) –Discussions with large emitters (with ERC and others)

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