Guide­lines for car­bon tax off­sets a lost op­por­tu­nity to tackle in­equal­ity

SA will miss out on de­vel­op­men­tal pos­si­bil­i­ties if it ig­nores ac­claimed lo­cal ef­forts in favour of global stan­dards

Business Day - - OPINION - An­ton Cartwright

In­equal­ity is back in fo­cus in SA fol­low­ing a damn­ing World Bank re­port re­leased in late 2018 and pres­i­den­tial com­mit­ment to eco­nomic in­clu­sion at the launch of the “stim­u­lus and re­cov­ery pack­age” and at the “jobs sum­mit”. There is grow­ing po­lit­i­cal cur­rency at­tached to evok­ing the coun­try’s in­come and con­sump­tion dis­par­i­ties.

In­equal­ity has be­come SA’s soft un­der­belly, fair game for pop­ulists and prof­i­teers. But it should never have come to this. Since in­her­it­ing an econ­omy that was de­signed to make us un­equal, SA’s in­abil­ity to im­prove its in­di­ca­tors of in­equal­ity is the re­sult of in­com­plete land re­form, wa­ter al­lo­ca­tion re­form and broad-based BEE pro­grammes, com­pounded by pri­vate sec­tor ap­a­thy in as­sum­ing that this was not their prob­lem. The fail­ure is a source of frus­tra­tion to all of us in­volved in pub­lic pol­icy.

If you scratch below the sur­face of the Gini co­ef­fi­cient or the Theil in­dex, you find that cur­rent ac­cess to pub­lic ser­vices is ac­tu­ally sig­nif­i­cantly more equal than in 1994 and that ev­ery liv­ing stan­dard mea­sure (LSM) group is bet­ter off than they were then in nom­i­nal terms. How­ever, trans­la­tion of these ben­e­fits into in­come and ex­pen­di­ture has been un­even. SA’s progress since 1994 has “left peo­ple be­hind to mis­use the lan­guage of the sus­tain­able de­vel­op­ment goals and am­pli­fied in­equal­ity.

Un­equal economies lack trust, strug­gle to sus­tain growth and deal with sys­temic chal­lenges such as cli­mate change. They are char­ac­terised by less hope, less tol­er­ance and more anomie than equal so­ci­eties. For South Africans, acute and per­sis­tent in­equal­ity pro­vides a painful re­minder of his­toric di­vi­sions.

SA has learned that tack­ling in­equal­ity is dif­fi­cult for a small, open econ­omy. Global cap­i­tal mar­kets leave lit­tle room for the types of in­no­va­tion and pro­grammes that can ad­dress in­equal­ity, es­pe­cially when these are per­ceived to threaten com­pany prof­its. If the coun­try is to change this, it needs to take the op­por­tu­ni­ties avail­able, and it is the sense of missed op­por­tu­nity that makes the pro­posed guide­lines for car­bon off­sets, rere­leased for a short win­dow of com­ment at the end of 2018, so dis­ap­point­ing.

Ad­mit­tedly the car­bon tax guide­lines speak to an es­o­teric com­mu­nity. Not many peo­ple in SA have ex­pe­ri­ence of car­bon trad­ing. This may be why the pol­icy guide­lines went al­most un­no­ticed. The pro­posed path, how­ever, will af­fect us all. SA’s car­bon tax will be im­ple­mented from June 1. Green­house gas emis­sions cor­re­late closely with con­sump­tion and af­flu­ence and the bur­den of cli­mate change is car­ried dis­pro­por­tion­ately by the poor. Given this, the car­bon tax re­quire­ment that emit­ters pay for the cost they im­pose on so­ci­ety re­moves a sub­sidy that, his­tor­i­cally, has ben­e­fited the af­flu­ent.

The car­bon tax is an in­nately pro­gres­sive pol­icy in­stru­ment, but its abil­ity to re­duce in­equal­ity is fur­ther af­fected by the man­ner in which rev­enue is re­cy­cled through the fis­cus and the off­set mech­a­nism.

The off­set mech­a­nism al­lows emit­ters to re­duce their car­bon tax ex­po­sure 5%-10% by in­vest­ing in projects that re­duce emis­sions. It pro­vides flex­i­bil­ity and the scope for in­no­va­tion in the man­ner that car­bon tax rev­enue is re­cy­cled. But car­bon off­set­ting is con­tro­ver­sial. Ad­ver­saries sug­gest it al­lows com­pa­nies to buy their way out of trou­ble with­out chang­ing their be­hav­iour and it does not lead to net de­clines in emis­sions. Those who have been in­volved in the off­set mar­ket over the past two decades know that the greater con­tro­versy, and as­so­ci­ated chal­lenge, en­tails en­sur­ing that off­set money ac­tu­ally reaches the right projects and does not sim­ply sup­port projects that would have hap­pened any­way.

The flag­ship car­bon off­set scheme, the clean de­vel­op­ment mech­a­nism (CDM), was es­tab­lished in 2000 by the UN un­der the Ky­oto Pro­to­col.

As the name sug­gests, the in­ten­tion was to chan­nel in­vest­ment to de­vel­op­ment projects that also re­duced emis­sions the type of projects African coun­tries so des­per­ately need. The sys­tem ground to a halt as a lim­ited num­ber of ac­cred­ited au­di­tors spent in­or­di­nate amounts of time and project money try­ing to es­tab­lish the ex­act quan­tum of saved emis­sions. The re­quired proof of a coun­ter­fac­tual in­volv­ing the avoided emis­sion of the colour­less, odour­less car­bon diox­ide gas in­duced anx­i­ety in le­gal and fi­nan­cial cir­cles and saw ac­cred­ited con­sul­tants cash­ing in as pro­cesses be­came con­tested and pro­tracted.

One of the un­wit­ting side ef­fects was that project ap­proval be­came ex­pen­sive, favour­ing large-scale emit­ters with deep pock­ets. The scale bias in­tro­duced by high trans­ac­tion costs pre­cluded projects gen­er­at­ing car­bon sav­ings of 10,000 tons of car­bon diox­ide a year or less. Sadly, it is these smaller projects, such as waste re­cy­cling, en­ergy-ef­fi­cient cook­ing stoves and house­hold-scale re­new­able en­ergy, that de­liver the most di­rect de­vel­op­ment ben­e­fits.

As the Ky­oto Pro­to­col drew to a close in 2012, three CDM fail­ings be­came clear: the flag­ship in­stru­ment de­liv­ered less than 1% of the emis­sion re­duc­tions re­quired by sci­ence to curb global warm­ing to safe lev­els; al­though fee struc­tures were gen­er­ally opaque, less than half the money used to off­set ended up with projects, with the bal­ance ac­cru­ing to con­sul­tants, au­di­tors and reg­istries; and less than 2% of the in­vested money ended up in African projects a poor re­turn for a de­vel­op­men­tal in­stru­ment in the 21st cen­tury.

In re­cent years a num­ber of al­ter­na­tive car­bon off­set stan­dards and reg­istries have emerged. The two most prom­i­nent, the ver­i­fied car­bon stan­dard (VCS) and the gold stan­dard, are based in Wash­ing­ton DC and Geneva, re­spec­tively, and have done lit­tle more than the CDM to re­duce fees or meet de­vel­op­men­tal needs in Africa.

It is puz­zling then, that in se­lect­ing stan­dards through which South Africans may off­set their car­bon tax obli­ga­tions, the Na­tional Trea­sury has pro­posed CDM, VCS and the gold stan­dard as the pre­ferred stan­dards, obliv­i­ous it would seem to where these stan­dards will take us. The ra­tio­nale, we are told, is that these are “in­ter­na­tional stan­dards”, but SA has its own reg­istries and car­bon au­di­tors, all of whom trade with ac­claim.

The lo­cal ef­forts have proven adept at un­der­stand­ing con­text, in­vest­ing in good projects, re­strict­ing au­dit fees and sup­port­ing small-scale de­vel­op­men­tal needs. They have, for ex­am­ple, gen­er­ated trans­ac­tions be­tween Ned­bank (SA’s car­bon-neu­tral bank) and waste pick­ers in Imizamo Yethu and be­tween the Ta­ble Moun­tain Ca­ble Car Com­pany and house­holds in Kuyasa.

The projects’ lo­cal stan­dards sup­port is de­signed to de­liver de­vel­op­ment ben­e­fits and car­bon sav­ings in the in­tu­itive un­der­stand­ing that these is­sues have to be dealt with in con­cert to suc­ceed a point un­der­scored in the In­ter­gov­ern­men­tal Panel on Cli­mate Change’s 2018 spe­cial re­port. The projects are sig­nif­i­cant but too small to qual­ify un­der the pro­posed off­set­ting stan­dards sup­ported by the car­bon tax. Rather than ex­pe­ri­ence a much-needed boost when the car­bon tax com­mences, they will in­stead find them­selves ex­cluded and will forego the money they have been re­ceiv­ing through vol­un­tary off­sets.

Our new year’s wish should be that SA moves be­yond rhetoric about in­equal­ity and past in­jus­tices; that in 2019 we stop look­ing to global so­lu­tions to our prob­lems and be­gin to trust each other to forge mean­ing­ful work­ing re­la­tion­ships. For this to hap­pen we will have to be­come bet­ter at iden­ti­fy­ing rare pol­icy op­por­tu­ni­ties, such as the car­bon off­set guide­lines, to build bridges across ex­ist­ing di­vides of in­equal­ity.

● Cartwright is a re­searcher at the African Cen­tre for Cities, lead au­thor of the IPCC’s spe­cial re­port on 1.5°C of warm­ing, founder of the NPO Pro­mot­ing Ac­cess to Car­bon Eq­uity and di­rec­tor at Cred­i­ble Car­bon.

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