The National Treasury will release a discussion document on carbon tax by mid-2010, which would investigate measures to implement carbon pricing, spokesperson Thoraya Pandy said on Monday.

A second discussion paper, dealing with emissions trading, was due for release early next year, she confirmed.

This would aim at assisting South Africa to meet its commitments as outlined by President Jacob Zuma at the global climate change conference in Copenhagen - to reduce emissions by 34% below the business as usual emissions trajectory by 2020, and by 42% by 2025.

Addressing participants at a Nedbank Capital briefing on the economics of climate change on Monday, Deloitte tax director Duane Newman indicated that South African government seemed to favour the carbon tax option at this stage, and thus it was important for business to be aware of this stance when lobbying. This was alluded to in the recent budget speech.

Carbon tax was described as an environmental tax on emissions of greenhouse gases, and it was a flat tax, as opposed to a progressive tax. The three ways to levy a carbon tax were to either: tax the final consumer; tax dirty output; or to tax the producer.

The cap and trade system put a limit on the amount of a pollutant that could be emitted. Organisations would be issued with emission permits and would be required to hold an equivalent number of allowances, or credits, representing the right to emit a specific amount. Organisations that need to increase their emission allowance would need to buy credits from those who pollute less and have credits to sell. The transfer of allowances is referred to as a trade. Thus the buyer is paying for polluting more, while the seller is rewarded for reducing emissions by more than was required.

Nedbank CEO Tom Boardman pointed out that that the global carbon market was expected to grow by about 33% in 2010, as environmental action and sustainability was now a mainstream business issue.

Newman further noted that the South African national budget speech for 2010/11 highlighted that climate change and energy supply issues presented both challenges and opportunities for the country, and that industries must be helped to manage scarce resources more efficiently and to reduce GHG emissions through appropriate pricing of energy.

The speech also outlined that appropriate pricing would enable investment in sustainable technologies, and that ‘green economy' initiative would create new opportunities for enterprise development, job creation and the renewal of commercial and residential environments.

Further environmental taxes were also expected to be implemented.

South Africa already had the 2c/kWh levy on all electricity generated from fossil fuel sources; the plastic bag levy; incentives for energy efficiency; taxation of less efficient incandescent light bulbs; and certified emission reductions received favourable tax treatment. More recently, the fuel levy was increased and a tax on new vehicles according to emissions was outlined.

Newman said that other environmental taxes and levies would also be investigated such as: a wastewater discharge levy in terms of the Water Act; air pollution levies in terms of the new Air Quality Act; levies on waste streams; landfill tax; and traffic congestion charges.

He highlighted that there was also a major policy shift from tax incentives to cash grants on production.

Existing grants included: the critical infrastructure programme, which offered between 10% and 30% on infrastructure linked to investment projects; the renewable energy finance and subsidy office, which offered a R1-million grant per megawatt installed; and the enterprise investment programme, which offered a grant of 15% to 30% of capital investment, but was limited to R30-million on a R200-million investment.

Newman added that the emergence of government grants was hoped to incentivise business to move toward a low carbon economy in South Africa.

The private sector was likely to shoulder much of the cost associated with South Africa's transition to a low carbon economy, said Newman, adding that only about 20% of the funding required for such a transition was expected to come from the public sector.

Business should thus be educated on the facts, implications and opportunities brought about by climate change, and should engage in the policy making process, he advised.

"The time is now. Legislation, policy and regulations are still evolving. Business must mobilise to engage in this process to ensure that structures for carbon reduction are appropriate. Business needs to do their own assessment on the impact of carbon taxes and so on," Newman stated.

In a final recommendation to business, Newman reiterated that companies should start addressing climate change related issues immediately, and all new projects should aim to qualify for carbon credits, capital grants and incentives, research and development tax allowances and energy savings allowances.

"If you don't take these into account you could be canning a project that could go ahead."