The introduction of a “modest” carbon tax in South Africa would have relatively low adjustment costs while raising revenue that could be deployed to cut other growth- and job-inhibiting taxes, or to make growth-enhancing infrastructure investments, two senior World Bank advisers argued on Tuesday.

However, lead climate change economist Michael Toman and senior adviser on poverty reduction Milan Brahmbhatt also stressed that carbon dioxide reductions could only be achieved at efficient levels in the context of an international agreement. “It’s a global public good, so it doesn’t make sense for any individual country to go it on its own – it has to be everyone together,” Brahmbhatt said.

Speaking at the release of the development finance institution’s second ‘South Africa Economic Update’, which included a focus on green growth, Toman argued that the main motivation for adopting a carbon tax ahead of any possible global deal would be the “co-benefits that could be achieved from such a tax”.

Having announced emission reduction targets in its recently released climate change policy, a domestic carbon tax could be “a very efficient and cost-effective way of moving ahead on that”.

Under South Africa’s ‘peak, plateau, decline’ trajectory, South Africa was committing to reducing its emission by 34% against a business-as-usual trajectory by 2020 and by 42% by 2025. But, the reductions were also premised on South Africa obtaining international financial assistance through the Green Climate Fund, the capitalisation of which would be debated at the United Nations Framework Convention on Climate Change seventeenth Conference of the Parties, or COP 17.

The fund was meant to channel up to $100-billion a year by 2020 to help developing countries limit greenhouse-gas emissions and cope with the effects of climate change. Failure to capitalise the fund as initially agreed would slow the ability of countries such as South Africa to deploy green technologies and invest in adaptation programmes.

However, Toman said South Africa’s serious examination of a carbon tax was “commendable”, particularly given that the step was “unique” among emerging-market economies.

Such a tax, he argued, could also add further impetus (over-and-above the current electricity tariff hikes) to the country’s energy-efficiency programmes, which had the potential to create a relatively high number of jobs when compared with the construction of conventional or unconventional power generation capacity. “But [a tax] would also provide support for the diversification of the energy supply base . . . and support for renewables would provide further support for the hoped-for gains in employment and growth,” he added.

A large carbon tax, however, would contribute very little to the global aspiration to lower greenhouse-gas emissions – despite being the world’s eleventh largest emitter, South Africa accounted for only about 1% of total global emissions. Therefore, a high carbon tax would expose the economy “to a lot of downside risk”.

“As I understand the discussions, though, there is no intention at all of doing that. In fact, all the documents we have looked at are at pains to say that South Africa has to be part of the global solution, but also has to grow its economy.”

The National Treasury indicated recently that it would release a revised carbon tax discussion paper in December, having taken account of the 80 public comments received in response to the first discussion paper, which was released in December 2010.

The new paper was likely to show a greater sensitivity to the need to sustain South Africa’s economic competitiveness and would explore the extent to which it could be “revenue neutral”.

Toman and Brahmbhatt argued the green growth would eventually have to be premised on a situation whereby economic decision makers made their choices in ways that fully reflected the social costs and benefits of using scare natural capital.

In practice, that would require the institution of policies that corrected for overuse by pricing that natural capital through such instruments as environmental and carbon taxes.

But the bank also cautioned that extracting significant growth and employment benefits from the so-called green economy would also not be an automatic process and would have to be supported by multiple policies to stimulate growth and protect the environment.

“There is generally no single ‘silver bullet’ that will by itself deliver both growth and environmental protection,” Brahmbhatt stressed, adding that it generally made sense to use multiple policy instruments to pursue multiple policy objectives.