Determining the correct rate for a carbon tax in South Africa is a fine balancing act, National Treasury deputy director-general Ismail Momoniat said on Wednesday.

Speaking at the launch of conservation organisation Worldwide Fund for Nature (WWF) South Africa’s discussion paper on carbon tax design options, he said the Treasury would have to exercise “the wisdom of Solomon” in finding the correct balance between carbon pricing and protecting jobs.

“The idea is to achieve a behavioural change. The carbon pricing needs to be part of a broad package of complimentary measures to reduce carbon emissions,” he said.

The Treasury would seek to introduce carbon pricing in an “industry-friendly way”, to protect the economy, while at the same time starting to implement change.

The initial carbon tax document was released in late 2010, with the second discussion paper now anticipated by April.

Last week, Finance Minister Pravin Gordhan’s Budget Review indicated that the possible tax would apply to carbon dioxide equivalent (CO₂e) emissions calculated using agreed methods.

A carbon tax of R120/t of CO₂e above suggested thresholds was being proposed, and the first phase could take effect during 2013/14, with yearly increases of 10% until 2019/20.

The Budget Review also highlighted possible design features of the tax, including a percentage-based, rather than absolute emissions thresholds, below which the tax will not be payable, a higher tax-free threshold for process emissions, with consideration given to the limitations of the cement, iron and steel, aluminium and glass sectors to mitigate emissions over the near term, additional relief for trade-exposed sectors, the use of offsets by companies to reduce their carbon tax liability and a phased implementation.

A basic tax-free threshold of 60% (with additional concession for process emissions and for trade-exposed sectors) and maximum offset percentages of 5% or 10% until 2019/20 was proposed.

Additional relief could also be considered for firms that reduce their carbon intensity during this first phase.

Independent economist and co-author of the WWF discussion document, Emily Tyler, noted that the 60% blanket relief translated into an actual tax of R48/t of CO₂e, when a tax of even R200/t would not be enough to steer the country in a reduced-carbon-emissions future.

Responding to a question as to why South Africa was contemplating this tax, when neither China nor India implemented such a tax, Momoniat said South Africa wanted to be a leader among developing countries, and have an advantage on other developing countries in the future.

“There is no easy solution to this. Transparency and long-term commitment to the spending of the incidental money is needed, but there is no guarantee that ring fencing the money would be appropriate or the most effective way to dispose of the money,” he said.

Momoniat said the carbon tax needed to be introduced in a way that would not be “completely unfriendly" to big emitters because South Africa needed to ensure that no jobs were lost in implementing this tax.

He added that the Treasury believed a carbon tax would be the most appropriate emissions reduction instrument for South Africa, and had already decided that this was the route to go.

However, it did not rule out the introduction of a ‘cap and trade’ system in future. In such a system emissions are capped, either by sector or emitter, or both, and those that produce less emissions than their cap are able to trade the surplus.

The WWF said that locally, the carbon tax debate had moved from considering the merits of different carbon pricing instruments to ensuring that the carbon pricing framework supported South Africa’s low-carbon transition.