Minister increases carbon fuel levy by 1 cent per litre - enough for climate change mitigation?

The Minister of Finance, Tito Mboweni, announced yesterday that the carbon fuel levy will increase by 1 cent per litre.

The carbon fuel levy is an environmental tax aimed at reducing carbon, and other greenhouse gas, emissions. It’s applied to liquid fuels to encourage to encourage the use of lower-carbon transport options.

The fuel levy forms part of a broader carbon tax which is directly levied on businesses and municipalities.

Other climate change measures were noticeably missing from what was touted to be his most difficult budget yes as he straddled a vaccine funding conundrum, widening debt burden and wage bill negotiation struggles – amongst others. Will the 1 cent increase make much difference, how does our overall national approach to climate change measure up globally and to other emerging markets?

Commentary from Andrew Howard, Head of Sustainable Investment at Schroders.

“South Africa is Africa’s biggest greenhouse gas emitter, reflecting its traditional reliance on coal. The increased carbon fuel levy is a small step in the right direction. The country’s aims to reach net zero status by 2050, setting a platform for what will need to be tougher action in the future. This net zero target is in line with the commitments we’ve seen from other nations. Since October, leaders in China, Japan and Korea have all made net zero pledges, meaning almost half the world’s GDP and over one-third of emissions are now from countries with those decarbonisation pledges. We were pleased to see South Africa join these ranks.

“Covid-19 may have had a positive impact on South Africa’s emissions given the national economic lockdown implemented in March 2020. But this will be a temporary and, since Finance Minister Tito Mboweni forecasts stronger growth for the economy from here, emissions may well pick up as industry recovers and the economy rebounds.

“It is critical that investors examine and plan for climate-related impacts before they unfold. Climate change is no longer a theoretical question for investors, if it ever was. There are no short cuts for asset managers - we have invested a lot of time and energy to make sure we are preparing as well as we can and hopefully others in the industry will do so too.”

ENDS