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Greening the South Africa’s Economy Could Benefit the Food Sector: Evidence from a Carbon Tax Policy Assessment

Abstract

South Africa has a competitive and viable food production sector which enables the country to be a consistent net exporter of agricultural products. Lately, the business and labour organisations have raised concerns that the government’s intention to implement the carbon tax policy will affect the food supply, subsequently exacerbating the unemployment and food insecurity in the country. Carbon tax is one of the policy tools to be implemented in order to reduce the growing greenhouse gas emissions thus helping the government meets its Paris Agreement commitments. South Africa’s National Treasury released a second draft of the carbon tax bill in 2017, which takes into account the concerns raised by different organisations. In this paper, we evaluate the potential impact of the carbon tax policy on agriculture, food and other sectors using a dynamic computable general equilibrium model. The results show that the carbon tax is an effective policy tool to mitigate emissions, as they decline by 33% relative to the baseline by 2035. This also leads to a welfare loss of R98.326 billion as the country transforms into a green economy. The carbon-intensive sectors like transport, steel and coal-generated electricity experiences significant output decline. However, the agriculture and food sectors show improvements in terms of jobs and production when the carbon tax is implemented. The positive effects on these two sectors are greatly reduced if tax exemptions provided to the agricultural sector are removed and the tax revenue is not recycled in the form of production subsidy to industries.

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Source: Adapted from Bohlmann et al. (2015) and Dixon and Rimmer (2002)

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Notes

  1. 1.

    Paris Agreement is a legally-binding framework for an internationally coordinated effort to tackle climate change. It was adopted on 12 December 2015 by 196 Parties of UNFCCC. Agreement entered into force on 4 November 2016.

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Correspondence to Sifiso M. Ntombela.

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Appendices

Appendix 1

See Table 3.

Table 3 CES Armington and CET export supply elasticities for agriculture and food products.

Appendix 2

See Table 4.

Table 4 Macroeconomic and technology changes forecast data used to calibrate the baseline scenario.

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Ntombela, S.M., Bohlmann, H.R. & Kalaba, M.W. Greening the South Africa’s Economy Could Benefit the Food Sector: Evidence from a Carbon Tax Policy Assessment. Environ Resource Econ 74, 891–910 (2019). https://doi.org/10.1007/s10640-019-00352-9

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Keywords

  • CGE
  • Carbon tax
  • Agriculture

JEL Classification

  • C68
  • H23
  • Q18