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The Impact Of An Electricity Generation Tax On The South African Economy

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  • Reyno Seymore

    ()
    (Department of Economics, University of Pretoria)

  • Philip David Adams

    ()
    (Centre of Policy Studies, Monash University)

  • Margaret Mabugu

    ()
    (Department of Economics, University of Pretoria)

  • Jan van Heerden

    ()
    (Department of Economics, University of Pretoria)

  • James Blignaut

    ()
    (Department of Economics, University of Pretoria)

Abstract

In the 2008 budget of the Minister of Finance, the South African Government proposed to impose a 2 cents/kilowatt-hour (c/kWh) tax on the sale of electricity generated from non-renewable sources; this tax is to be collected at source by the producers/generators of electricity. The intention of this measure is to serve a dual purpose of protecting the environment and helping to manage the current electricity supply shortages by reducing demand. The objective here is to evaluate the impact of such an electricity generation tax on the South African, SACU and SADC economies. The paper firstly considers the theoretical foundations of an electricity generation tax supported by international experiences in this regard. This section also contrasts the suitability of a permit with a tax system to achieve CO2 emission reduction. We subsequently apply the Global Trade Analysis Project (GTAP) model to evaluate the impact of an electricity generation tax on the South African, SACU and SADC economies. We simulate the proposed tax as a 10 percent increase in the output price of electricity. We assume a closure rule that allows unskilled labour to migrate and a limited skilled workforce. As expected, the electricity generation tax will reduce demand. Due to the decrease in domestic demand, export volume increases and import volume decreases, this is despite a weaker terms of trade. We also found that unemployment for unskilled labour increases and wages of skilled workers are expected to decrease. A unilateral electricity generation tax will benefit other SACU and SADC countries through an improvement in relative competitiveness, as shown by the improvement of the terms of trade for these regions. If, however, the benefits of pollution abatement are internalised, then electricity generation tax is expected to yield a positive effect on the South African economy.

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Bibliographic Info

Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 200920.

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Length: 17 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:pre:wpaper:200920

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Cited by:
  1. Reyno Seymore & Margaret Mabugu & Jan van Heerden, 2010. "Border Tax Adjustments to Negate the Economic Impact of an Electricity Generation Tax," Working Papers, University of Pretoria, Department of Economics 201003, University of Pretoria, Department of Economics.
  2. Reyno Seymore & Margaret Mabugu & Jan van Heerden, 2009. "The Competitiveness Impact Of A Multilateral Electricity Generation Tax," Working Papers, University of Pretoria, Department of Economics 200919, University of Pretoria, Department of Economics.
  3. Akkemik, K. Ali, 2011. "Potential impacts of electricity price changes on price formation in the economy: a social accounting matrix price modeling analysis for Turkey," Energy Policy, Elsevier, Elsevier, vol. 39(2), pages 854-864, February.

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