The role of market-based instruments that use existing markets to promote energy efficiency in South African industry

Cargill,  Judith Greer

The role of market-based instruments that use existing markets to promote energy efficiency in South African industry

Thesis / Dissertation

2011

Publisher

University of Cape Town

Department

Institute of Marine and Environmental Law

Faculty

Faculty of Law

Abstract

South Africa faces significant environmental challenges in relation to greenhouse gas (GHG) emissions mainly caused by the use of fossil fuels to provide energy coupled with the relatively inefficient nature of the South African energy sector. In addition the country now faces electricity supply constraints as evidenced by the electricity crisis in 2008. Industrial energy consumption forms a large component of the energy sector in South Africa. Therefore, there is significant scope for improved energy efficiency in industry to reduce greenhouse gas emissions and electricity supply constraints. Market-based instruments (MBIs) are being increasingly used to drive environmental improvement globally and in South Africa and provide a potentially powerful tool to promote domestic industrial energy efficiency. This dissertation evaluates the current array of MBIs that use existing markets to promote industrial energy efficiency in South Africa. The MBIs identified in this regard are the additional investment and energy efficiency allowances available under s12I and s12L of the Income Tax Act 58 of 1962, the electricity levy implemented under the Customs and Excise Act 91 of 1964, Eskom’s Demand Side Management (DSM) programme and NERSA’s proposed Cogeneration Feed-in Tariff (COFIT) programme. The latter three MBIS are incorporated into the recent attempt to make electricity prices more ‘cost reflective’ along with Renewable Energy Feed-in Tariff (REFIT) costs and the cost of capital to fund the new build programme. The main shortcoming of this range of MBIs is the failure to cover energy products such as coal and fuel oil as the main focus has been on electricity pricing to date. Energy–carbon taxes have been used successfully in Europe to drive industrial energy efficiency and reduce GHG. Drawing on the experience of the European Council directive 2003/96/EC of 27 October 2003 Restructuring the Community Framework for the Taxation of Energy Products and Electricity and the carbon tax options described in the National Treasury Discussion Paper Reducing Greenhouse Gas Emissions: The Carbon Tax Option (2010) there may be an opportunity for South Africa to extend the current array of MBIs to include a similar energy-carbon tax.

Keywords

environmental challenges

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