The 2019 carbon tax in South Africa: Effects on relative cost of building materials, welfare, emissions, and energy consumption for households

Abstract

The introduction of the carbon tax by South Africa was primarily aimed at reducing pollution, and possibly improving the welfare of South African households. One of the ways of reducing pollution in the construction industry is to discourage the use of building materials that are high carbon emitters or have high energy intensities. This article used the Input-Output (IO) method and sensitivity analysis to study the effects of carbon tax on welfare distribution of South African households, using the 2014-2015 Living Conditions Survey (LCS). The study also set out to determine the relative sensitivity of price changes of some building materials after application of the 2019 carbon tax. Results showed that nonferrous, ferrous, and prefabricated-based building materials had higher relative price sensitivities to carbon tax compared to other materials that were predominantly based on glass, cement, and treated metals. Increases in carbon tax may not discourage usage of relatively higher emissions-intensity materials like cement compared to wood. Operational building costs were dominated by electricity costs, with the burden being highest for lower income households. Any revenue-recycling efforts of the 2019 carbon tax for welfare purposes were marginal. However, the tax can be used to subsidize energy for lower income households.