Development of the electricity-environmental policy CGE model (GTAP-E-PowerS): A case of the carbon tax in South Africa

Abstract

A new carbon price mechanism with full emission coverage is developed within the framework of a global computable general equilibrium model (GTAP-E-PowerS) to enhance the capacity and accuracy for climate change and energy policy assessment. The model developed is then used to examine the potential impacts of the carbon tax in South Africa. Results show that incorporation of non-CO2 emissions in the model significantly alters the results of which the economy of South Africa experiences higher costs compared to the case that only has CO2 emissions. When more sectors are included in the policy it also puts higher costs on the economy, as higher levels of emissions are subject to the carbon tax. Results also show that South Africa only experiences small tradeoffs from introducing the carbon tax in all scenarios. That is, with a tax rate of $9.15, the country is able to reduce its emission levels by 12.25%–15.6% at the costs of real GDP reduction by 1.17%–1.59%. Fossil-based industrial sectors are particularly worst off, while clean and renewable energy sectors strongly expand their production. The results indicate that South Africa is likely to move to a low carbon and sustainable economy with such a policy.