Does the Carbon Tax in South Africa Encourage the Adoption of Wind Energy in the Country’s Power Sector?

Abstract

This research aims to evaluate whether South Africa’s carbon tax rate incentivises the adoption of wind energy within the nation’s power sector. By employing qualitative analysis, the study examines whether South Africa’s carbon tax rate is suitable for promoting wind energy uptake in the power sector. Additionally, it identifies the level of carbon pricing required to stimulate investments in wind energy in South Africa’s power sector using net present value (NPV) simulations. The research finds the South African carbon tax to be too low to incentivise the adoption of wind energy. It emphasises that in order to stimulate decarbonisation investments, carbon prices must be higher than abatement costs. The NPV simulation indicates that increasing the carbon price by ZAR 869.50 per tonne of CO2 would result in a positive NPV, thereby encouraging investment in wind energy in South Africa’s power sector. Therefore, the study advocates for higher carbon prices to drive wind energy investments. This research contributes to tax policy scholarship by proposing a carbon pricing model for the adoption of wind energy in South Africa’s power sector. Ultimately, decarbonising the power sector, a major source of greenhouse gas emissions (GHGs), will strengthen South Africa’s efforts in reducing carbon emissions.