Reducing energy poverty through carbon tax revenues in South Africa

Abstract

How much can poverty be reduced through carbon tax revenue? This study analyses specific programmes, with carbon taxes generating revenues and equivalent spending on programmes to reduce energy poverty. The twin challenges of development and climate change could be addressed in this way in South Africa. A simple spreadsheet model was used to estimate revenue available from a carbon tax, given different tax rates and emission projections. Four programmes to reduce energy poverty were quantified: electrification, extended free basic energy, scaling-up sustainable housing, and subsidising rooftop solar for poor households. Matching carbon revenue with equivalent expenditure, the study found that applying all carbon revenue to a single programme could fund the national budget for electrification. Hundreds of thousands, and up to tens of millions, of households could receive free energy in the form of 5 kg of liquefied petroleum gas every month, as well as better houses that are warmer in winter and with fewer health impacts from indoor air pollution. Carbon revenues could fund at least a few hundred thousand improved homes, or subsidies for at least 100 000 rooftop solar systems per year to poor households. Institutional and other constraints would have to be addressed. Carbon revenue could fully fund all four programmes combined into an integrated strategy, in three of the four scenarios. The results suggested that full funding could be available from 2019 or from 2025, dependent on carbon tax revenue scenario. Energy poverty can be reduced by expenditure of carbon tax revenues.