The Impact of South Africa’s Carbon Tax Policy on Carbon Leakages on its Top Five African Trading Partners

Abstract

The carbon leakage phenomenon, whereby decreased carbon emissions in locations with strict constraints on carbon emissions may be offset to some extent by increased carbon emissions in locations with less strict constraints on emissions, has the potential to undermine efforts to mitigating carbon emissions. As such the objective of this study was to use a natural experiment model to estimate the extent of carbon leakage associated with South Africa’s Carbon Tax on the combined carbon emissions of its top five trading African partners (Mozambique, Namibia, Botswana, Nigeria and Eswatini). This was a highly essential study and arguably a first of its kind, to infer causal impact of the carbon tax on carbon leakages using a single group interrupted time-series analysis regression discontinuity design. Results from the study showed that in the long-run, the carbon tax has decreased carbon emission in South Africa by 4.42 percent while increasing carbon emissions in South Africa’s trading partners by 1.003 percent. This shows evidence of a carbon leakage because of the carbon tax, and it is recommended that policymakers should consider trade restrictions to prevent the import of carbon-intensive commodities or institute universal, instead of unilateral, climate change mitigation policies.