The implications of national and international carbon pricing policies for the South African Reserve Bank
Luca Deidda, Laurence Harris
Last Modified Date:
2022-09-26, 04:48 PM
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This paper addresses the implications for the South African Reserve Bank (SARB) of climate change mitigation measures undertaken by foreign countries. We focus in particular on the implications of these measures for the SARB’s responsibility to maintain financial stability and manage monetary policy. Carbon pricing is central to both current and projected international mitigation measures. An important instrument other countries can use to support carbon pricing without diminishing their international competitiveness is a carbon border tax applied to imports from countries with a low carbon price and high carbon intensity of production. In this paper, we show that South Africa’s carbon tax system currently imposes a carbon price much lower than that of its major trading partners such as the European Union (EU). At the same time, the carbon intensity of South Africa’s gross domestic product is high by international standards, and the carbon intensity of its tradables is higher than that of its main trading partners. As a result, South Africa’s potential sensitivity to other countries’ high carbon border taxes, such as those envisaged under the EU’s European Green Deal. This paper outlines the implications of carbon border taxes for the SARB’s financial stability policy and monetary policy.