As South Africa intensifies efforts to address climate change while striving for inclusive economic growth, a fundamental question remains: Can we tax carbon without taxing our future prosperity?

In a comprehensive study titled “Analysis of Carbon Tax, Carbon Emissions, and Economic Growth in South Africa”, North-West University (NWU) researcher Dr Victor Mbua Mofema provides timely answers to this pressing policy dilemma.

Promoted by Prof Gisele Mah, the research by Dr Mofema delivers a nuanced examination of how carbon tax, carbon emissions and economic growth interrelate using advanced econometric techniques. These techniques include the autoregressive distributed lag (ARDL) model, Granger causality analysis, and a simple sampling threshold approach.

A triple lens into carbon policy

To gain a multidimensional perspective, Dr Mofema constructed and estimated three distinct models. Each model explored the interplay between economic and environmental indicators in South Africa's unique developmental context, offering insights critical for both policymakers and academics.

The study's standout findings include:

· Carbon tax has a negative effect on CO₂ emissions, confirming its role as an effective tool in reducing environmental degradation.

· However, economic growth is positively associated with increased CO₂ emissions, highlighting the classic growth-emissions trade-off in developing economies.

· Surprisingly, increases in carbon tax, carbon emissions and energy consumption were found to stimulate GDP, suggesting a complex dynamic where emissions-intensive activity still fuels economic expansion.

· Conversely, imports were shown to reduce GDP, signalling the importance of domestic production and consumption patterns in economic planning.

Carbon tax: both cause and effect

An intriguing dimension of the study lies in its causality analysis. Results show that carbon tax “Granger-causes” CO₂ emissions – a critical insight suggesting that taxation is not just reactive but plays a leading role in shaping future emission trajectories.

Further, a positive threshold relationship was observed between carbon tax and emissions: when carbon tax surpasses a certain level, its influence on reducing emissions becomes more pronounced. This finding offers a compelling argument for policymakers to reconsider the scale and structure of carbon tax rates.

Economic growth and sustainability: not mutually exclusive

One of the study’s most important contributions is its exploration of how economic variables relate to environmental ones. While GDP is positively related to carbon tax, it is negatively related to inflation, energy consumption and CO₂ emissions, pointing to a potential for green economic pathways that decouple growth from carbon intensity.

“The findings reinforce the idea that carbon tax, when appropriately structured and implemented, can drive both environmental sustainability and economic development,” notes Dr Mofema. “However, the transition requires careful calibration of tax rates, energy policy and industrial strategy.”

Implications for South African policy

As South Africa continues its implementation of carbon pricing mechanisms, this study serves as a vital evidence base. The research urges policymakers to:

· Recognise carbon tax as both an environmental and economic instrument.

· Align carbon tax rates with emission reduction thresholds.

· Invest in low-carbon technologies to decouple emissions from growth.

· Support industries and communities transitioning to greener operations.

With South Africa committed to net-zero emissions by 2050, studies like Dr Mofema’s provide the empirical grounding needed to shape smart, sustainable and equitable climate policy.

A step forward for green research at the NWU

This research underscores the growing leadership of the NWU in sustainability-focused economic research. By bridging econometrics, policy analysis and environmental science, Dr Mofema’s work contributes directly to the university’s mission of being a driver of innovative solutions for the challenges facing South Africa and the continent.

Dr Victor Mbua Mofema