South Africa's ambitious efforts to curb carbon emissions while maintaining economic growth are facing new scrutiny as researchers explore the link between carbon tax, emissions and GDP growth.

Dr Victor Mofema, a lecturer in the subject group Economics at the North-West University (NWU) and a recent PhD graduate, believes increasing the country’s carbon tax gradually could further reduce emissions while supporting growth.

In a recent study he analysed nearly three decades of economic and environmental data to understand how these factors interact, and what it could mean for the country’s future.

The study, which covered data from 1993 to 2022, examined how carbon emissions and economic growth respond to carbon tax policies. "I wanted to understand not just the short-term impact of carbon tax, but its long-term implications for both the environment and economic growth," Dr Mofema explains.

Three models explore the impact of carbon tax

The research was divided into three models to capture different dimensions of the relationship. In the first model, findings showed that while GDP growth is linked to rising carbon emissions, carbon tax does contribute to reducing emissions, but only in the short term. "The immediate effect of carbon tax is clear; it reduces emissions. But over the long run, its impact becomes less significant," Dr Mofema noted.

The second model revealed a complex interplay: higher carbon tax, increased energy consumption and rising emissions were all associated with GDP growth. However, imports appeared to dampen economic expansion.

"If South Africa wants to grow its economy, it must increase carbon tax strategically while keeping emissions stable and boosting energy consumption," Dr Mofema said. "We also found that imports tend to pull GDP down, so managing trade balance is crucial."

The third model focused on the long-term dynamics, showing that carbon tax has a positive impact on GDP, while emissions and energy consumption negatively affect growth.

Dr Mofema suggested that addressing inflation and stabilising energy use could help manage carbon emissions and support economic expansion. "Reducing energy consumption and keeping inflation in check are key to balancing carbon tax impacts," he adds.

The study also identified a critical threshold for carbon tax in South Africa, indicating that the country has room to increase its tax rates without stalling economic growth.

"Our findings suggest that South Africa has not yet reached its carbon tax limit. Increasing it gradually could further reduce emissions while supporting growth," Dr Mofema concluded.

Dr Victor Mofema was recently conferred a PhD in Economics.