Reference no: EM132214849

AIR-POLLUTION LEVIES

Recent pronouncements by the Department of Trade and Industry regarding proposed levies on the sale of vehicles have had considerable mileage in the local media. The levies are aimed at promoting energy efficiency by becoming progressively more punitive as the engine capacity of vehicles increases. Heavy fuel-consuming vehicles, including 4x4s have been singled out for additional taxes.

In their current format, these proposals would have sharply negative effect on vehicle sales. The reality is that the vehicle manufacturing industry, through the motor industry development plan (MIDP) is a material contributor to the South African economy in both gross domestic product and employment terms. Moves that jeopardise its long-term health will have far-reaching economic and political consequences.

The proposed levies would slow overall car sales. Luxury vehicles, which are mostly imported, would be the hardest hit. The combined effect would be to materially alter the mix of vehicles sold domestically by local car producers towards smaller, lower margin types.

A market-based solution to this problem is required and the most appropriate form is a carbon/pollution tax levied directly on to every litre of fuel sold. This is perfectly efficient as the pollution tax paid is directly related to the amount of pollution emitted.

It gives manufacturers an incentive to produce smaller, more efficient vehicles as rational consumers will budget for their expected running costs, including fuel. Consumers will have an incentive to car pool, use public transport and limit the mileage done in their fuel-intensive vehicles. If applied correctly, it would also ensnare all potential polluters, including heavy industry and the airlines.

Business Report, June 15, 2007

1. What suggestion is being made by the Department of Trade and Industry to reduce air pollution?

2. The writer of the article proposes an alternative measure which he feels is preferable. What is it?   

3. What steps does the writer feel consumers would take if the market-based solution is adopted? Industry to reduce air pollution?   

4. The writer of the article proposes an alternative measure which he feels is preferable. What is it?

5. What steps does the writer feel consumers would take if the market-based solution is adopted?