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Abstract

South Africa has a competitive and viable food production sector which enables the country to be a consistent net exporter of agricultural products. Lately, the business and labour organisations have raised concerns that the government's intention to implement the carbon tax policy will affect the food supply, subsequently exacerbating the unemployment and food insecurity in the country. Carbon tax is one of the policy tools to be implemented in order to reduce the growing greenhouse gas (GHG) emissions thus helping the government meets its Paris Agreement commitments. South Africa's National Treasury released a second draft of the carbon tax bill in 2017, which takes into account the concerns raised by different organisations. In this paper, we evaluate the potential impact of the carbon tax policy on the food sector using a computable general equilibrium (CGE) model. The results show that the carbon tax is an effective policy tool to mitigate emissions, as they decline by 33 percent relative to the baseline by 2035. This also leads to a welfare loss of R98.326 billion as the country transform into a green economy. While sectors such as transport, steel and coal-generated electricity experiences significant output decline, the food sector shows improvements in terms of production and employment when the carbon tax is implemented. The positive effects on the food sector suggests that the policy makers have designed a plausible environmental protection policy that cushion the food supply against any expected negative effects. Key words: CGE, carbon tax, food JEL classification:C68, H23, Q18

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