The South African government planned to introduce a carbon tax from 2013 as part of its efforts to reduce pollution levels emanating from domestic economic activities. The position of organised labour on the introduction of the tax has ranged from outright rejection to requests for a delay in its implementation until employment safe-guards are put in place. Organised labour feels strongly that a carbon tax will have a negative impact on local employment. This paper examines the validity of organised labours’ concerns on possible job losses using a qualitative system dynamics approach. A case is made that despite being set at low levels, the carbon tax has potential to negatively affect competitiveness of firms in the long term. The potential job loss from the carbon tax will not necessarily be a result of increases in the immediate operational costs of firms, but rather from the loss of firms’ competitiveness in the long term. It is recommended that the implementation of the carbon tax be put on hold until safe-guards to local employment are put in place. One of the possible safeguards is to ensure that local firms in the energy sector have access to low-cost but clean production technologies that do not substitute their labour force but rather supplement its productivity.