South African president Mr Cyril Ramaphosa has signed into law the Carbon Tax Act, which comes into effect from 1 Jun’19, as announced by the Minister of Finance in the 2019 Budget.
South Africa – which relies largely on coal for its energy supply, is envisaged as the 14th largest polluter in the world and the largest in Africa. The government has outlined its strong commitment to play its part in global efforts to mitigate greenhouse gas (GHG) emissions as outlined in the Paris Agreement.
The primary objective of the carbon tax is to reduce GHG emissions in a sustainable, cost effective and affordable manner which forms an integral part of ensuring that South Africa meets these targets.
The Carbon Tax Act gives effect to the polluter-pays-principle for large emitters and helps to ensure that firms and consumers take the negative adverse costs into account in their future production, consumption and investment decisions.
Set at Rand 120 per tonne of CO2 equivalent emitted, the tax will initially only apply to scope 1 emitters in the first phase. The first phase will be from 1 Jun’19 to 31 Dec’22, and the second phase from 2023 to 2030.
The design of the carbon tax also provides significant tax-free emission allowances ranging from 60-95% in the first phase, which includes:
– basic tax-free allowance of 60% for all activities
– 10% process and fugitive emissions allowance
– maximum 10% allowance for companies that use carbon offsets to reduce their tax liability
– performance allowance of up to 5% for companies that reduce the emissions intensity of their activities
– 5% carbon budget allowance for complying with the reporting requirements
– maximum 10% allowance for trade exposed sectors.
The introduction of the carbon tax is not likely to have any impact on the price of electricity for the first phase. As it will result in a relatively modest carbon tax ranging from Rand 6-48 per tonne of CO2 equivalent emitted, largely offset by the allowances.
The relatively lower rate would in turn provide current significant emitters time, to transition their operations to cleaner technologies.
A review of the impact of the tax will be conducted before the second phase, and will take into account the progress made to reduce GHG emissions. Future changes to rates and tax-free thresholds in the Carbon Tax would then be carried out after the review.
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