Carbon Tax : The next steps – practical implementation and mitigation actions

By Zadok, Olinga

SAEEC Board Member

Carbon tax came into effect on 1 June 2019 in South Africa as part of the desire of government to reduce carbon emissions and live up to its promises and commitments on climate change. Phase 1 of the tax sees carbon emissions taxed at a rate of R120/tonne of CO2e (carbon dioxide equivalent), and with the various allowances considered, the effective tax rate is between R6 – R48/tonne of CO2e. The initial rate will increase annually by CPI +2% until 31 December 2022 and by the CPI from 1 January 2023 onwards.

The price for greenhouse gas emissions seems set and companies have to adopt to the reality of additional operating cost, more reporting requirements and complying with carbon tax. However, the deputy director-general at National Treasury, Ismail Momoniat, speaking at seminar on 16 July 2019 indicated that the current carbon tax “…is pretty weak”, primary symbolic and designed to primarily change behavior.  Industry seems opposed to the implementation of carbon tax but all factors indicate that carbon tax is a new reality that is here to stay. Therefore, companies have to prepare for it and consider mitigating actions to ensure that carbon tax does not pose an undue burden to their operations.

The South African Energy Efficiency Confederation (SAEEC ) is committed to assisting companies and the wider public in South Africa with the transition to a greener future. Thus far, it has carried out workshops on carbon tax, Measurement and Verification (M&V), and further workshops are planned starting in August 2019 as a follow up to the previous two workshops. Of particular focus will be the practical aspects of carbon tax reporting and compliance, and possible mitigating actions to reduce the carbon tax burden for companies eligible to pay the tax.

Among the possible mitigating actions that will be addressed is energy efficiency. In their working paper on Energy Efficiency Networks, the Organisation for Economic Co-operation and Development (OECD) and International Partnership for Energy Efficiency Cooperation (IPEEC) state that “energy efficiency is a crucial pillar of the global energy transition…” and go on state that “Energy efficiency will need to contribute about 50% in energy-related carbon dioxide (CO2) emissions reductions for the world to be on track for the 2°C trajectory set out by the Paris Agreement adopted in December 2015.” The SAEEC shares the above sentiment and will present speakers at its next workshop who will outline how energy efficiency fits into carbon tax mitigation in South Africa. Furthermore, government through the Minister of Finance, Tito Mboweni, announced that the section 12L tax incentive for energy efficiency will be extended by three years to align with the end of phase 1 of carbon tax. This further indicates how central energy efficiency will be to carbon tax and emissions reduction.

Other possible mitigation schemes that will be addressed include carbon neutralization, carbon sequestration, the use of carbon offsets, and the generation of carbon offsets by entities that are not eligible to pay carbon tax. As the SAEEC we welcome participation from all sectors of industry and look forward to meeting you at our next workshop towards early September 2019.