Carbon tax in South Africa

After having been the subject of various discussion papers since 2011, the introduction of a carbon tax in South Africa is becoming a reality with the release of the Draft Carbon Tax Bill (Draft Bill) earlier this month.

It has been clear since at least 2013 that South Africa would opt for a carbon tax in order to price carbon, as opposed to an emissions trading scheme. The Draft Bill now sets out the mechanics of the
carbon tax.

Essentially, the carbon tax will be levied in respect of the greenhouse gasses (GHGs) that result from:

• the combustion of fossil fuels;
• fugitive emissions in respect of commodities, fuel or technology; and
• industrial processes and product use.

In other words, not only emissions from the combustion of fossil fuels will be taxed, but emissions from certain industrial or mining processes and activities will also fall into the carbon tax net. Emission factors will be used in order to calculate the resultant mass of GHGs.

The base carbon tax rate will be R120 per ton of GHGs emitted (or the carbon dioxide equivalent thereof).

Persons who conduct activities which will be listed in a notice published by the Minister of Environmental Affairs will be liable to account for carbon tax. However, certain sectors such as the agricultural, forestry and waste sectors will be excluded.

In addition, certain thresholds will apply, and at least in respect of stationary emissions, only entities with a thermal capacity of 10MW or more will be subject to carbon tax for the time being. For non-stationary emissions, the carbon tax will effectively be included in the specific fuel tax.

The Draft Bill makes provision for a number of allowances that will reduce an entity’s carbon tax liability.

In respect of the combustion of fossil fuels, an entity will generally receive a 60% allowance of the total percentage of GHG emissions for the period, depending on the relevant sector. This is in addition to the fact that ‘sequestrated’ emissions will also reduce the entity’s liability, essentially being carbon collected or trapped in a carbon reservoir.

Allowances are also available for:

• fugitive emissions and industrial processes, depending on the sector;
• trade exposed sectors, up to 10%;
• entities who have implemented additional measures to curb emissions, an allowance of up to 5%;
• companies who participate in the carbon budget system, an allowance of 5%; and
• offsets as prescribed by the relevant minister.

A limitation of 95% will apply to allowances. Percentages and the limitations are to be reviewed after 2020 in order to phase in the effect of carbon tax.

Administration of the carbon tax will largely lie with the South African Revenue Service (SARS), working together with the Department of Environmental Affairs and the Department of Energy in order to establish mechanisms for monitoring, reporting and verifying emissions.

However, the system will largely constitute a self-assessment process, whereby taxpayers will be responsible for measuring their own emissions and calculating their tax liability.

Cliffe Dekker Hofmeyr will be involved in making submissions on the Draft Bill.