The picture is almost complete: Further regulations published regarding South Africa’s carbon tax

While Greta Thunberg has caught the attention of many in recent times with her climate change activism, on the South African front, we saw some important developments regarding carbon tax in South Africa, specifically the following:

6 Dec 2019 6 min read Tax and Exchange Control Alert Article
  • On 29 November 2019, the Carbon Offset Regulations were published in the Government Gazette (Final Offset Regulations);
  • On 2 December 2019, National Treasury (NT) published the Draft Regulations for the Trade Exposure Allowance (Draft Trade Exposure Regulations), for purposes of the trade exposure allowance catered for in section 10 of the Carbon Tax Act, No. 15 of 2019 (Act); and
  • On 2 December 2019, National Treasury (NT) published the Draft Regulations for the Greenhouse Gas Emissions (GHG) Emissions Intensity
  • Benchmarks (Draft Performance Allowance Regulations), for purposes of the performance allowance catered for in section 11 of the Act.

In this article, we briefly discuss the details of each of these regulations and how they will impact entities that will become liable for carbon tax under the Act.

Final Offset Regulations

The gazetting of the Carbon Offset Regulations follows a period of approximately three years since the publication of the initial draft regulations in 2016 (Initial Offset Regulations) and the publication of the amended draft regulations in 2018 (Amended Offset Regulations), which the public and stakeholders had the opportunity to comment on. We discussed the previous draft versions of the Carbon Offset Regulations in our Tax & Exchange Control Alert of 22 July 2016 and our Tax & Exchange Control Alert of 16 November 2018.

In our Tax & Exchange Control Alert of 16 November 2018, we compared the Initial Offset Regulations to the Amended Offset Regulations and the changes that had been made, with a particular focus on certain issues dealt with in the Amended Offset Regulations, including the –

  • eligibility of a taxpayer to make use of the carbon offset allowance;
  • offset utilisation period; and
  • procedure for claiming the carbon offset allowance.

The Final Offset Regulations provide finality on these issues. When compared to the Amended Offset Regulations, some of the important amendments are the following:

  • Regulations 2(2) and 2(3) of the Final Offset Regulations state that under certain circumstances, an offset in respect of an approved project in existence prior to 1 June 2019, constitutes an offset for the purpose of these Regulations and may be used for the offset utilisation period stipulated in regulation 3.
  • Regulation 4(1)(b), which lists activities that cannot qualify for the carbon offset allowance, has been amended to state that a taxpayer conducting an activity in respect of renewable energy generated in respect of a technology with an installed capacity exceeding 15 Megawatt, with a cost equal to or lower than R1.09 per kilowatt hour may not receive the allowance in respect of an offset in respect of
    that activity;
  • Regulation 4 has also been amended to state that taxpayers conducting an activity in respect of a temporary CDM certified emission reduction, may also not receive the allowance in respect of an offset for that activity. A “temporary CDM certified emission reduction” is defined in regulation 4 as a temporary certified emission reduction as defined in the United Nations Framework Convention on Climate Change, Clean Development Mechanism Glossary: CDM Terms.
  • Regarding the certificate that is issued in terms of regulation 8 read with regulation 11, reflecting details of the approved project and the offset and which serves as proof thereof, there were two amendments. Regulation 11(h) now states that a certificate issued by the administrator as contemplated in regulation 8 must contain a statement that the certificate issued is not transferable. Regulation 11 further states that the certificate will indicate the tax period in which the certificate is issued.

Lastly, regulation 13 states that the Final Offset Regulations are deemed to have come into effect on 1 June 2019 and therefore apply retrospectively.

Draft Trade Exposure Regulations

According to the document entitled “Summary – Draft Trade Exposure and GHG Emissions Intensity Benchmark Regulations”, which was also released by NT on 2 December 2019 (Summary Document), some of the key features of the Draft Trade Exposure Regulations are the following:

  • Regulation 2 provides for a list of sectors and the level of trade exposure allowance that each sector qualifies for, as specified in Annexure A of the Draft Trade Exposure Regulations. Annexure A provides a column of the SIC codes for each sector or subsector and the corresponding Intergovernmental Panel on Climate Change IPCC Code for different sectors;
  • Regulation 3 provides that the carbon tax payable by a firm will be determined by a sum of the GHG emissions for each category, less the allowances for each emissions category (combustion, fugitive or industrial process). For companies with activities in different sectors with varying SIC code categories but within the same emissions category, and that potentially face different trade intensity risk levels simultaneously, a weighted average of the different tax-free allowance levels will be calculated; and
  • Regulation 4 provides for taxpayers considered to be “borderline” and upon the request of such taxpayers, to use an alternative quantitative approach rather than a qualitative approach (considered to be inherently subjective in nature), for calculating the level of the trade exposure allowance.

A taxpayer can qualify for a trade exposure allowance of up to 10%, depending on the sector(s) in which it operates. According to regulation 5 of the Draft Trade Exposure Regulations, it is intended that once the final version has been published in the Government Gazette, they will apply retrospectively from 1 June 2019.

Draft Performance Allowance Regulations

As stated in the Summary Document, section 11 of the Act sets out the formula to be used by taxpayers to determine the level of allowance that they would qualify for, which formula takes into account the actual emission intensity of the taxpayer for a certain tax period relative to an approved emission intensity benchmark factor. Pursuant to section 19(a) of the Act providing for the development of regulations to specify emission intensity benchmarks, these draft regulations outline the emission intensity benchmarks for sectors and subsectors.

According to the Summary Document, emissions intensity benchmark proposals were developed by industry associations for the following industries:

  • liquid fuels;
  • gas and coal to liquid fuels;
  • mining;
  • cement;
  • iron and steel;
  • paper and pulp;
  • ferroalloys;
  • titanium slag;
  • chemicals (nitric acid);
  • sugar; and
  • clay brick.

According to the Summary Document, the setting of benchmarks was mainly based on the average emissions performance of a sector to ensure alignment with the benchmark approach adopted in many developing countries.

Regulation 2 provides for the sector GHG emission intensity benchmark values as set out in Annexure A to the Draft Performance Allowance Regulations to be used by taxpayers to calculate the performance allowance. Taxpayers can qualify for a performance allowance of up to 5%, to reduce their carbon tax liability. It is also intended that these regulations will apply retrospectively from 1 June 2019, once the final version is gazetted.


Although it is unfortunate that it took so long for each of the regulations to be published, at the very least, the Final Offset Regulations will apply retrospectively from 1 June 2019. If the Draft Trade Exposure Regulations and Draft Performance Allowance Regulations are gazetted in their current form without any changes, it appears that they will also apply retrospectively from 1 June 2019, which is the day on which the Act came into effect.

Hopefully, the Draft Trade Exposure Regulations and Draft Performance Allowance Regulations will be published before the end of June 2020, which is the date by which taxpayers must pay carbon tax due for the period ending 31 December 2019.

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