Mitigate the impacts of carbon tax

Carbon tax came into effect on 1 June 2019 in South Africa as part of government’s drive to reduce carbon emissions and live up to its commitments on climate change.

Phase 1 of the tax sees carbon emissions taxed at a rate of R120/tonne of CO2e (carbon dioxide equivalent). With the various allowances considered, the effective tax rate is between R6 and R48/tonne of CO2e. The initial rate will increase annually by the consumer price index (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 must adapt to the reality of additional operating cost, more reporting requirements and carbon tax compliance. However, the deputy director-general at National Treasury, Ismail Momoniat, indicated at a seminar on 16 July 2019 that the current carbon tax is “pretty weak”, primary symbolic and designed to change behaviour.

Industry seems opposed to the tax but the indications are that carbon tax is the new reality. Companies must therefore prepare for it and consider mitigating to ensure that carbon tax does not place undue burden to their operations.

The South African Energy Efficiency Confederation (SAEEC) is committed to assisting companies with this transition. It has presented workshops on carbon tax and measurement and verification (M&V), and plans further, follow-up workshops. These will focus on the practical aspects of carbon tax reporting and compliance, and possible mitigation to reduce companies’ tax burden.

Energy efficiency is one way to mitigate the impact. In their working paper on energy efficiency networks, the Organisation for Economic Co-operation and Development (OECD) and the International Partnership for Energy Efficiency Cooperation (IPEEC) estimate that energy efficiency must contribute about 50% in energy-related CO2 emissions reduction.

ions for the world to be on track for the 2°C trajectory set out by the 2015 Paris Agreement. The SAEEC shares this sentiment and speakers at its next workshop will outline how energy efficiency boosts carbon tax mitigation.

Finance Minister Tito Mboweni has 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 introduction.

Other possible mitigation to be discussed include carbon neutralization; carbon sequestration; the use of carbon offsets, and the generation of carbon offsets by entities not eligible to pay carbon tax.

Contact Franki McKechnie, SAEE, Tel 063 235-8030, admin@saee.org.za

 

 

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