The South African government has introduced a new legislation in response to the rapid climate risks heightened by the large emitters of greenhouse gases (GHGs) — the Carbon Tax becomes effective on 1 June 2019.
The Carbon Tax was passed into law by the South African parliament on the 5th of February 2019.
The tax will be implemented in a phased manner, taking into account SA’s Nationally Determined Contributions (NDCs) commitment to reduce greenhouse gas emissions.
The first phase will come into effect from 1 June 2019 to 31 December 2022, and the second phase from 2023 to 2030. This ensures alignment with the country’s NDC commitments under the Paris Agreement.
Which sectors will be impacted?
The sectors that will feel the immediate impact are those with an installed thermal capacity of 10MW or more as they would need to start reporting on the carbon emissions.
To put things into perspective a typical shopping centre’s load can vary between 3MW and 5MW, whilst an industrial user’s can be around 10MW and higher, explained the Green Building Design Group.
Mining operations typically go beyond that to reach as much as 600MW.
In the explanatory note that was published by the National Treasury in November 2018, it states clearly that the Carbon Tax applies to all the sectors and activities except the Agriculture Forestry and Other Land Use (AFOLU) and waste sectors, which will be exempt during the first implementation phase, due to measurement difficulties.
Worth noting is the inclusion of municipal entities (a municipal entity as defined in section 1 of the Local Government: Municipal Systems, 2000 (Act 32 of 2000), as well as certain public entities, in the definition of a person liable for
Liability for the tax arises for every entity that conducts an activity and emits GHG emissions above the threshold which is listed in Schedule 2 of the Bill. Read more: The Big Question | How to achieve high levels of energy efficiency rates
‘Polluters pay’ principle
The initial carbon tax will be R120 a tonne of CO2e (carbon dioxide equivalent), but because of a number of tax-free allowances, it will result in an effective tax of R48 to as little as R6 a tonne.
Over time, post 2022, these tax-free allowances could be phased down. The overall maximum tax-free allowance (threshold) is limited to 95%.
The imminent Carbon Tax Act, which will apply over and above the corporate income tax, will impose a carbon tax on entities, which in their operations, emit GHGs above the permissible threshold to be set by the Act.