South Africa’s Carbon Tax Act 15 of 2019 (Carbon Tax Act) came into effect from 1 June 2019. Zadok Olinga, Board member of the South African Energy Efficiency Confederation (SAEEC) looked at the implications of its implementation in a recent SAEEC newsletter, noting that it forms a further element in government’s drive to reduce South Africa’s carbon emissions in line with the country’s international commitments on combatting climate change.

              SAEEC Board member Zadok Olinga.

The first phase of implementation of the Carbon Tax Act will see carbon emissions taxed at R120 per tonne of CO2e (carbon dioxide equivalent). With the various allowances considered, the effective rate ranges from about R6 to R48 per tonne of CO2e. This initial rate will increase annually by CPI (consumer price inflation) +2% until 31 December 2022. Continuing implementation, from 1 January 2023 onward, will see the tax rate increase by CPI annually.

As Olinga says, companies will have to adapt to the additional operating costs the tax imposes, together with related reporting and compliance requirements. However, he notes that the Deputy Director-General of National Treasury, Ismail Momoniat, speaking at a seminar in July, described the current carbon tax as “pretty weak”, mainly symbolic and designed primarily to change behaviour. Olinga suggests that as companies prepare for the new tax they should also consider mitigating actions that they can implement to reduce its cost impact on their operations.

He says the SAEEC is committed to assisting companies and the wider public in South Africa with the transition to a greener future. The confederation has carried out a number of workshops on the implications of the Carbon Tax Act as well as on measurement and verification (M&V), and further workshops are planned going forward. Particular attention will be focused on the practical aspects of carbon tax reporting and compliance, and possible mitigating actions to reduce the carbon tax burden for companies liable to pay the tax.

Energy efficiency is one of the principal mitigating actions that will be addressed. Olinga cites the working paper on Energy Efficiency Networks produced by the Organisation for Economic Co-operation and Development (OECD) and the International Partnership for Energy Efficiency Cooperation (IPEEC) which states that “energy efficiency is a crucial pillar of the global energy transition…” and 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.” He says the SAEEC shares this view and speakers at future workshops will outline how energy efficiency fits into carbon tax mitigation in South Africa.

Olinga also reiterated that South Africa’s Minister of Finance, Tito Mboweni, in his 2019 budget speech announced that the Section 12L tax incentive for energy efficiency (in the Income Tax Act, 1962) will be extended by three years to align with the end of phase 1 of the carbon tax. This is a further indication of how central energy efficiency will be to businesses and industry in reducing carbon emissions and their carbon tax liabilities.

Other possible mitigation schemes that the SAEEC will address include carbon neutralisation, carbon sequestration, the use of carbon offsets, and the generation of carbon offsets by entities that are not liable to pay carbon tax. The confederation welcomes participation from all sectors of industry to advance energy efficiency and support the energy transition..

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