Most Read Contributor in South Africa, September 2016
On 27 February 2013 the Minister of Finance announced that a
carbon tax will be introduced with effect from 1 January 2015. He
also announced that a carbon tax policy paper would be published
that will contain the details for the carbon tax. That policy paper
was published on 2 May 2013. This article contains the key design
features of the carbon tax as set out in the policy paper.
The carbon tax is a cornerstone of South Africa’s plan for
reducing its greenhouse gas emissions. The introduction of the
carbon tax will have implications for all South African business
sectors; not only those who are liable to pay the carbon tax. The
table below sets out the key elements of the carbon tax.
Table: Key elements of the carbon tax
1January 2015 – 31 December
1 January 2020
– 31 December 2025
ton of CO2e above tax free thresholdswhich will increase by 10% per
methane, nitrous oxide and perfluorocarbons, hydrofluorocarbons and
same as first
direct emissions (scope
same as first
indirect emissions from
electricity (scope 2) & indirect emissions from the supply
chain (scope 3)
same as first
(coal / gas to liquid)
emissions: coal mining
same as first
forestry and land use
included during the 2nd phase
thresholds will be decreased progressively and may be replaced with
absolute emissions thresholds thereafter
The carbon tax will be implemented in a phased approach. During
the first phase that will run from 1 January 2015 to 31 December
2019 the carbon tax will be introduced at an initially low rate
(see the next paragraph ‘The carbon tax rate’) with an
increase of 10% per annum. The rationale for this approach is to
enhance the acceptability of the carbon tax. The second phase will
run from 1 January 2020 to 31 December 2025.
The covered sectors
Entities with facilities in the covered sectors will be liable
for the carbon tax. It should not necessarily be assumed that
sectors (such as retail, commercial property, etc.) that are
excluded from the covered sectors are therefore not subject to the
carbon tax. The covered sectors include a catch-all category named
“other”. Much will depend on how widely or narrowly the
word “other” is interpreted.
The carbon tax rate
During the first phase the carbon tax rate of R120 per ton of
CO2e will only apply to those emissions above the applicable
tax-free thresholds. The carbon tax rate will be increased annually
by 10% (2016 – R132; 2017 – R145.20; etc). Taking into
account the applicable tax-free thresholds the real carbon tax rate
will range from R12 to R48 per ton of CO2e (during the first year
of the first phase). The rate will be revised during the second
The tax-free thresholds
Each of the covered sectors will be entitled to a 60% tax-free
threshold while certain of the covered sectors will be entitled to
a maximum trade exposure allowance and a process emissions
allowance. Finally certain of the covered sectors will be entitled
to offset their carbon tax liability by purchasing carbon credits.
The tax-free thresholds will be reduced during the second phase and
may be replaced with absolute emissions thresholds.
The covered greenhouse gasses
The carbon tax will not only cover CO2. It will also cover
carbon dioxide equivalent emissions such as methane, nitrous oxide,
perfluorocarbons, hydrofluorocarbons and sulfur hexafluoride. It is
for this reason that the carbon tax will be levied on CO2e (or
The covered emissions
The carbon tax will only be levied on scope 1 emissions. A scope
1 emission is a carbon emission occurring within the boundary of a
facility from sources such as power stations and industrial
processes that are measured at the source of the emission. Scope 1
emissions also include carbon emissions from the burning of fuel.
Organisations should also consider their exposure to scope 2
emissions. Although organisations that are subject to scope 2
emissions are not subject to the carbon tax there will be a
financial impact as the cost of the carbon tax is passed on by
scope 1 emitters in the covered sectors.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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