South Africa: Reversing Climate Change Starts At Home: The South African Carbon Tax And The Paris Agreement

Last Updated: 28 April 2016
Article by Andrew Gilder, Mansoor Parker and Olivia Rumble

Most Read Contributor in South Africa, September 2018

The Paris Agreement (the "Agreement") will be signed on Friday, 22 April 2016 in New York. This adds further impetus to the international response to climate change and, for the local economy, it re-emphasises the importance of South Africa's national greenhouse gas mitigation actions, including the carbon tax.

Paris Agreement – entry in force

If 12 December 2015, the day on which negotiations on the Agreement were concluded, will go down in history as the date on which humanity finally took the threat of climate change seriously enough to warrant a comprehensive (if still flawed) global response, then 22 April 2016 will likely run a close second in terms of significance. On Friday (22 April 2016), the United Nations Secretary-General, Ban Ki-Moon, will convene a high-level signing ceremony of the Agreement in New York to mark the official commencement of the steps required to implement the future climate change legal regime. At the last count, some 156 countries, including all of the world's largest emitters (save the Russian Federation) have indicated an intention to sign.

After 22 April 2016, the Agreement will be open for signature in New York until 17 April 2017 and will enter into force when at least 55 country Parties to the United Nations Framework Convention on Climate Change ("UNFCCC"), together representing at least 55% of global emissions, have ratified, accepted or approved the Agreement or acceded thereto. The timing of the Agreement's coming into operation is important because the operation of the Kyoto Protocol (the Agreement's predecessor and part of the suite of international climate change law, including the UNFCCC), was subject to the same pre-conditions (ratification, acceptance, approval or accession of 55 countries, together representing at least 55% of global emissions). Given the state of international economics and geopolitics of the time (1997 to 2005) it took eight years for Kyoto to be brought into operation. The period was marked by waxing developing country greenhouse gas emissions and a concomitant waning in the political will of developed countries to comply with their Kyoto-enshrined obligations to curtail industrial greenhouse gas emissions. These geo-political and economic factors ultimately led to a breakdown in the Protocol's approach to greenhouse gas mitigation and spurred concern over weakening international climate response and ultimately, to the revival of ambition that drove the successful negotiations on the Agreement.

Global climate change response

In a clear indication of the momentous shift in international climate change ambition, the number and combined emissions on the list of currently anticipated signatories implies the strong likelihood that the Agreement will come into operation in the near future.1 While this willingness to work on the global climate response is heartening, there are indications that the planet is not waiting for humanity to get its collective act together. The World Resources Institute ("WRI") recently reported on six climate change milestones that have been achieved since COP21 was held in Paris in November and December 2015, namely:2

  • the confirmation of 2015 as the warmest year on record;
  • record levels of warmth experienced each month, so far, in 2016;
  • record lows in the peak levels of Arctic sea ice;
  • a strengthening of the connection between extreme weather events and human-induced climate change;
  • confirmation that the West Antarctic Ice Sheet is at significantly greater risk of rapid melting than was previously thought; and
  • confirmation that the negative impacts of carbon-intensive behaviour might be more pronounced than previously thought.

South Africa's climate change response and the carbon tax

The WRI's last mentioned milestone speaks directly to the continuing evolution of the measures being marshalled to curtail industrial greenhouse gas emissions, including economic measures such as carbon pricing. With a view to deepening our understanding of the role that carbon pricing can play in the climate response, the International Emissions Trading Association ("IETA") has analysed the 188 Intended Nationally Determined Contributions ("INDCs") that were submitted by UNFCCC country Parties to the UNFCCC Secretariat (including South Africa) in anticipation of the COP21 negotiations. Among IETA's findings are that:3

  • 90 INDCs indicate that achieving the respective country's climate goals will require access to a carbon market; and
  • several INDCs mention that higher national ambition in responding to climate change would be possible were carbon market access, carbon pricing and climate finance to become more easily available.

IETA's findings provide a convenient reason to consider the latest developments in South Africa's most prominent process to price greenhouse gas emissions in this economy, namely the National Treasury's proposed carbon tax on direct industrial greenhouse gas emissions. It is worth reiterating some of the reasons underpinning Treasury's actions, including:

  • The ubiquity of the international impetus towards pricing carbon – in addition to IETA's abovementioned findings, a World Bank report of September 20154 records that, by that date, some 40 national and 23 cities, states and regions, representing approximately 7-billion tonnes of carbon dioxide, or 12% of global greenhouse emissions, were using or considering using carbon pricing schemes, for example emissions trading and/or carbon taxes. Developing countries involved in these activities include Mexico, China, Thailand, Chile and China. This means that contrary to a regularly repeated, but erroneous, argument against the imposition of the carbon tax, South Africa is not a leader, even among developing countries, in seeking to price carbon in its economy.
  • South Africa's greenhouse gas emissions are the largest on the African continent and, if not curbed, will continue to grow exponentially. When considered per capita, South Africa's emissions are regularly placed in the top 20 of global emissions, and its emissions intensity – the ratio of emissions to Gross Domestic Product – is above the world average and on par with very industrialised countries such as Japan.
  • There are growing calls from a number of developed countries for the imposition of border tax adjustments, i.e., import fees levied by countries that price carbon in their economies on manufactured goods imported into that economy from countries that do not price carbon. Consequently, any potential revival of the South African manufacturing sector, with some hope of doing international business, can only occur if local production is subject to a future carbon price signal.
  • Due to the need to control the economic impact of the tax, the sooner industry is able to grapple with this new reality of doing business, the sooner its positive effects, including drives towards greater efficiency and reduction in greenhouse gas emissions, can begin to permeate the economy.

During the week of 11 April 2016, Treasury held a series of stakeholder engagements to provide feedback on the round of consultation that followed the release for comment of the Draft Carbon Tax Bill, in November 2015 (the "Bill").

The following clarifications emerged from the recent consultations:

  • The Bill's current provision identifying tax liable activities will be amended to refer to the schedules to the Bill itself, rather than to the draft Pollution Prevention Plan Regulations drafted in terms of section 29 of the National Environmental Management: Air Quality Act 39 of 2004.
  • The schedules to the Bill will also need to be amended to align with the greenhouse reporting processes currently being managed by the Department of Environmental Affairs pursuant to the draft Greenhouse Gas Reporting Regulations, which feed into the National Atmospheric Emissions Inventory System ("NAEIS"). The intention is that the greenhouses gas reporting into the NAEIS will be the same reporting as that required by the South African Revenue Service in respect of the carbon tax. Treasury confirmed that the Bill's reference to a calendar year for carbon tax reporting, as opposed to a financial year, will remain in order to align the timing of carbon tax reporting with that for NAEIS reporting. The intention is that the first round of carbon tax reporting will be in March 2018 and the draft Greenhouse Gas Reporting Regulations and the associated Technical Guidelines, read together, will inform carbon tax reporting.
  • The anticipated impact of the carbon tax on the electricity price will be neutralised for the first period by a combination of the phase-out of the renewable energy levy (currently imposed on fossil fuel generated electricity) and the replacement (in the fiscus) of the revenue raised by this levy with that raised from the carbon tax and the advantage accorded to Eskom in the calculation of carbon tax payable in respect of fossil fuel generated electricity (section 6(2) of the Bill).
  • There is also an intention to provide for a threshold of 10 mega-watts thermal capacity (estimated in volumes of emissions at around 30 000 tonnes of carbon dioxide equivalent) below which entities will not be tax liable. The point of this threshold is that it is high enough to exclude households and other, non-industrial activities from the carbon tax, but low enough to make the tax applicable to the majority of emitting industries in the country.

Business needs to take the promise of the carbon tax seriously

For those who might still be of the view that the carbon tax will not materialise, Treasury's message is very clear: the carbon tax is coming and the timeframe for commencement, including progressing through the Parliamentary process, remains January 2017. Notwithstanding this determination, a recent article in the Business Day5 has indicated that there might still be some delay in taking the Bill through the Parliamentary process in 2016 due to the time limitation resulting from Parliament's going into recess from May, ahead of the local government elections in August. Business is advised to caution against reading the article to mean that the carbon tax will not materialise. On the contrary, the messaging is clearly no longer "whether" the carbon tax will be implemented but rather "when".

Opportunities currently exist for emitters of greenhouse gas to take strategic steps to ameliorate the impact of the carbon tax on their business, alternatively for entities that have the potential to generate carbon offsets for use under the tax scheme to take the strategic steps that will permit them to capitalise on this opportunity. A slight further delay in implementing the carbon tax occasioned by Parliament's limited time in 2016 will simply be a short breathing-space which will afford proactive business the chance to consider the risks and opportunities that will arise when the tax is implemented.

Treasury expects to release draft offsets regulations by the end of May 2016, and a second draft Bill thereafter, both of which will be subject to further stakeholder consultation.

Footnotes

1. For the list of anticipated signatories, see:http://www.un.org/sustainabledevelopment/blog/2016/04/parisagreementsingatures/

2. See the WRI report at:http://www.wri.org/blog/2016/04/6-climate-milestones-cop21-paris

3. See the IETA report at:http://www.ieta.org/resources/Resources/Reports/Carbon_Pricing_The_Paris_Agreements_Key_Ingredient.pdf

4. See the World Bank report at: http://www.worldbank.org/en/news/feature/2015/09/20/state-and-trends-of-carbon-pricing-2015

5. See the Business Day article at: http://www.bdlive.co.za/national/science/2016/04/19/no-time-to-process-carbon-tax-bill-this-year

Originally published on 21 Apr 2016

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
ENSafrica
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
ENSafrica
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions