This article was written by Climate Neutral Group on May 24 2019.
After nearly a decade of negotiations, the Carbon Tax Act and the Customs and Excise Amendment Act were both officially gazetted on Thursday (23 May) and will come into effect from 1 June 2019. Where the Customs and Excise Amendment Act will be dealing with the administrative issues, the Carbon Tax Act sets out the technical and financial aspects, including emissions sources, the tax rate, tax-free allowances, and so forth.
The carbon tax is aligned to the polluter-pays principle, which means that carbon emissions caused by certain activities will be taxed at a rate defined in the Act. The carbon tax is one of a mix of measures to aid South Africa’s contribution to the global effort to stabilise the currently increasing amount of greenhouse gases in the atmosphere contributing to the climate crisis. The carbon tax is a price signal, which together with other measures including the tax incentives for efficient use of energy, aims to accelerate South Africa’s transition to a low carbon economy.
What does this mean for companies with a large carbon footprint?
South Africa’s economy is carbon intensive as a result of the historic abundance of coal. South Africa ranks number 14 on the list of the world’s biggest carbon emitters.
The SA carbon tax stipulates that carbon emissions from industrial processes, such as cement production and from various industrial activities including mining, will also attract carbon tax.
Therefore, the carbon tax will be implemented in a phased approach to cushion the impact. In the first phase, all carbon tax liable entities will receive a basic tax-free allowance of 60%. This means that 60% of the total taxable emissions will not be taxed. There are more allowances in place, such as a trade allowance, performance allowance and carbon offset allowance, all of which can bring the amount of taxable emissions down further.
Because companies with a large footprint cannot instantly reduce their tax liability, as a result of lack of technology or implications of large upfront investments, the Carbon Tax Act also allows for companies to offset a defined percentage of their taxable emissions. This means that companies can choose to buy carbon emissions reductions that are generated elsewhere, within SA borders, and reduce that amount from their taxable emissions. Eligible carbon offset projects are renewable energy-projects, landfill gas recovery or other social impact projects such as the manufacturing of an energy-efficient cooking device (“Wonderbag”) which uplifts local communities.
Franz Rentel, the South African director of Climate Neutral Group, which works with organisations to help calculate and manage their carbon footprints, said companies should determine which of their activities are generating tax liable greenhouse gas emissions. They should also develop a carbon offset strategy that addresses crucial questions, such as how and when to purchase carbon tax offsets.
See also: 3 Steps to A Climate Neutral Business (Read more>)
“The majority of SA corporates are not ready for the carbon tax but purchasing carbon tax offsets can reduce carbon tax payable by up to 20%. There is no longer any time to wait,” he said.
The first phase will run until December 2022 and the initial tax rate will be R120 per ton of carbon dioxide equivalent.
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