24/5/18 (Carbon Pulse) – South Africa’s cabinet on Thursday approved the government’s proposed carbon tax bill, bringing the long-delayed legislation a step closer to becoming reality.
The bill, which finally entered the parliamentary process after years of hold-ups, will now proceed to a public consultation before it is put to MPs for a vote, with the government hoping to formally introduce the tax in Jan. 2019. The proposal has already had two years of extensive consultation on various drafts and at least another five years of planning before that.
Under the current draft, the tax’s base level would start at R120/tonne ($9.66), rising annually by 2% plus inflation until the end of the first phase (2022), and then align with inflation after that.
However, all emitters will face an effective rate of R6-48/tonne based on the suite of exemptions available and the admissibility of offsets, with some companies able to reduce their tax burdens by as much as 95%. A basic tax-free allowance of 60% is offered to all emitters, with an additional 10% for having process or fugitive emissions.
Another variable allowance of up to 10% is available for trade-exposed sectors, with an additional 5% available for above-average performance relating to sectoral benchmarks. Beyond that, a further 5% can be applied by companies who have developed an annual carbon budget and report it to the government, which itself is planning to design national carbon budgets to help South Africa’s Paris Agreement targets.
Companies will also have an offset usage limit of 5-10% depending on what sector they’re in. The government in June 2016 published draft guidelines outlining the eligible certification and project types but limiting use to credits generated domestically. But big energy users including Sibanye-Stillwater and ArcelorMittal oppose the tax, arguing that even the heavily-discounted levy is unaffordable and will jack up power prices, and therefore should be scrapped or further delayed.
The tax will affect virtually all areas of South Africa’s economy, covering most stationary and non-stationary sources and applying to fossil fuel combustion, fugitive emissions, and industrial processes.
Waste, agriculture, forestry, and other land-use sectors are exempt from paying it or performing MRV until 2022 due to the difficulty in accurately measuring the output from those sources.
A national carbon tax was first suggested by South Africa in 2010, a year before it hosted the annual UN climate talks. But progress has been slow, with the government only publishing the first draft in Nov. 2015.
South Africa’s Paris Agreement pledge requires its GHG emissions to peak in 2020 to 2025, plateau for a 10-year period from 2025 to 2035, then decline from 2036 onwards. More than 80% of its emissions come from its coal-dominant energy sector.