South Africa exempts indirect emissions from carbon tax as it finalises long-awaited bill

Written by Mike Szabo, original published Carbon Pulse on December 10, 2018  /  Last updated at 03:04 on December 11, 2018

South African lawmakers last week finalised the country’s long-awaited draft carbon tax bill, and in the process made a few last modifications including exempting indirect emissions from the levy.

According to consultancy EcoMetrix Africa, the bill was finalised on Dec. 5 after two days of debate within the South African parliament’s Standing Committee on Finance, and will now head for a vote by the plenary in February.

Lawmakers on the panel made some final changes to the bill, including omitting emissions from purchased electricity, known as Scope 2 emissions.

So-called Scope 1 emissions, namely those directly from the combustion of fossil fuels and process and fugitive emissions remain covered by the tax, which under the current proposal is due to start at 120 rand ($8.34) per tonne on June 1, 2019.

“With the exclusion of Scope 2 emissions … a long-desired step in the rationalisation of the system takes place,” said EcoMetrix partner Lodewijk Nell.

“Considering the numerous electricity price hikes since 2008, and no perspective on when this series of price hikes will come to an end (the next 4.1% price hike has been announced for Apr. 2019), industry is already fully incentivised to reduce electricity consumption without any carbon controlling mechanism in place.”

In addition, the government floated annualising corporate carbon budgets rather than setting them in five-year clips.

Carbon Pulse was unable to independently verify the proposed modifications.

South Africa is aiming to harmonise the tax with its proposed carbon budgets for the country’s top emitters.

The budgets will feed into sectoral targets that will help South Africa meet its Paris Agreement pledge to peak its GHGs in 2020-2025, plateau them for a 10-year period from 2025 to 2035, and then cut them from 2036 onwards.

EcoMetrix said the changes to the tax were made to further align it with the country’s carbon budget system, which has been outlined under a separate climate bill.

It added that concerns were raised by the business community that the regulations that underpin the carbon tax bill would not be ready by next June, though it said the South African Treasury has given assurances that a review process was underway to finalise the rules and put them up for public comment.

EcoMetrix said that to date, only the bill’s offset regulations have been published for stakeholder consultation.

The Treasury last month floated a plan that would levy a penalty rate of R600 ($41.72) per tonne for emitters who surpass their company-level carbon budgets.

FACTFILE:

  • South Africa’s long-awaited carbon tax is scheduled to be implemented on June 1, 2019, with the carbon budgets imposed under a separate climate change bill starting out next year as voluntary before being made mandatory after 2020.
  • A national tax was first suggested in 2010, a year before the country hosted the annual UN climate talks. But progress has been slow, with the government only publishing the first draft in Nov. 2015.
  • Under the R120/tonne tax, emitters will face an effective rate of R6-48/tonne based on the suite of exemptions, or “allowances,” available and the admissibility of offsets, with some companies able to reduce their tax burdens by as much as 95%.
  • 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 output from those sources.
  • 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.
  • Each emitter has an offset usage limit of 5% or 10%, depending on their sector.
  • Beyond that, a further 5% can be applied by companies that have developed an annual carbon budget and report it to the government.