Companies that exceed their emissions limits set under South Africa’s upcoming climate laws will be forced to pay a penalty of at least five times the country’s carbon tax.
According to consultancy EcoMetrix Africa, the South African Treasury has floated a plan that would levy a penalty rate of 600 rand/tonne ($43.30) for emitters who surpass their company-level carbon budgets. The penalty is well above the R120 base rate of the country’s pending carbon tax.
South Africa is aiming to harmonise the tax with its proposed carbon budgets for the country’s top emitters, with both sets of proposed measures set to become law next year.
The country’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.
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.
The carbon tax’s launch has been delayed by five months to allow the government to explore what level of penalty would help align the levy with the budgets.
Under the 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%.
Carbon Pulse was unable to independently verify the Treasury proposal, but it’s understood that companies that exceed their budgets would face a R600/tonne penalty rate and, according to a separate annexure to the draft carbon tax bill introduced last week, no tax-free allowances would apply.
“This interface option will help to ensure a credible price signal to encourage behaviour change over the medium to long term, emission reduction certainty through a carbon budget, and provide the required regulatory policy certainty,” added the document published Nov. 21.
EcoMetrix Africa said officials speaking at a workshop held by the government’s Standing Committee on Finance confirmed that the draft carbon tax bill would be finalised on Dec. 5.
“From the onset it was made clear that there should be no doubt, this bill is going to happen,” the firm said.
“The political drive government demonstrated during this workshop to pass the bill is very strong. The time to act has come for any company that wants to manage and mitigate its exposure under the tax,” added EcoMetrix partner Henk Sa.
The company expects the carbon tax law to be amended to reflect the penalty rate only after the climate change bill has been approved by parliament.
The tax bill’s introduction came a week after the Treasury published new draft regulations to govern the use of offsets against the levy.
The changes are now open for public comment until Dec. 14.
Under the tax bill, companies have an offset usage limit of 5% or 10%, depending on the sector in which they operate.
Sa said he anticipates an over-the-counter (OTC) offset market to develop in the country in the first half of 2019, ahead of the start of the tax.
The proposed rules allow credits from projects certified under the CDM, Gold Standard, and Verified Carbon Standard – now known as Verra – to be used so long as they were generated in South Africa.
The carbon offset system seeks to encourage emission reductions in areas that are not directly covered by the tax, with investment in public transport, agriculture, forestry, and other land-use and waste sectors to be eligible.
- 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.
- 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.
- Beyond that, a further 5% can be applied by companies who have developed an annual carbon budget and report it to the government.
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