Carbon Tax in SA: draft bill enters parliament

13/2/18 (Business Day) – The proposed South African Carbon Tax Bill has entered the parliamentary process after two years of extensive consultation on various drafts. The draft bill will be subjected to public hearings and further submissions before being revised into a final draft that is expected to be completed by mid-2018. The first draft of the bill was published for public comment in November 2015 but preparations started well before that in 2010.

Extensive consultations have already taken place with stakeholders across the spectrum of society and the Treasury has also invited further submissions until March 9.

In terms of the proposals, carbon emissions above a certain level will be taxed at a rate of R120 a tonne of carbon. The tax, which aims to reduce carbon emissions, will be phased in with adjustments being made to other taxes and provision made for tax incentives to ensure the tax is revenue neutral.

A basic tax-free threshold has been proposed for 60% of emissions, with additional allowances made for specific sectors as well. Up to 95% of emissions could be tax exempt. These exemptions could translate into an effective tax rate of R6-R48 a tonne of carbon emissions.

The first phase is expected to last for about four to five years after the implementation date.

The Department of Environmental Affairs’ chief director of climate change mitigation, Deborah Ramalope, and Treasury deputy director-general Ismail Momoniat briefed a joint meeting of Parliament’s two finance committees and its environmental affairs committee on the proposals on Tuesday.

No implementation date for the proposals has yet been set. This will be announced later by Finance Minister Malusi Gigaba, taking into consideration the state of the economy.

The aim of the carbon tax in South Africa, Ramalope said would be to incentivise large carbon emitters to take measures to reduce their emissions. This will assist SA to achieve its international commitments under the Paris Agreement on climate change. In terms of these commitments, SA’s emissions will peak between 2020 and 2025, plateau for a 10-year period thereafter and decline from 2036 onwards.

“Pricing carbon is key to driving the transition to a green economy,” Ramalope told MPs. It will incentivise companies to change their carbon emission behaviour.

Momoniat noted that a carbon tax in South Africa bill gave effect to the polluter-pays principle and would help to ensure that firms and consumers took these costs into account in their future production, consumption and investment decisions.

The implementation of the carbon tax will be complemented in the first phase (up to 2022) by a package of tax incentives and revenue recycling measures to minimise the impact on the price of electricity and energy-intensive sectors such as mining and iron and steel. The impact of the tax in the first phase is designed to be revenue neutral.

The Treasury estimates that a carbon tax in South Africa will result in a decrease in emissions of between 13% and 14.5% by 2025 and 26% and 33% by 2035 compared with a business-as-usual approach.

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