South Africa proposes wide exemptions for carbon tax, leaves start date open

Published 19:04 on November 2, 2015  /  Last updated at 19:15 on November 2, 2015  /  Africa, Carbon Taxes, EMEA  /  No Comments

South Africa’s government finally published its draft carbon tax bill on Monday, offering wide exemptions and the use of offsets but giving no exact start date.

South Africa’s government finally published its draft carbon tax bill on Monday, offering wide exemptions and the use of offsets but giving no exact start date.

In line with its previously-stated plans, the government proposed it start at 120 rand ($8.90) per tonne of CO2e emitted, but said the effective rate will vary between 6-48 rand ($0.44-3.48) to the end of the tax’s first phase in 2020 because of exemptions of up to 95%.

“Given the developmental challenges that South Africa has to deal with and the internationally accepted common but differentiated responsibilities and respective capabilities principle (CBDR-RC) that requires more developed countries to make a greater effort to reduce global GHG emissions, South Africa’s carbon tax will be gradually phased-in,” the government said in a statement to the bill.

The draft calls for all sectors to be covered except waste management and forestry and land-use, which the government said should be exempt for the first phase due to “measurement difficulties”.

All six major GHGs identified by the IPCC are to be regulated by the tax, it added.

The draft, which is now open for comment until Dec. 15, proposes a basic 60% tax-free threshold during the first phase to 2020.

For the first phase, it also proposed the following additional tax-free allowances:-

  • 10% for process emissions
  • 10% for trade exposed sectors
  • Up to 5% for early abatement actions that beat the industry average
  • 5 or 10% for using carbon offsets, depending on the sector
  • 5% for companies participating in the carbon budgeting process

START?

The bill set no start date, but Finance Minister Nhlanhla Nene last week told journalists that whether it’s imposed as provisionally planned in 2016 or later “will depend on discussions we are having” with industry.

“It should be noted that the final tax rate, exemptions, and the actual date of implementation will be determined by the Minister of Finance through the annual Budget process,” Monday’s statement added.

OFFSETS

The draft did not set out any criteria for offset use, but it referred to previous government proposals that called for any reductions to be real, additional, permanent, and based in South Africa.

According to one of the proposals – the Treasury’s 2014 Carbon Offsets Paper – offsets will also only be eligible if they are certified under any of four standards: Clean Development Mechanism (CDM), Verified Carbon Standard (VCS), Gold Standard (GS) or Climate, Community and Biodiversity Standard (CCBS).

“It is envisaged that the initial focus will be for projects approved along the lines of the CDM,” the 2014 paper said.

REVENUE RECYCLING

The government intends that to 2020 the overall impact of the tax will be both neutral to revenue and electricity prices once revenue recycling measures are taken into account.

However, the statement pointed out that the direct cost impact on big emitting companies, which include steelmaker ArcelorMittal and utilities Eskom and Sasol, would not necessarily be neutral.

Revenues will be spent on:

  • setting different rates and exempting some sectors
  • reducing the country’s electricity levy
  • funding energy efficiency tax incentives
  • tax relief for rooftop solar power schemes
  • renewable energy credits
  • additional support for free basic electricity supplies to poor households
  • public transport funding
  • measures to encourage goods hauliers to use railways rather than roads.

FACTFILE:

– A carbon tax was first suggested by the South Africa government in 2010

– In 2014, the government delayed by one year its implementation until 2016 to allow more time for planning and consultation with stakeholders.

– In 2015, consultancy Promethium Carbon ran a test study to launch offset trade on the Johannesburg Stock Exchange.

– More than 80% of South Africa’s rising greenhouse gas emissions come from its coal-dominant energy sector.

By Ben Garside – ben@carbon-pulse.com

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