Carbon Tax likely to increase electricity prices by between 1c and 2c per kWh says Treasury Official

Submitted by: Margaret McKenzie, Monday, June 24, 2013

The proposed carbon tax is likely to have a marginal impact on the South African electricity price said Cecil Morden, Chief Director of economic and tax analysis of the National Treasury.  Speaking at a National Business Initiative workshop in Durban last week Morden indicated “we think the impact on the electricity price would be marginal, between one and two cent per kWh during the first phase in real terms.”

Morden explained that under the current design of the tax he expected that the electricity price would increase by less than two cents per kWh.  However he indicated that National Treasury “can even further mitigate the impact by …. playing around with the electricity generation levy”. South Africa currently has an electricity levy of 3.5c per kWh on electricity generated from non-renewable resources and National Treasury has previously indicated that it is considering “gradual phasing out of the electricity levy as the carbon tax is phased in”. 

The carbon tax is expected to be implemented on the 1st January 2015 according to a National Treasury carbon tax policy paper that was released earlier in the year. The policy paper proposes a carbon tax rate of R120 per tonne of carbon dioxide equivalent increasing at a rate of 10% per annum. However, as the proposals build in a number of tax relief measures the effective carbon tax range per tonne will be between R12 and R48 depending on the sector concerned.

Morden encouraged participants at the workshop to comment on the carbon tax proposal enclosed in the policy paper.  Public comments should be submitted before 2nd August 2013.  Thereafter National Treasury will release draft legislation for the carbon tax. The draft legislation is expected to clarify the methodology for calculating tax liability.

Morden indicated that National Treasury was still in the process of finalising an emissions threshold for determining which entities would be liable to pay the tax.  He indicated that Treasury may adopt the existing threshold defined in the National Climate Change Response White Paper for the proposed mandatory Greenhouse Gas (GHG) reporting system.  The response white paper indicates “reporting of emissions data will be made mandatory for entities (companies and installations) that emit more than 0.1 Mt of GHGs annually, or that consume electricity which results in more than 0.1 Mt of emissions from the electricity sector.”  The Department of Environmental Affairs is expecting to implement the mandatory reporting system for GHG emissions in June 2014.

Morden also indicated that the tax would be applicable to government entities such as municipalities if they emitted more than the minimum threshold of GHG emissions. 

With regards to calculating tax liability Morden indicated that “the law should be … clear enough for the company to assess its own emissions”. Morden further explained that auditing of the tax will be done by the South Africa Revenue Service, however as SARS does not have in-house expertise it is likely that they will rely on the Department of Environmental Affair’s mandatory GHG reporting system.

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Margaret McKenzie