National Treasury releases carbon tax policy paper for public comment

Submitted by: Margaret McKenzie, Monday, May 6, 2013

National Treasury has released a carbon tax policy paper for South Africa. The policy paper lays out the details of a proposed Carbon Tax for South Africa that is expected to be implemented on 1st January 2015. The public has been invited to provide comment on the carbon tax policy paper. The deadline for comment is 2nd August 2013.

The policy paper proposes a carbon tax rate of R120 per tonne of carbon dioxide equivalent. This carbon tax rate is proposed to increase at a rate of 10% per annum. Because of the tax-free threshold and additional tax relief measures built into the proposed design of the carbon tax, National Treasury expects that the effective carbon tax range will be between R12 and R48 depending on the sector concerned.

The policy paper proposed a basic tax free-threshold of 60% for all industrial sectors. Other carbon tax relief measures include an additional 10% relief for sectors that Treasury has identified as having “technical or structural limitations” with regards to emission reduction and an additional 10% relief for sectors that Treasury has identified as “emissions intensive and trade intensive sectors”. The proposed carbon tax also allows for firms to reduce their carbon tax liability through the purchase of offsets of between 5% and 10%. In addition the agriculture and waste sectors will be exempt for the first phase of the tax that is proposed for 2015 to 2019. The table below shows the carbon tax-free emission thresholds by sector.

Sector

Basic Tax Free Threshold

Maximum Additional Allowance for Trade Exposure

Additional Allowance for process emissions

Total

Maximum Offset

Electricity

60%

-

-

60%

10%

Petroleum (coal/gas to liquid)

60%

10%

-

70%

10%

Petroleum – oil refinery

60%

10%

-

70%

10%

Iron and steel

60%

10%

10%

80%

5%

Cement

60%

10%

10%

80%

5%

Glass and ceramics

60%

10%

10%

80%

5%

Chemicals

60%

10%

10%

80%

5%

Pulp and paper

60%

10%

-

70%

10%

Sugar

60%

10%

-

70%

10%

Agriculture, forestry, land use

60%

-

40%

100%

0%

Waste

60%

-

40%

100%

0%

Fugitive emissions – coal mining

60%

10%

10%

80%

5%

Other

60%

10%

-

70%

10%

The carbon tax policy paper also indicates that a possible measure to incentivise carbon efficiency of companies may be included in the tax. The paper indicates that the potential structure of this incentive would be an adjustment to the tax free threshold of 60% based on the carbon intensity of a company relative to a carbon intensity benchmark for the sector of the company. The threshold could increase for carbon inefficient companies or decrease for carbon efficient companies. The adjustment would be limited to 5% up or down.

The proposed carbon tax will only apply to direct emissions also known as Scope 1 emissions.  Examples of direct emissions included emissions from fuel combustion and emissions for non-energy industrial processes. The tax will apply to gases known to contribute to the greenhouse gas effect such carbon dioxide, methane, nitrous oxide, perfluorocarbons, hydrofluorocarbons and sulphur hexafluoride.

The policy paper indicates that for the purpose of the carbon tax, carbon dioxide equivalent emission factors and procedures for calculating emissions will be set by the Department of Environmental Affairs.

The full South African carbon tax policy paper and information on how to comment is available on the National Treasury Website.  

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Margaret McKenzie