SA carbon tax postponed to 2016

Submitted by: Tholakele Nene, Thursday, March 13, 2014

The Minister of Finance, Pravin Gordhan, has announced the postponement of the implementation of a South African carbon tax from 2015 to 2016. This postponement is to allow more time for planning and consultation, said Gordhan during his February 2014 budget speech. This is the second time that the carbon tax has been postponed.  The 2013/14 financial year was initially targeted for the implementation of the carbon tax but was postponed to 2015 last year.

Gordhan said that this move was welcomed by the Department of Environmental Affairs and National Treasury, who are working on different measures to respond to climate change which need to be aligned.

“Following public consultation, the National Treasury and the Department of Environmental Affairs have agreed that a package of measures is needed to address climate change and to reduce emissions. This will include the proposed carbon tax, environmental regulations, renewable energy projects and other targeted support programmes. To allow for further consultation, implementation of the carbon tax is postponed by a year to 2016.”

The carbon tax will provide price signals to help the economy move towards low carbon growth. It is unclear whether the initially proposed tax amount of R120/t of carbon dioxide (CO2) equivalent still stands.

The government has planned measures to ensure the smooth phasing in of the tax when it is implemented in 2016. This includes reducing the electricity levy at the same time that the tax is implemented, “with the net tax burden being low in the first five years of implementation rising slowly thereafter and more steeply after ten years,” as mentioned in the 2014 Budget Review by National Treasury.

The carbon tax policy paper

National Treasury has indicated that the carbon tax policy paper has been well received by the public, “Ninety- four- percent of respondents support the policy intent, and more than half are in favour of the carbon tax, with some suggesting changes to improve its effectiveness and minimise negative economic consequences.”

The aim of the policy paper was to provide clarity on the existing carbon tax proposals and in particular to assist businesses to understand which sectors will be required to pay the carbon tax and the amounts that each sector will be expected to pay per tonne of CO2e.

During the consultation phase in 2013 a number of changes were recommended to the policy package. National Treasury have highlighted the following proposed changes to the policy that will be considered: 

  • “Reducing Eskom’s tax liability, with a credit for the renewable energy premium, limiting the potential effect of the tax on electricity prices.
  • Lowering the current electricity levy.
  • Addressing concerns about international competitiveness, including a formula to adjust the basic percentage tax-free threshold to reward over performance.
  • Refining the research and development tax incentive to provide for related green technology.
  • Using firms’ carbon offsets to reduce their carbon tax liability by between 5 and 10 per cent of actual emissions, as outlined in the soon-to-be-published carbon offsets policy paper.
  • Minimising the effect on households by providing subsidies to install solar water geysers and improve public transport.
  • Using some of the revenue generated from the carbon tax to fund the energy-efficiency tax incentive, which began operating on 1 November 2013.
  • Aligning reporting and classification of greenhouse gas emissions for tax purposes with mandatory emissions reporting to the Department of Environmental Affairs.”

National Treasury have indicated that these and many other factors will be taken into consideration during the final tabling of the South African carbon tax to ensure that “households and firms are not unnecessarily disadvantaged.”

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Tholakele Nene