Business swings at carbon tax and Just Transition proposals

Industry also took issue with the tax expressed in US dollar terms, which they said distorted the reality of South Africa’s struggling economy. Image: Bloomberg

Industry also took issue with the tax expressed in US dollar terms, which they said distorted the reality of South Africa’s struggling economy. Image: Bloomberg

Published Sep 14, 2022


Organised business has come out swinging against the proposed carbon tax increments which will see gradual increases in the carbon tax rate for the 2023 to 2025 tax periods.

The increases are by a minimum of $1/tCO2e, increasing gradually to $20 in 2026 and at least to $30/tCO2e (per tonne of carbon emissions equivalent) in 2030.

The Energy Council of South Africa, Minerals Council South Africa, Business Leadership South Africa (BLSA), Business Unity South Africa (Busa), South African Petroleum Industry Association (Sapia) and Energy Intensive Users Group (EIUG) jointly proposed that the annual carbon tax increases continue to be based on the Consumer Price Index (+2 percent) structure until at least 2030, to allow for the review and alignment of policies.

“Business and the South African economy cannot accommodate the steepness of the carbon tax rate increase in the proposed short period of time,” they said.

“This was compounded by the slow recovery from the impacts of Covid-19 and an economic downturn, which has resulted in the closure of businesses, job losses and the exacerbation of poverty and other negative socio-economic impacts,” the business groups said in a statement.

Among the issues raised was a revised carbon tax proposal, retaining the current enacted allowances to 2030 and introducing other policies and measures to encourage decarbonisation and growth of low-carbon sectors, the revision of time lines,  a study on carbon tax pass-through and enabling a Just Transition.

Industry also took issue with the tax expressed in US dollar terms, which they said distorted the reality of South Africa’s struggling economy.

“Our members... believe the carbon tax should be implemented at a pace and rate aligned to a developing economy that takes into account the challenges in South Africa including low economic growth, energy security and high unemployment,“ they said.

The Carbon Tax Bill follows the polluter-pays-principle and started the gradual implementation of Carbon Tax in South Africa from June 1, 2019. The bill was introduced as a mechanism to assist the government in reducing South Africa’s greenhouse gas emissions.

Phase 1 of the Carbon Tax Regime was set to run from June 1, 2019 to December 31, 2022 with Phase 2 being implemented on January 1, 2023. In the 2022 National Budget Speech, Finance Minister Enoch Godongwana announced Phase 1 would be extended until December 31, 2025 with Phase 2 only being implemented on January 1, 2026.

The Carbon Tax rate increased by R10 from R134 to R144 per ton in the Budget Speech with effect from January 1, 2022. The annual increase during Phase 2 will increase with greater increments to reach $30 by 2030.

The business organisations said they were concerned that the 2022 Draft Bill did not retain the allowances to mitigate the impact of the rapidly increasing carbon tax proposals, which have assisted business sectors requiring support, such as the mining, petrochemical, steel, cement and other hard-to-abate sectors, from detrimental financial impacts.

It called for incentives and support mechanisms in the Taxation Laws Amendment Bill (TLAB), prevalent in other countries, to be explored and introduced.

"Foreign governments have committed to assist taxpayers in transitioning to greener technologies by providing various incentives or forms of financial aid, which is currently not being made available in the TLAB.

“Carbon prices are high in regions like the EU, Canada and a few others. However, they are ameliorated by various allowances, such as free allocations, indirect compensation, subsidies, ring-fencing of carbon tax revenues, and funding support for innovation, technology, research and development.“

The climate negotiations held at COP26 resulted in the EU, France, the UK, the US and Germany pledged funding of R131 billion ($8.5bn) to South Africa. The financing is meant to help South Africa phase out its use of fossil fuels and phase in renewable energy.

Business called for a postponement of a higher carbon price until after 2035, the exact date of which should be informed by a more detailed analysis of viable mitigation and socio-economic considerations.

“Business cannot afford the proposed tax rates and simultaneously mobilise the capital needed to mitigate greenhouse gas emissions and grow or invest in new low-carbon products and services.”

“The proposed end date of December 31, 2025 poses a significant financial risk to our members who rely heavily on electricity and energy-intensive users across various sectors. Furthermore, the pass-through of the carbon tax to electricity consumers and through other input costs, such as construction material in the form of steel and cement, among others, essentially leads to an effective double taxation,” Business said.