Minerals Council South Africa said it hoped that as the government develops “urgently needed” clarity of detail on the implementation of the carbon tax, it sees the unnecessary damage that it could do to the industry and chooses options that minimise that damage.
“The industry recognises the importance of the battle against climate change. However, our view is that the carbon tax will not have any positive effect in this regard, yet, by raising costs, will have serious impacts on the viability of many mines that are already struggling to survive,” the council said.
The Carbon Tax Act is being implemented in two phases, with the first phase having come in to play on the first of June 2019 to 31 December 2022, and the second phase planned to start in 2023.
The Carbon Tax Act has been implemented as part of South Africa’s commitments under the Paris Agreement as a means to reduce greenhouse gas emissions and the challenges of climate change.
David French, director of tax consulting at Mazars, said the true impact of the Carbon Tax Act will be fully understood only once it has been implemented.
“However, the one certainty is that businesses can expect substantially higher costs of doing business. With this in mind, it is crucial to start looking at sustainability from a price perspective, and involving a tax team early on in the process,” French said.
The Minerals Council said the first phase will be factored in through a 10cents a litre increase in the fuel/diesel price.
“The Minerals Council’s economics team estimates that this two-year phase will cost some 6800 direct and indirect jobs in the industry. The lack of certainty on tax-free portions, carbon budgets and carbon offsets, creates significant policy and regulatory uncertainty, which will materially affect investment in the mining sector,” the council said.
The council further warned that uncertainty on electricity prices over the next two decades coupled with policy uncertainty on the carbon tax will mean that South Africa will battle to attract any new electricity intensive investment in mining, smelting or refining in the next decade.
It said an initial estimate of the impacts of this, based on certain assumptions, indicates that during phase 2 the impact would amount to about 6000 jobs lost a year (over and above those lost in phase 1), R4 billion foregone in output and R2.2bn in investment for the mining sector.
The mining sector had shed thousands of jobs in the past decade as the industry battles volatile commodity prices, mounting costs and frosty labour relations.
Teresa Legg, product manager for The Carbon Report, said carbon-intensive businesses would be hit harder by the tax than those that don’t use carbon extensively in their processes.
“At a level where it’ll affect every business will be the rising fuel price, either directly or indirectly, and electricity, but that will only take effect in the second phase,” Legg said. “The big positive is that increased costs will allow for renewable options to now become even more feasible than before,” Legg said.