This article was originally published on the Africa Oil & Power website.
Following his inauguration on Saturday, South Africa’s President Cyril Ramaphosa signed the country’s long-awaited Carbon Tax Act into law on Sunday.
First opened for discussion in 2010 and postponed at least three times following concerns over profit erosion by mining companies and over electricity price increases by state utility Eskom, the first phase of the carbon tax will come into effect from 1 June 2019 to December 2022.
Considered one of the most carbon-intensive countries in the world and one of the worst polluters on the continent, this move signals the South Africa’s continued efforts towards reducing its emissions and meet agreements on global climate change as part of the 2015 Paris Agreement.
In an official statement, the National Treasury said: “The Carbon Tax Act gives effect to the polluter-pays-principle for large emitters and helps to ensure that firms and consumers take the negative adverse costs (externalities) into account in their future production, consumption and investment decisions,” adding that firms are incentivized towards adopting cleaner technologies over the next decade and beyond.
Breaking down the design of the Act, the Treasury said it would also provide significant tax-free emission allowances ranging from 60 percent to 95 percent in the first phase. These will include “a basic tax-free allowance of 60 percent for all activities, a ten percent process and fugitive emissions allowance, a maximum ten per cent allowance for companies that use carbon offsets to reduce their tax liability, a performance allowance of up to five percent for companies that reduce the emissions intensity of their activities, a five percent carbon budget allowance for complying with the reporting requirements and a maximum ten percent allowance for trade exposed sectors.”
Although state-owned utility Eskom had previously said this legislation would see an increase in electricity prices, the Treasury stated that the carbon tax would not have an impact on electricity prices in its first phase.
At a lenient start, phase one will begin with a tax rate of R120 ($8.34) per ton of carbon dioxide equivalent. This rate will see the country transition to a fundamentally cleaner energy economy through the use of new-build renewable energy technologies from one that is heavily reliant on the use of coal.
The second phase of the carbon tax is planned for 2023 to 2030.