National Treasury published the Draft Carbon Tax Bill for Comment on 2 November 2015.

The Draft Carbon Tax Bill includes detailed and revised carbon tax design features as per the Carbon Tax policy Paper of 2013 and the Carbon Offset Paper of 2014. Based on this Bill carbon taxes will be implemented in a phased manner with the effect from 1 January 2017.

Purpose of the Draft Carbon Tax Bill

The purpose of the Draft Carbon Tax Bill is to address impacts of climate change and to facilitate a viable and fair transition to a low-carbon economy for South Africa. The carbon tax will be paid in to the National Revenue Fund.

A person who conducts an activity as set out in Annexure 1 to the Notice issued by the Minister responsible for environmental affairs in respect of the declaration of greenhouse gases as priority air pollutants the National Environmental Management: Air Quality Act, 2004 will be liable to pay an amount of carbon tax.

This Notice is still in draft and has not yet been finalised by the Department of Environmental Affairs ("DEA"). It currently includes activities such as electricity and heat production, refineries, the transport sector and surface and underground coal mining (in respect of fugitive emission), as activities that would require a person conducting these activities to pay carbon tax.

The carbon tax applies to all sectors and activities except the agricultural, forestry and other land use sectors; and the waste sectors, which will be exempt during the first phase (which runs from 2017 – 2020).

Basis of the carbon tax

The carbon tax will cover scope 1 sources of Green House Gas (GHG) emissions which are direct GHG emissions from sources that are owned or controlled by entities such as fuel combustion and industrial processes. The tax is therefore based on the fossil fuel inputs that are combusted or product produced and multiplied by a corresponding emissions factor.

Entities will therefore be liable for the following:

  • Fossil fuel combustion emissions;
  • Fugitive emission such as from coal mining; and
  • Industrial processes and product use emissions such as coal gasification, production of cement, iron, steel and glass.

Only entities with a thermal capacity of around 10MW will be subject to the tax in the first phase. This means that companies that own or control combustion installations (such as boilers) of 10 MW or higher will be eligible for the carbon tax in the first phase. These entities will need to submit their tax returns based on their own assessment of emissions to the South African Revenue Service (SARS).

GHG emissions from the use of liquid fuel such as petrol or diesel, which is termed as non-stationary emission, will be taxed under the current fuel tax regime. Fuels used by the aviation and international maritime sectors will initially be excluded from the carbon tax as these are covered by international agreements.

The emissions reporting will be in line with the mandatory reporting requirements for GHG emissions designed by the DEA which is expected to come into effect in 2016.

Tax rate

The proposed headline carbon tax is R120 per ton of CO2e for emissions above the tax-free thresholds.

This carbon tax rate will however vary between R6-R48 per ton CO2e due to the implementation of tax-free allowances during the first phase. The basic tax-free threshold on actual fuel combustion emissions will be 60% and 70% for process emissions, below which tax will not be payable. An additional 10% allowance will be provided to entities that produce fugitive emissions.

Further tax-free allowances will be implemented to entities who proactively implement GHG mitigation measures (performance allowance). Other tax-free allowances include trade exposure allowances, carbon budget system allowances and offset allowances.

Companies participating in the first phase will qualify for an additional tax-free allowance of 5%.

Based on these allowance it is possible for a company (in the first phase) to achieve an over-all maximum tax-free allowance of up to 95%.

Conclusion

The Draft Carbon Tax Bill states that the Carbon tax Act will come into operation on 1 January 2017, however the actual date of implementation would be determined by the Minister of Finance through the annual budget process.

Comments on the Draft Carbon Tax Bill are to be submitted to Dr Memory Machingambi via e-mail by close of business on 15 December 2015.