In 2011, the National Climate Change Response White Paper provided that South Africa would coordinate and develop a coherent policy framework to curb greenhouse gas (‘GHG’) emissions by 34 per cent by 2020 and 42 per cent by 2025, and to achieve this goal, would publish a suite of policy measures and strategies aimed at both mitigating and adapting to the impacts of climate change.

In 2015 it has become evident that the executive and legislative branches of government are aligning themselves with this aim. The National Budget Speech reaffirmed the implementation of Carbon Tax in 2016, and more recently the formalisation of the National Atmospheric Emissions Inventory System was followed by the publication of various Reporting Regulations. At the end of June, Draft Air Quality Offsets Guidelines were published which will operate alongside the Carbon Tax Bill which should be published for public consultation in the next few weeks.

The Carbon Tax Policy Paper of 2013 is the most indicative document of what we should expect to see in the Carbon Tax Bill, with the tax being applied to industry on a sectoral basis. The following broad sectors are likely to be directly affected:

  • Electricity
  • Petroleum (coal and gas to liquid)
  • Petroleum (oil refinery)
  • Iron and steel
  • Cement
  • Glass and ceramics
  • Chemicals
  • Pulp and paper
  • Sugar

Agriculture, forestry, land use and waste sectors may be excluded during the first five year period, largely due to administrative difficulties in measuring and verifying emissions from these sectors.

It is important that companies prepare themselves and devise internal strategies to mitigate the impact that a carbon tax may have on their operations, whether through direct or indirect tax implications.

The Legal Basis

The National Environmental Management Act (“NEMA”) and the National Environmental Management Air Quality Act (“NEM:AQA”) provide that the cost of remedying pollution, environmental degradation and of preventing, controlling or minimising further pollution must be paid for by those responsible for harming the environment.

Carbon Tax and Offsets

The proposed carbon tax seeks to internalise external costs associated with excessive GHG emissions by adjusting relative prices in order to reflect the social costs of carbon-intensive goods and services. The government has proposed that a carbon tax be introduced at R120 per ton (t) CO2-eq (carbon dioxide equivalent).

The tax will be phased in over a period of time to allow for smooth transition to a low-carbon economy and a change to more efficient technologies and behaviours. The effective rate will be lower than R120 per ton (t) CO2-eq during the first 5 year period, if the tax free thresholds and offsets are taken into account. To elaborate, there may be a percentage-based threshold (60%) of actual emissions, below which the tax will not be payable during the first phase.

The strategy allows for offset programmes to further reduce the percentage of taxable emissions. In the air quality context, an offset is an intervention specifically implemented to counterbalance the adverse environmental impact of atmospheric emissions. The design and scope of these offset programmes are directed by the Draft Air Quality Offsets Guidelines.

If companies are directly tax liable, it would be in their interest to develop and implement a carbon offset purchase strategy as the use of carbon credits may end up reducing annual carbon tax bills by up to 25%.


Many companies will not face direct carbon tax liabilities. However, they will need to factor in the effect of the carbon tax that will be embedded in their supply chain, including the extent of their consumption of Eskom generated electricity.

Long term contracts with suppliers that are directly affected should be examined to see whether they contain clauses that provide for variation to prices based on carbon tax. Furthermore, due diligence reporting will need to include an element of carbon tax compliance on the part of target entities.

In terms of taking steps now to mitigate the effect that the implementation will have on their operations, companies should carry out carbon footprint examinations and energy audits, as well as assess their supply chain so as to do tentative calculations of tax liability.