South African President Cyril Ramaphosa has signed into law the Carbon Tax Act, 2019, which comes into effect on 1 June 2019. With the passing of the carbon tax into law, a price on carbon emissions is now a reality for the South African economy.

The impact of the legislation, along with complementary measures such as the national greenhouse gas emission reporting regulations, will have a transformative effect on the South African economy. Organisations of all types and sizes and across all industry sectors will have to act decisively to manage the commercial implications of the carbon tax.

Business leaders, such as CFOs and others who are charged with leading their organisations through the transition to a low emissions economy need to fully understand and consider the commercial implications, opportunities and risks, and the reporting and compliance obligations inherent in the implementation of the carbon tax legislation.

Business leaders need an appreciation of the policy context, regulatory structure and design of the key elements of the carbon tax legislation. The carbon tax will play a role in achieving the objectives set out in the National Climate Change Response Policy of 2011 and contribute towards meeting South Africa’s commitments to reduce greenhouse gas emissions.

Central to the legislation is the introduction of a carbon pricing mechanism which takes the form of a tax at the rate of ZAR120 per tonne of carbon dioxide equivalent of a taxpayer’s greenhouse gas emissions, which will be increased by the amount of the consumer price inflation plus 2% per year until 31 December 2022.

Generally, taxpayers who have emissions generation facilities with a combined boiler capacity equal to or above 10MW(th) net heat input must license each emissions generation facility as a customs and excise manufacturing warehouse. Taxpayers who operate emissions generation facilities at a combined capacity below 10MW(th) net heat input must register in terms of the applicable provisions of the Customs and Excise Act, 1964.

The main sectors covered by the carbon tax include energy, petroleum refining, manufacturing industries, mining, oil and natural gas and industrial processes. In many organisations, governance and accountability for carbon emissions data collection and reporting may not yet be well defined or subject to effective controls. Now that a price on emissions has been imposed and legislative reporting requirements are in place, reliable and verifiable carbon emissions data is essential to ensure compliance and also to enable precision in assessing and managing the impact of carbon tax on the business.