South Africa

Big changes proposed for carbon tax in South Africa

The Energy Council of South Africa, alongside other big business figureheads, have put forward recommendations for the country’s carbon tax under the proposed Taxation Laws Amendment Bill.

As a multi-representative body, including Business Leadership South Africa (BLSA), Business Unity South Africa (BUSA), the South African Petroleum Industry Association (SAPIA) and Energy Intensive Users Group (EIUG), the group said that there are key areas that can be improved on the proposed carbon tax to advert identified unintended consequences.

The energy council said that business is sharing recommendations to avoid just transition impacts earlier than planned and to avoid unintended or adverse consequences to an already fragile economy.

“Business’s priority is to positively fulfil our role for a decarbonised and sustainable South African economy. We are committed to an energy transition that is just and equitable for the country and look forward to partnering with the South African government to realise this journey,” said the council.

The group listed the following six changes:

Revision of the carbon tax proposal

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Businesses would like to see the annual carbon tax increases continue based on the current Consumer Price Index (CPI ) of +2% structure until at least 2030 to allow for reviewing and aligning different policies.

This goes against the National Treasury’s proposal to increase the carbon tax rate from 2023 to 2025 by a minimum of US$1 and increase it gradually to US$20 in 2026, then US$30 in 2030.

This is due to the country’s economy not being able to accommodate the steepness of the tax in a short period of time, said the group.

Retaining the current allowance and introducing more policies

The Energy Council said it is concerned that the new draft bill does not retain the allowances to mitigate the impact of increasing carbon tax proposals.

The group said there is a need for greater policy certainty around the retention of allowances – such as various incentives or financial aid for taxpayers transitioning to greener technologies.

Revision of implementation timelines

The business groups propose that a higher carbon price should only be considered post-2035, the exact date of which should be informed by a more detailed analysis of viable mitigation and socio-economic considerations, said the group.

They added that the current timing of carbon price increases is unaffordable for businesses.

Bottom-up analysis for hard-to-abate and vulnerable sectors

“Different sectors have different carbon pricing signals against which they will switch to low-carbon energy and feedstock options and will require varying lengths of time to transition.”

Business proposes that a detailed bottom-up analysis be conducted for hard-to-abate and trade vulnerable sectors.

A study of carbon tax pass-through

The group said that the end date of 31 December 2025 for the extension for electricity generators to include the environmental levy – poses a significant financial risk.

The pass-through of the carbon tax to electricity consumers and through other input costs, such as construction material in the form of steel and cement, among others, essentially leads to effective double taxation, it said.

The Energy Council, alongside the other business heads, propose that a detailed study be undertaken to evaluate the financial impacts of a carbon tax pass-through from electricity generators and other industries that cannot pass through a carbon tax to customers.

Enabling a just transition

A just transition involves reskilling, managing the change of the current geographical distribution of employees and creating new meaningful employment, said the group.

We need to allow the space for the current industry not only to transition to low-carbon energy but also to help facilitate the transition of suppliers, workers, and skills to the new dispensation.

As a business, we support the inclusion of the deduction of sequestration activities in the carbon tax formula.

“We propose that this not be discriminatory by expanding the sequestration deduction to all sectors.”

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Artmotion S.Africa

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