Climate change taxes
Wendy Gardner Climate change is a serious global problem and the South African government has stated that it is serious about steering business along a more environmentally sensitive path to contribute to the global response to mitigate climate change.
There are already a number of environmental tax instruments (referred to as ‘green taxes’) in place to support the achievement of government’s environmental objectives: Air passenger departure tax, levy on plastic bags, electricity levy, the carbon emissions tax on passenger vehicles and a menu of incentives to encourage the saving of energy and to promote the generation of alternative renewable energy sources. Any accompanying innovation may also be eligible for reward through various research and development tax incentives.
In December 2010, government suggested in its Discussion Paper for Public Comment: Reducing Greenhouse Gas Emissions (GHG): The Carbon Tax Option that they will put in place a carbon tax to assist in facilitating the transition of South Africa to a low-carbon economy. The carbon tax was suggested to be either an emissions tax (i.e. a tax on energy inputs based on the intensity of GHG of each energy input), an excise tax on energy inputs or alternatively a sales tax on the outputs of energy-intensive sectors.
The 2012 Budget announces the following proposals in relation to green taxes:
Carbon tax
The government will be publishing its second version of a policy paper on carbon tax for comment in 2012. The proposed design features of the carbon tax will include:
• Percentage-based rather than absolute emissions thresholds, below which the tax will not be payable.
• A higher tax-free threshold for process emission, with consideration given to the limitations of the cement, iron and steel, aluminium and glass sectors to mitigate emissions over the near term.
• Additional relief for trade-exposed sectors.
• The use of offsets by companies to reduce their carbon tax liability.
• Phased implementation.
The tax will apply to carbon dioxide equivalent (CO2e) emissions calculated using agreed methods. A basic tax-free threshold of 60% (with additional concession for process emissions and for trade-exposed sectors) and maximum offset percentages of 5 or 10% until 2019/20 is proposed. Additional relief will be considered for firms that reduce their carbon intensity during this first phase. The reduction in carbon intensity will be measured with reference to a base year or industry benchmark. Tax-free thresholds will be reduced during the second phase (2020 to 2025) and may be replaced with absolute emission thresholds thereafter. Alignment with the proposed carbon budgets as per the national climate change response white paper (2011) will be important.
A carbon tax at R120 per ton of CO2e above the suggested thresholds is proposed to take effect during 2013/14, with annual increases of 10 per cent until 2019/20.
As a transitional measure, temporary thresholds providing an exemption from the carbon tax will be granted.
The table below summarises the proposed emission thresholds for the carbon emissions tax, including a basic percentage tax-free threshold for all sectors, further adjustments to account for the trade exposure of a firm (up to a maximum), a flat allowance for sector process emissions with limited potential for mitigation, and maximum allowable percentage offsets.
Table C.13 Proposed emissions thresholds for sectors
| Sector | Basic tax free threshold (%) below which no carbon tax | Maximum additional allowance trade exposure | Additional allowance for ‘process emissions’ | Total | Maximum offset percentage |
| Electricity | 60% | - | - | 60% | 10% |
| Petroleum (coal to liquid) | 60% | 10% | - | 70% | 10% |
| Petroleum (oil refinery) | 60% | 10% | - | 70% | 10% |
| Iron and steel | 60% | 10% | 10% | 80% | 5% |
| Aluminium | 60% | 10% | 10% | 80% | 5% |
| Cement | 60% | 10% | 10% | 80% | 5% |
| Glass & ceramics | 60% | 10% | 10% | 80% | 5% |
| Chemicals | 60% | 10% | 10% | 80% | 5% |
| Pulp & paper | 60% | 10% | - | 70% | 10% |
| Sugar | 60% | - | - | 70% | 10% |
| Agriculture, forestry and land use | 60% | - | 40% | 100% | - |
| Waste | 60% | 10% | 40% | 100% | - |
| Fugitive emission: coal | 60% | 10% | 10% | 80% | 5% |
| Other | 60% | 10% | | 70% | 10% |
In addition to the proposed percentage thresholds in the table above, business will be encouraged to reduce the carbon intensity of their products during the first phase of the scheme. This could be accommodated by adjusting the basic percentage tax-free threshold (upwards or downwards) by a factor based on a formula. The overall tax-free allowance for an entity will be capped at 90% of actual verified emissions.
Government has confirmed that revenues from the carbon tax will not be earmarked, but they will give consideration to spending to address environmental concerns and support incentives such as the proposed energy-efficiency tax incentive and measures to assist low-income households will be supported! This brings into question at the outset, the effectiveness of the proposed tax in achieving its stated objective.
Electricity levy increase
The electricity levy generated from non-renewable sources will be increased by 1c/kWh to 3.5c/kWh.
The additional revenue will be used to fund energy-efficiency initiatives such as the solar water heater programme. This arrangement will replace the current funding mechanism that is incorporated into Eskom’s annual tariff application. It will enhance transparency and enable government to use alternative agencies to deliver on energy efficiency initiatives.
The Budget concludes that the net impact on electricity tariffs should be neutral.
