Carbon Tax Phase Two Discussion Paper for Comment - deadline 13 December 2024

The Basic Tax-Free Allowance is reduced by a large 10% in 2026, and by smaller increments of 2.5% per year from 2027 – 2030.

Performance Benchmark Allowance

5% increase for fuel combustion emissions (10% performance benchmark allowance for fuel combustion).

Allowance remains the same for process emissions.

Carbon Offset Allowance

15% increase in the carbon offset allowance for fuel combustion and process emissions.

Therefore, a 25% carbon offset allowance on fuel combustion and 20% carbon offset allowance for process emissions.

Trade Exposure Allowance

The trade intensity index will increase allowing more companies to benefit from the trade exposure allowance. The proposed changes to the trade exposure allowances are provided in more detail in the document.
It is proposed that to adjust for the increase in carbon offset allowance and performance benchmark allowance, the trade exposure allowance falls away for fuel combustion.

Carbon Budget Allowance

Carbon Budget allowance falls away from 1 January 2026 (previously planned to fall away from 1 Jan 2025).

Mandatory Carbon Budgets

A higher carbon tax rate of R640 per ton CO₂e on emissions exceeding the carbon budget allocation from 1 January 2026. Legislative changes to the Carbon Tax Act will follow to enforce this.

Electricity Price Neutrality

Proposed that the carbon tax replaces the electricity generation levy from 1 January 2026, electricity generators to deduct a portion of the renewable energy premium from their tax liability where there is a difference.

Section 12L Energy Efficiency Incentive

It is proposed that eligible projects under the Section 12L tax incentive are absorbed under the carbon offset mechanism. 

Tax Incentive for Green Hydrogen

Extension of the 100% depreciation allowance for solar PV to green hydrogen production in line with the recommendations from the Green Hydrogen Commercialisation Strategy approved by Cabinet in 2023.