Energy companies can no longer oppose carbon tax in South Africa

To show its commitments to reducing greenhouse gas emissions, on Sunday, May 26, South Africa Treasury announced that the carbon tax has been passed into law. This comes after an eight-year process of preparation and consultation with stakeholders.

South Africa is one of the 195 signatories to the Paris Agreement which aims to maintain the global average temperature below 2°C as it is believed that this would substantially reduce the risks and effects of climate change. The country is one of Africa’s worst polluters and with the carbon tax law, South Africa aims to transitions to lower emissions.

In 2015, South Africa’s National Treasury drafted a carbon tax bill as part of its commitment to reduce greenhouse gas (GHG) emissions below business as usual by 34 per cent by 2020 and 42 per cent by 2025.

South African National Treasury said the Tax bill includes staggering increases and tax breaks in the early years and was developed in line with the polluter pays principle that allows companies to pay 6-48 rand per tonne in the first phase.

Ever since South Africa began talks of introducing a carbon tax on petrol and diesel, the reactions have been largely negative. Top energy firms in South Africa has been opposing the carbon tax law as they argue that the levies are unaffordable and should be scrapped or delayed.

Even the world’s largest primary producer of platinum, Anglo American Platinum Limited (Amplat) in April noted that the newly approved tax could cost the company up to $21 million yearly from 2021. ArcelorMittal’s South African unit also opposed the carbon tax bill on the grounds that it would hurt the steel firm’s competitiveness at a time when it was struggling with cheaper imports and weak demand.

Climate change has been a recurring topic of discussion globally and the effects are impacting countries differently. A 2018 report, Future We Don’t Want, noted that major South African centres are at risk from the effects of climate change: Cape Town; Durban, Port Elizabeth; East London and Paarl are at risk of flooding by 2050, displacing the 800 million people living in 570 coastal cities.

Carbon tax offers both social and economic benefits as it increases revenue without significantly altering the economy, yet promotes the objective of reducing GHG emissions. A carbon tax can effectively reduce the harmful and unfavourable levels of carbon dioxide emissions in the society, thereby reducing climate change and its deleterious effects on the environment.

The new law, with a tax rate of 1R20($10) per tonne of carbon dioxide equivalent would affect about 1,000-1,500 companies and 75 percent of national emissions. In South Africa, states that total tax-free allowances during the first phase until 2022 can be as high as 95 percent.

The first phase of the tax is from June 1 to December 2022, with a tax rate of 120 rand ($8.34) per tonne of carbon dioxide equivalent.