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Within a white paper issued in October last year, the South African government reviewed its climate change policy, and the Minister of Finance Pravin Gordhan has now, in his 2012 Budget, provided the proposed design for a carbon emissions tax.
In the white paper, the government gave its key carbon-emitting sectors, including energy and transport, two years, to October 2013, to finalize ‘carbon budgets’. Those budgets should abide by the official objective that the country’s greenhouse gas emissions should peak in the period from 2020 to 2025, remain stable for around a decade, and decline thereafter in absolute terms.
It was also pointed out that environmentally-related taxes would complement other policies to address climate change. The government has already introduced the electricity generation levy, motor vehicle emissions tax, a range of tax incentive measures to support renewable energy investments, and the proposed energy efficiency savings tax allowances.
As part of the process of exploring more comprehensive reforms for addressing South African climate change, the government published a carbon tax discussion paper in December 2010, which elaborated on the role for carbon taxes as a policy measure to stimulate behavioural changes among producers and consumers in favour of less energy intensive, lower-carbon emitting alternatives.
Following that public consultation, the government has revised the proposed design features for a carbon tax, which will now include a percentage-based rather than absolute emissions thresholds, below which the tax will not be payable; a higher tax-free threshold; additional relief for trade-exposed sectors; and the use of offsets by companies to reduce their carbon tax liability.
There would be a phased implementation of the tax, which 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 are proposed.
Additional relief will also 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.
The 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 will be important in that respect.
A carbon tax at ZAR120 (USD15.60) per ton of CO2e above the suggested thresholds is proposed to take effect during 2013/14, with annual increases of 10% until 2019/20.
It is not proposed that revenues from the tax will be earmarked, but consideration will be given to spending the funds thereby collected to address environmental concerns. Incentives such as the proposed energy-efficiency tax incentive and measures to assist low-income households will be supported.
The government will be publishing a second version of its draft policy paper on carbon tax, outlining its revised concept, later this year.
In addition, as a further element of its environmental policies, the 2012 Budget also increased the electricity levy generated from non-renewable sources by 1 cent per kWh to 3.5 cents per kWh. The additional revenue will be used to fund energy-efficiency initiatives, such as the solar water heater programme.
It was said that it will replace the current funding mechanism that is incorporated into Eskom’s annual tariff application. It will enhance transparency and enable the government to use alternative agencies to deliver on energy efficiency initiatives, and its net impact on electricity tariffs should be neutral.
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