Making sense of the impending Carbon
Tax and its implications for South Africa’s fruit and wine farmers.
By Anél Blignaut, Eddie Vienings and David Farrell. April
The Draft Carbon Tax Bill has been
released for comment during November 2015. The Confronting Climate Change
(CCC) Initiative has received many questions with regards to the bill and have,
in response, developed this summary document with the information currently to
our disposal. It is meant to be a high-level document that outline the carbon
tax processes and should by no means be read as conclusive as it is likely that
there will be refinements to the Bill after the public comment has been
What is a carbon tax and why is it being
Africa has committed itself to reducing greenhouse gas (GHG) emissions to below
business-as-usual levels, and has selected taxation on greenhouse gas
emissions, or what is referred to as a “Carbon Tax”, as the primary mechanism
to stimulate the changes in the economy necessary to achieve these targets. The
committed reductions targets are substantial, being reductions of 34% by 2020
and 42% by 2025. The carbon tax seeks to place a cost to greenhouse gas
emission, and in so doing ensure that the polluter pays for their emissions and
the harm caused by such pollution. The carbon tax is
aimed at stimulating a steep reduction in GHG emissions, ensuring that South
Africa is ready to deal with future climate risks and challenges, and to be in
a position to take advantage of new investment opportunities associated with
the move to a low-carbon or “green“ economy. The Carbon Tax is a direct
economic instrument aimed at rapidly changing the behaviour of businesses
– providing then a significant financial incentive to shift towards cleaner
technologies, products and processes.
When will it be introduced?
is anticipated that phase 1 will be implemented during from January 2017. The
primary agricultural sector will be exempt from phase 1 and only be taxed
directly from phase 2 which is estimated to start in 2020/2021. Although
primary agriculture will be exempt from phase 1, the carbon tax will indirectly
filter through to input costs.
only must the bill be written into law, but Treasury still has to finalise
regulations around the generation and claiming of offsets. At this stage the Carbon
Tax relates to Scope 1 emissions only. Scope 1 emissions are direct emissions
from owned or controlled sources. As a matter of interest, although fuel is
currently subject to the General Fuel Levy (Petrol – R 2.55 per liter and
Diesel R 2.40 per liter), it is not an “environmental” levy. Electricity
consumption is currently subject to an Environmental Levy of 3.5 cents per kWh.
How will it work?
The nominal “price”
of greenhouse gas emissions will be set at R 120 for the equivalent of a ton of
carbon dioxide emitted.
A number of
tax-free allowances have been provided which then reduce the effective cost to
basic tax-free allowance of 60% ;
additional tax-free allowance of 10 per cent for process emissions;
variable tax-free allowance for trade-exposed sectors (maximum 10 per cent);
maximum tax-free allowance of 5 per cent for above average performance;
per cent tax-free allowance for companies with a Carbon Budget;
carbon offsetting allowance of either 5 per cent or 10 per cent;
the total tax-free allowance during the first phase (up to 2020) can be as high
as 95 % (i.e. for a business that qualifies for all the discounts, it will be
taxed an effective cost of R6.00 per ton of CO2e emitted). Up to
the end of Phase 1 the cost of carbon could therefore range from R 6 to R 48
per ton of CO2e emitted. After phase 1 it is anticipated that these
tax-free allowances could be reduced and phased down.
of the carbon tax requires an accurate system for monitoring, reporting and
verifying emissions (MRV). The CCC carbon calculator provides a
mechanism for monitoring and reporting in the agricultural sector. The South African
Revenue Service (SARS) will be the main implementing administrative authority
on tax liability assessments and that Carbon Tax will be collected as for other
taxes. In order to audit the self-reported tax liability by entities, SARS
will be assisted by the DEA.
What are the implications for
While agriculture is exempt from being
directly taxed during phase 1, the Carbon Tax legislation has important other
implications for farms, packhouses, wineries and other entities involved in
potentially become an important source of carbon offsets during phase 1 and
there may be opportunities for selling carbon offsets to entities that are
looking to reduce their carbon tax bill. What will qualify as an offset project
is not year clear but could include carbon sequestration projects (for example
restoring soil carbon) and/or emissions reduction technology projects (for
example, solar PV, biogas digesters etc.).
of carbon taxes will be felt throughout the economy as prices are increased by
businesses to help them offset their increased tax bills. Agriculture can
expect to experience cost pressure on all key material and energy inputs
including electricity, fuel, fertilizers and agrochemicals.
phase 2 is reached, then all scope 1 emissions from agriculture will be
taxable. There are important scope 1 emissions applicable to farms, packhouses,
Combustion: All emissions from the consumption of fossil-fuels for owned
vehicles, including owned tractors, trucks, farm bakkies etc.
Combustion: Any emissions from the consumption of fossil-fuels for equipment
owned by the business used for industrial applications such as heating,
electricity generators etc.
Emissions: Any unintended release of greenhouse gasses from other sources owned
by the business, such as refrigerant leakages from cooling systems, Nitrous Oxide
from agricultural soils and Methane from waste treatment infrastructure.
What should I do to prepare for Carbon
Tax, and how can the CCC Initiative assist you?
Up till now, the motives to measure,
report and reduce carbon emissions have come from a combination of market
pressures, economic self-interest (improve efficiency and reduce costs) and a
desire “to do the right thing”. The introduction of the Carbon Tax scheme adds a
further, and perhaps the strongest, motivation for businesses to proactively
understand and manage where, how and at what scale they emits greenhouse gasses
and to understand, evaluate and implement the strategies to reduce these
emissions. The primary motive of the Carbon Tax is to bring emissions reduction
onto the center-stage of business management.
The most foundational element of an
emissions management strategy is the ability to accurately and reliably measure
emissions at a level of detail that enables good decision-making and credible
reporting. The annual measurement of the businesses “carbon footprint” using
the CCC tools provides the solution for this.
Once measurement has been undertaken
then opportunities to improve efficiencies and/or to introduce new technologies
can be evaluated and implemented.
The CCC Initiative is also being
enhanced in response to the impeding Carbon Tax
Carbon Sequestration Calculator for the calculation of carbon offset values and
a carbon tax calculator in the Carbon Footprinting tool to calculate the tax
impact of the business’s emissions and to help in the identification of
emissions and tax “hot spots”
proactively inform the industry of the carbon Tax legislation and its
implementation and implications are finalized.