You only have to step outside or watch the news to appreciate the global impact climate change: unusual weather patterns, rising temperatures, melting ice caps. Climate change is a universal problem that’s increasingly being felt at a local level – just look at the recent bushfire crisis across Australia. Enter the Carbon Tax Act, a piece of legislation aimed at regulating (read: changing) the way companies operate over the long term to reduce their environmental footprint and gear for a greener economy. The Act introduces more complexity around the costs of compliance and the relative competitiveness of South African businesses. The reason it was introduced is because South Africa signed the UN-brokered Paris Agreement on climate change in December 2015, where we committed to reducing greenhouse gas (GHG) emissions. As the 14th largest C02 emitter in the world, with our mainstay industries like electricity, transport and mining producing 80% of our total emissions, climate change is not something we can ignore.
But while the Carbon Tax Act sounds like a good incentive for companies to reduce their carbon footprint, we have questions. Firstly, how is the Act being implemented to ensure companies actually reduce their emissions rather than passing the carbon cost onto consumers after offsetting? Secondly, what greening initiatives will the new tax revenue be spent on? We would like to see plans and implementations? The President called out the green economy in his State of the Nation Address, but this creates more questions than answers. Questions like: what is government’s green policy in a developing economy? How will this be regulated? And most critically, how will this impact company operating cost and any future taxation regimes?
Reducing carbon emissions is essential for developing economies
As a developed or mixed economy, economic growth is an obvious priority for South Africa because it brings higher incomes, creates more jobs and reduces poverty – all major pressure points for government. But growth without sustainability is short sighted. South Africa is not exempt from the effects of climate change, even if it doesn’t produce the emissions loads of China and the US. For example: we are economically dependent on agriculture and fisheries, but estimates show that a temperature increase of just three degrees Celsius could lead to a 15% drop in crop yields, severely impacting food security. Rising temperatures could also increase the mosquito population and by extension the risks of malaria in certain areas.
So at least in principle the Carbon Tax Act is a signifier to the market that we are decoupling fossils fuels from our ability to generate positive GDP growth. But are there some complications in its current application.
How SA’s carbon tax is being applied
We are now operating under phase one of the Act, where companies are effectively going to be paying between R6 and R48 per carbon tonne after applying the allowances , since the stated value in the Act is R120/tonne. Phase one targets direct emitters of GHG only. (Note: this is not yet finalised so I would advise not to put it in)
Let’s talk about how the tax applies to mining. We should be asking why government has taken so long in approving independent, renewable power for the mines given that this is precisely the behaviour change the Carbon Tax Act is meant to effect. Even as it acknowledges that mines should be allowed to generate their own power, government has only recently said it would look at revising the Electricity Regulation Act to allow private generation without a license. Gold Fields has been waiting to build a solar plant at its South Deep gold mine in Johannesburg for over three years but has been waiting ministerial approval and a regulatory license. Understandably, government is at once incentivised and disincentivised to allow private power generation without a license: while self-generation eases supply pressures on Eskom, it also reduces the revenue pool Eskom needs to be profitable. But the way the Carbon Tax is being applied has left many asking if it’s just a tool for more tax revenue under a different name, without actually promoting behaviour changes in practice, although it is aimed at behavioural change, we will wait and see if it will achieve what is intended to do. While we appreciate the need for government to do what it can to increase tax revenues and protect the climaye, we caution against increasingly complex tax programmes that are not deliberately and clearly linked to delivery of a clear policy. We need clarity says Dineo Mokono.
That brings us to the question of where carbon tax revenue is going. Right now, this revenue has not been ringfenced and is going into the general tax collection pot. If the purpose of the Carbon Tax Act is to offset carbon emissions, the revenue should be allocated toward climate action measures in line with the Paris Agreement. If the funds simply disappear into the main fiscus, we are losing our ability to compensate for each tonne of C02 pollution. Again, we need certainty around government’s green economy policy and what this means for how organisations operate and plan for future taxation regimes.
Our hope is that is as the Carbon Tax framework develops into Phase 2, government will give more clarity on the issue, because the Act doesn’t only apply to big corporations but SMMEs too, who collectively make a relatively large carbon footprint. Businesses will need to find reputable partners who can help with not just offset their carbon costs but actually embrace more sustainable ways of doing business. Without a clear direction the President’s green ambitions may as well go up in smoke.
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