OPINION: Carbon tax ‘not required to meet commitments’

The writer says Finance Minister Nhlanhla Nene will announce an updated implementation date when introducing the bill at the next Medium Term Budget speech. Photo: Leon Lestrade/African News Agency (ANA)

JOHANNESBURG – With the advent of September, we are now two-thirds of the way through 2018, which means we are staring into the headlights of a complex and demanding new fiscal instrument – carbon tax.

To the government’s credit, there have been several rounds of consultation, much discussion, tweaking and reflection. However, I suspect we have now seen the final request for inputs, and that government is serious about launching carbon tax in January, or very soon after that.

The National Treasury published a revised draft of the Carbon Tax Bill on December 14 last year and invited the public to make submissions and comment on the bill by March 9 this year. There were 59 written comments on the revised bill, and officials presented their responses to these comments to the standing committee on finance on June 7.

So, what have we learnt? The parliamentary process for the Carbon Tax Bill is expected to be completed by the end of this year, but the government may consider moving back the implementation date of January 1, 2019, by a little, but not by much. Assuming there are no big cabinet reshuffles before then, Finance Minister Nhlanhla Nene will announce an updated implementation date when introducing the bill at the next Medium Term Budget speech or in next year’s Budget speech. It’s coming, folks. Brace yourselves.

Complex, but vitally important, details on carbon offsets and trade exposure will soon be published for comment. A report is expected to be published later this year, developed with industry input, and to be reviewed by the World Bank’s Market Readiness Project.

We already know some of the main objections to carbon tax: South Africa is currently below its emissions targets in terms of our undertakings on global warming, so a carbon tax is really not required for South Africa to meet our national commitments.

Some commentators say the carbon tax rate is too low, and will not effectively lever businesses to substantially reduce their carbon footprint. With this in mind, a more detailed carbon tax modelling exercise is required.

The bill still includes long-term policy uncertainty, which makes it difficult for firms planning an investment to accurately factor in the impact of the carbon tax. Not helpful, as President Cyril Ramaphosa seeks a further $100 billion (R1.51 trillion) in new investment in South Africa.

The carrot to balance the stick

There is still no policy alignment of the carbon tax with carbon budgets – which are the maximum levels of carbon dioxide that a firm undertakes to produce in a given time period. The Energy Efficiency Tax incentive – the carrot to balance the stick of the carbon tax – needs to be extended.

If the government does not take precautionary action to cut industrial pollution, greenhouse gas emissions are likely to exceed the target range by as early as 2025. The Treasury has undertaken a number of carbon tax modelling studies. The initial carbon tax rate is being set at R120/ton CO2, which is regarded as low.

The implementation of the Carbon Tax is rushing towards us. And any business which fails to understand it, to plan for it, and to be ready for it… does so at its peril.

Zelda Burchell is a consultant at Cova Advisory and Associates. Zelda has a Master’s degree in chemical engineering and has worked in the climate change and sustainability space since 2008