Climate change high on agenda as South Africa looks to implement a carbon tax
Categories: HEADLINES, Environment & Bio-diversity, Government
In anticipation of the 2015 Paris Climate Conference, 2015 COP21 in December, all eyes are on governments around the world as the focus shifts to climate change and reducing carbon emissions. The South African National Treasury released it’s much anticipated Draft Carbon Tax Bill on 2 November 2015.
The planned implementation date for the tax is 1 January 2017 and the mandatory reporting requirements in terms of National Environmental Management Air Quality Act is planned to commence in the second part of 2016 on which the tax will be based.
Very specific sectors are targeted and are mainly large emitters of greenhouse gas emissions. The Draft Carbon Tax Bill has been delayed numerous times. Originally a carbon tax was planned for 1 January 2015.
“During this time, the global support for a carbon price, either as a tax or by way of a market mechanism, has gained significant traction. According to the World Bank more than 1 000 businesses, 74 national governments and over 20 cities are in support of a more aggressive action to price carbon. Surprisingly six major oil and gas companies, BG Group plc, BP plc, Eni S.p.A, Royal Dutch Shell plc, Statoil ASA and Total S.A all are calling for a price on carbon. The reasoning is that a carbon price will reduce uncertainty and stimulate investments in low carbon technologies and resources,” says Izak Swart, Director of Taxation services at Deloitte.
In addition to the support for a carbon price the world has moved ever closer to putting a price on carbon. The World Bank reported that by 2015, 39 national and 23 sub-national jurisdictions would have put a price on carbon. The national and sub-national jurisdictions represent 12% of global greenhouse emissions. The prices that are applied represent an aggregate market value of almost $50 billion. The World Bank’s view is that the coverage of carbon pricing needs to accelerate significantly. Carbon pricing will be a big discussion point in the Paris COP 21 that will be held early December 2015.
A carbon pricing mechanism can either be an Emissions Trading Systems (ETS) often referred to as a cap-and-trade system, which caps the total level of greenhouse gas emissions and lowers the cap over time and allows those with low emissions to sell their extra allowance to larger emitters. Overall emissions are reduced by reducing the cap. The alternative is a carbon tax that directly sets a price on greenhouse gas emissions, which is the option the National Treasury has chosen.
South Africa is the 18th largest greenhouse gas emitter in the world based on 2010 emission per National Treasury, down from 14th place in world in 2008 as a result of the energy crisis. The reduction shows the unique challenges that face South Africa when pricing carbon. The South African economy is a coal-based economy with very little room to use cleaner alternative resources that either needs to be imported or is very expensive to implement. Other countries have choices in energy sources, notable cleaner oil and gas resources. Energy is a direct requirement to grow the economy. The current energy crisis may have been good from a greenhouse gas emissions perspective, but has resulted in low growth for South Africa which desperately needs to grow to create job opportunities.
“With the worldwide support for a carbon price South Africa can no longer postpose the inevitable pricing of carbon. The Davis Tax Committee released its first interim report on the proposed carbon tax on 13 November 2015 and its findings is that it is a commendable scheme to drive a shift to a low carbon intensity economy. The deadline for public comment on the first interim report is 31 January 2016,” says Swart.
Now more than ever, industry in South Africa needs to engage with government to ensure that the planned carbon tax achieves the desired result of lowering the country’s carbon foot print without any unintended consequences such job losses and reduced competitiveness.
The Davis Tax Committee, although supportive of a carbon tax has raised a number of concerns that need to be addressed before implementing the carbon tax. For instance it suggested that the carbon tax be implemented in January 2017 with a 100% tax free threshold to allow for proper planning and allow SARS to fine tune it systems.
Comments on the draft carbon tax bill is due by 15 December 2015.
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