“The Minister of Finance, Tito Mboweni, formally announced that the South African Carbon Tax Bill was passed in Parliament on 19 February 2019 during the 2019 Budget Speech the 20 February. The Bill includes a R120 per ton carbon tax for primary GHG emitters, a carbon tax on liquid fuels, economic incentives for energy efficiency and the use of carbon offsets as a means of reducing tax burden. What is envisaged is a phased approach, with the first phase extending from June 2019 to December 2021, escalated at 2% above CPI annually.
The reality is that South Africa is a significant global emitter of green-house gases (GHG) with a heavy reliance on fossil-fuel based energy. And so, in a bid to tackle climate change, the country has a dual responsibility to honour its international emission reduction commitments and to reduce its GHG emissions in line with the National Development Plan (NDP). To do this, government has announced a market-based carbon pricing mechanism that specifically targets carbon and energy- intensive companies that pollute the atmosphere.
OUR LONG WALK TO CARBON TAX
South Africa is not alone in its climate and carbon tax endeavours as at November 2018, 46 national and 24 subnational jurisdictions are putting a price on carbon.
Since 2010 the debate concerning the net effect of pricing carbon in the South African economy has been fractious with concerns ranging from international competitiveness, financial impact on the local industry and labour affairs.
From an investments perspective, the market impact is anticipated to be mostly muted for phase one due to carbon allowances and offsets which will result in an effective tax rate of between R6 and R48 per tonne. Phase 2, from 2022 onwards, envisages a higher tax to begin aligning with global rates. Pending the revised rates, the impacts in Phase 2 could materially impact high-intensity carbon emitters.
WHAT THIS MEANS FOR US
On the upside the transition to a low-carbon economy presents long-term investors with a range of new market opportunities. Renewable energy, energy efficiency, energy storage/charging, green property and green bonds are some examples of nascent growth areas. Specialist infrastructure, private equity and impact funds provide institutional investors with vehicles to access these markets.
A carbon tax of 9c/l for petrol and 10c/l for diesel will apply which will be carried by the consumer. These impacts will most likely remain, becoming part of the fuel levy adjustments – which for 2019/20 are 29c/l for petrol and 30c/l for diesel. Continued fuel cost increases and an expanding electric vehicle market will drive cost parity in time. Already luxury car brands are positioning themselves in South Africa with five new additions to the local market with average battery ranges varying between 400km to 480km.
From a national budget perspective, the tax is intentionally planned to be revenue neutral. The first phase will be characterised by a combination of tax incentives and revenue-recycling measures as means of managing the economic impact.
Symbolically the carbon tax is an important step for the South African economy in decoupling economic growth from carbon intensity. The ultimate aim of a carbon tax is to discourage future carbon-intensive investments and improve energy efficiency by utilising alternative and cleaner technologies.