Carbon Tax

In December, the National Treasury released a revised Carbon Tax Bill for public comment, giving the first indication of how the proposed tax could affect everyday South Africans. First published in 2010, there was relative quiet surrounding the tax until it was mentioned in the 2017 budget speech documents.

The revised bill introduces a number of key changes, including a proposed R120 per tonne of carbon dioxide equivalent emissions (CO2e) carbon tax rate, a new calculation methodology for the production of electricity from fossil fuels, and special allowances reducing the impact of the carbon tax on electricity producers – mainly Eskom.

Because of the way the current bill is structured, the earliest it could be implemented would be in January 2019.

Carbon Tax and Petrol

Speaking to BusinessTech, Izak Swart, director of Carbon Tax at Deloitte South Africa said petrol and electricity prices will certainly be impacted by the proposed carbon tax.

“Petrol and diesel will both be subject to an additional carbon tax levy as was mooted in the Discussion Paper for Public Comment on the Review of the Diesel Fuel Tax Refund System issued in February 2017,” he said.

“If a carbon tax rate of R120 per ton is used (the current proposed rate), without taking into account any tax-free thresholds, the price of petrol will increase by 22.8 cents per liter and diesel by 28.6 cents per liter with a carbon tax levy. If the minimum threshold of 60% is applied, the petrol price could increase by 9.1 cents per liter and diesel by 11.4 cents per liter.

“At this stage, it is unclear if any tax-free thresholds will be applied to the carbon tax levy,” said Swart.

“Although a levy on petrol and diesel is possibly the easiest way to administer a carbon tax on a significant portion of South Africa’s greenhouse gas emissions it does result in a somewhat unfair situation as emitters could reduce their effective carbon tax rate by the use of tax-free thresholds, that require additional investment, which would not apply to their petrol and diesel emissions,” he said.

Trickle-Down Carbon Taxing

Swart also warned that the above calculations do not take into account any carbon tax paid on fugitive emissions in the petrol and diesel value chains from oil production, transport, and venting to mention a few.

As a result, the carbon tax on fugitive emissions will likely be passed on to consumers by way of the carbon tax levy, he said.

“Certain industries, especially where the product or manufacturing processes are reliant on carbon, will be heavily affected by the proposed carbon tax,” said Swart.

“Technology does not exist at this stage to change the processes or products and the related carbon emissions. Whatever carbon tax payable by these industries will ultimately be passed on to consumers. ”

“The proposed carbon tax was aimed at changing behavior and in these industries it is impossible to do so,” he said.

Electricity and Carbon Tax

Swart said that electricity prices will also be impacted by the proposed carbon tax.

However, he said that electricity will be less affected, as special measures are in place to ensure that the first phase of the carbon tax will have a limited impact on the price of electricity.

“Per the draft carbon tax bill, electricity producers will calculate their normal carbon tax liability, after taking into account all the tax free-thresholds available to them, whereafter they will be allowed to deduct the environmental levy paid for the year as well as a renewable premium that will be determined by the minister of finance,” he said

Swart said that the environmental levy is already effectively a carbon tax at a rate of approximately R37 per ton, based on a grid emission factor of 0.94 kg of carbon for every kWh produced. He said that it was also unknown at this stage what the renewable premium will be, but it will likely be based on the price difference paid to renewable energy producers and the price of electricity produced from fossil fuels.

“Electricity producers will be subject to an effective carbon tax of R45 per ton per MWh produced before taking into account the environmental levy and renewable energy premium deductions,” Swart said. “This assumes that electricity producers maintain a grid emission factor of 0.94 kg of carbon and the basic 60% tax-free threshold is applied. The R45 per ton per MWh produced equates to 4.5 cents per kWh produced.

“The 4.5 cents per kWh will then be reduced by an environmental levy of 3.5 cents per kWh as well as the renewable energy premium that is yet to be determined. The above assumes that none of the other tax-free thresholds will apply, which is unlikely as offsets and carbon budgeting can be used to increase the available tax-free thresholds to more than 60%,” he said.

As a result, it is unlikely that the first phase of the carbon tax will have an impact on electricity producers, Swart said.

However, all the above will be reviewed for the second phase of the proposed carbon tax. The review will take place at least three years after the implementation of the carbon tax and will be subject to the normal consultation process.

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