Carbon tax for South Africa from 2015, as new biofuels incentive

Carbontax10810duaneonline.jpgThe South African government has confirmed that a carbon tax will be phased in from January 1, 2015, as part of South Africa’s efforts to mitigate the effects of climate change and encourage energy efficiency measures.

An updated policy paper will be published by the end of March for further comment and consultation.

The National Treasury’s current plan is to initiate the first carbon-tax phase between 2015 and 2020, starting with a tax at a rate of R120/t of carbon dioxide (CO2) equivalent, increasing by 10% a year during the first implementation period.

A basic tax-free threshold of 60% is proposed, as well as offset percentages of 5% to 10% to allow “emission-intensive and trade-exposed industries to invest in projects outside their normal operations to help reduce their carbon tax liabilities”.

The National Treasury, which typically eschews all forms of ring-fencing, has also indicated that “some of the revenues generated through the carbon tax will be recycled to fund the energy efficiency savings tax incentive”.

The energy efficiency savings tax incentive will reportedly help companies to reduce their energy intensity and the country’s level of CO2 emissions.

Many sections of business are still expected to object to the proposed carbon tax, with energy-intensive companies having already warned that they are approaching a viability “tipping point” in light of steeply rising electricity prices.

Some observers have also argued that government is failing to take account of that fact that a carbon price is already in effect in the form of subsidies that will flow to renewable-energy projects through higher tariffs and as a result of various environmental levies.

But the National Treasury confirmed that there would be a gradual phasing out of the electricity levy as the carbon tax is phased in.

That said, it has also confirmed that, as from April 1, 2013, there would be an increase in the CO2 emissions tax for passenger vehicles from R75 to R90 for every gram of emissions per kilometre (gCO2/km) above the 120 gCO2/km level. In the case of double cabs the increase proposed is from R100 to R125 for every gCO2/km above the 175 gCO2/km threshold.

In addition, there will be an increase in the levy on plastic shopping bags, from 4c to 6c from April 1, while the environmental levy on incandescent light bulbs will increase from R3 to R4 a bulb.

But to stimulate the uptake of Clean Development Mechanism projects in South Africa, income from primary certified emissions reductions, which has been exempted from income tax from 2009 to 2012, will be extended to December 31, 2020, in line with the adoption of the second commitment period of the Kyoto Protocol.

The National Treasury also unveiled an “infant industry” support mechanism for the proposed introduction of eight biofuels manufacturing plants, which will be phased over the assumed 20-year lifetime of a benchmark plant.

The initial cost of the incentive will be 3.5c/l to 4c/l of petrol or diesel, recovered through a levy included in the monthly fuel-price determination.

Government will increase the general fuel levy and Road Accident Fund levy by 22.5c/l and 8c/l respectively as from April 3, 2013.

Source website: http://www.engineeringnews.co.za/article/carbon-tax-from-2015-as-new-biofuels-incentive-is-unveiled-2013-02-27

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One thought on “Carbon tax for South Africa from 2015, as new biofuels incentive

  1. Whilst it is good to have a definite implementation date for the carbon tax (Jan 1 2015), and although the proposed tax level of R102/tonne CO2 is better than nothing, I think it is still too little and too distant in time to have much impact on South Africa’s commitment to carbon reductions. This a pity, because Jacob Zuma’s Copenhagen commitment to a 34% reduction in carbon emissions by 2020 and 42% by 2025 (against business as usual at those dates) was based on the DEA sponsored Long Term Mitigation Study (LTMS) done by UCT’s energy Research Centre in 2007. In that study (see http://www.erc.uct.ac.za/Research/publications/07-Winkler-LTMS-Technical%20Report.pdf), the impact of various tax levels on SA’s carbon emissions was investigated was based on a 2007 tax level of R100/tonne. With inflation averaging 6%/yr, this would be about R160/tonne CO2 by 2015 (when the proposed tax will be introduced). The LTMS also showed that a tax below R50/tonne (in 2007) would have a negligible effect on SA’s carbon emissions. And R50/tCO2 in 2007 is equivalent to about R80/tCO2, so, with the tax being watered down by 60% rebates and a phased introduction, it will be too small to change industry behaviour and will just be another source of revenue to the government. Let’s hope that the March review of the proposal will bring some of this to light rather than watering it down further in response to industry lobbying.

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