• By : Chris Ettmayr & Rhoanda Jansen van Rensburg
SO WHEN DOES CARBON TAX KICK IN?
Its already here and you may find a nasty surprise by the end of this year if you have not already prepared for it!
So carbon tax is payable on an annual basis and it commenced as of the 01st June 2019 and will be measured until the 31st December 2019. Then for next year it will run from the 01st January 2010 to 31 December 2020 on an annual basis. I big concern from business was, would they be responsible to pay for the tax associated with their own electricity consumption as this comes from Eskom who burn fossil fuels to generate most of their energy. The good news (sort of) if that the polluter pays and therefore Eskom themselves burn the feedstock and therefore they would be responsible to pay this tax and not their consumers. Eskom may however take a decision to place this tax burden onto their tariff pricing and the customer may ultimately pay for this.
The carbon tax will not be payable for something termed as scope 2 emissions. This is when emissions are produced elsewhere for an energy source which is then used by companies on their own site. The example of electricity is a good one here as the electricity generator will be liable for the tax and not the consumer. Scope 3 focuses on transport fuel emissions. Here the producer of the fuel will be taxed and not the companies utilising the fuel for transport. The last exclusion is for emissions that are produced from waste and land use. It would be too cumbersome to determine how much waste each company sends to landfill which ultimately emits gas into the atmosphere, so this is excluded.
Carbon tax will become payable based on emissions generated by companies themselves. Onsite fuel combustion, fugitive emissions, certain industrial processes and usage of certain products may result in attraction of carbon tax. As an example, if a company has a boiler to produce steam and it runs on coal, paraffin or heavy furnace oil, this is combusted on the company’s premises and the amount of carbon emitted from this facility will result in a carbon tax amount.
Fugitive emissions come from activities such as coal mining, charcoal production, oil production and transportation, natural gas production, transmission and transportation. All of these emit CO2 into the atmosphere and they will command a certain amount of tax exposure. Then for certain industrial processes you may also be generating CO2 emissions. The production of cement, lime, glass, ceramics, some non-metallic minerals, iron and steel, etc, all expose producers to carbon tax. The use of soda ash, petroleum coke and silicon carbide are also going to be discouraged by having a tax placed on these materials.
Certain companies that are running thermal generation capacity on site that is in excess of 10 Megawatt or more will be subject to carbon tax. This threshold will become stricter over time and for companies with a few installations which individually do not exceed 10MW but combined would cross over the limit, it has been recommended that they do declare this as it will ultimately be tracked.
The enforcement of this new tax is something which is still to be tested as it’s a relatively new piece of policy. There are also allowances that will reduce the amount of carbon tax to be paid, as an example a 60% allowance for fossil fuel combustion emissions is allowed for now, but noting that it is likely to get firmer over time. There will also be carbon offsets and performance benchmarks which will be developed but are not yet in place. So much remains an uncertainty but for the companies in South Africa that are currently combusting on site and utilising products that emit into the atmosphere, there is now a penalty, or incentive to start becoming more environmentally friendly.
Lastly, the price. Carbon is currently priced at R120 per ton of CO2 that you emit into the atmosphere. This will increase by 2% more than the Consumer Price Inflation until December 2022. Thereafter is will increase at the CPI rate on an annual basis. Do best start making plans to convert to cleaner fuels and diversify input products to more environmentally friendly goods.