Major changes proposed for carbon tax in South Africa

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South Africa’s Energy Council, along with other major corporate figureheads, has made recommendations for the country’s carbon tax under the proposed tax law amendment bill.

As a multi-representative body, including Business Leadership South Africa (BLSA), Business Unity South Africa (BUSA), the South African Petroleum Industry Association (SAPIA) and Energy Intensive Users Group (EIUG), the group said there are key areas that could be improved over the proposed carbon tax to identify unintended consequences.

The energy council said the business community is sharing recommendations to avoid equitable transition effects ahead of schedule and to avoid unintended or adverse impacts on an already fragile economy.

“The business priority is to positively fulfill our role for a low-carbon and sustainable South African economy. We are committed to an energy transition that is just and equitable for the country and look forward to working with the South African government to make this journey a reality,” the council said.

The group listed the following six changes:

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Revision of the CO2 tax proposal

Companies would like to see the annual increase in the carbon tax continue based on the current consumer price index (CPI) of +2% until at least 2030, so that different policies can be reviewed and aligned.

This goes against the National Treasury’s proposal to raise the carbon tax rate by at least $1 from 2023 to 2025 and gradually increase it to $20 by 2026 and then $30 by 2030.

This is due to the country’s economy not being able to absorb the high taxes in a short period of time, the group said.


Keep the current fee and introduce more policies

The Energy Council said it is concerned that the new bill does not retain the rights to mitigate the impact of increasing carbon tax proposals.

The group said there is a need for more policy certainty around preserving rights, such as various incentives or financial support for taxpayers moving to greener technologies.

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Revision of implementation timelines

The business groups suggest that a higher carbon price should not be considered until after 2035, the exact date of which should be determined by a more detailed analysis of achievable mitigation and socio-economic considerations, the group said.

They added that the current timing of carbon price hikes is prohibitive for businesses.


Bottom-up analysis for hard-to-reduce and vulnerable sectors

“Different sectors have different carbon price signals against which they will switch to low-carbon energy and feedstock options and will take different lengths of time to switch.”

The business community proposes to conduct a detailed bottom-up analysis for hard-to-reduce and trade vulnerable sectors.


An investigation into carbon tax transmission

The group said the end date of December 31, 2025 for the extension for electricity generators with the environmental tax – poses a significant financial risk.

Passing the carbon tax on to electricity consumers and through other input costs, such as construction materials in the form of steel and cement, essentially leads to effective double taxation, it said.

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The Energy Council, along with the other business leaders, proposes to conduct a detailed study to evaluate the financial impact of carbon tax transfers from power generators and other industries unable to pass carbon tax on to customers.


Enabling a Just Transition

Just transition includes retraining, managing the change in the current geographic distribution of workers and creating new meaningful jobs, the group said.

We need to empower current industry not only to move to low-carbon energy, but also to facilitate the transition of suppliers, employees and skills to the new dispensation.

As a company, we support the inclusion of the deduction of recording activities in the CO2 tax formula.

“We propose that this is non-discriminatory by extending the foreclosure deduction to all sectors.”


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