The South African government intends to introduce a carbon tax on 1 January 2017. The objective of this taxation is to support South Africa’s commitment of reducing greenhouse gas emissions by 34% by 2020 and 42% by 2025 against a business as usual curve. A percentage of emissions will be tax-exempt until 2020 to allow for a smooth transition for business. These thresholds range between 60% and 100%.
What is a carbon tax?
Simply put, a carbon tax taxes companies and individuals on their greenhouse gas emissions. Emissions can occur from various sources although most emissions arise from fuel use in transportation and electricity generation. To put this into perspective, approximately one kg of carbon dioxide is emitted for every kilowatt hour of energy generated in South Africa. The net result is that becoming energy efficient and lowering energy consumption becomes increasingly important.
Companies have opposed the carbon tax because it places a heavy a burden on key energy, mining and manufacturing sectors (which are already under pressure due to rising power and wage costs and the current economic climate) and may impact wider economic growth. Treasury has however stated that it will curb such pressures by recycling revenue so as to have a revenue neutral effect on the economy.
The government will tax direct emissions at a marginal rate of R120 per tonne of CO2e (carbon dioxide equivalent). Taking account of the thresholds, the effective tax rate will be between R6 and R48 per tonne of CO2e.
A carbon tax is designed to incentivise companies, businesses and individuals to change their behaviours and consumption patterns and reduce their reliance on fossil fuels. A carbon tax also stimulates investment in alternative technologies as they can compete on a more level playing field.
Do you understand your risk exposure to carbon tax?
It is important that companies understand their risk exposure in respect of the carbon tax as the financial impact can be significant. The Carbon Report offers various consulting options to this end to assist you with quantifying your risk.
An analysis of the draft carbon tax bill and peripheral documentation is critical in understanding how carbon tax will relate to your specific industry as well as know the metrics, methodologies and frameworks that government will prescribe from a measurement and reporting perspective.
We map out all emission sources in a business to identify which sources will fall under the scope of carbon taxation. We quantify these emissions and translate them into potential tax liability and risk exposure. Where appropriate we also map out the supply chain to identify potential financial risks outside of direct emissions.
The main benefit of understanding your risk is to build plans to mitigate and reduce financial exposure. We work with our clients to develop programs to reduce their emissions and in turn reduce their carbon tax liability.
Contact us if you have any queries around the impending carbon tax. We can assist you in understanding your risk exposure and work with you to develop a strategy to mitigate this risk.