New law can wreak havoc among South African businesses

South Africa’s new Climate Change Act can wreak havoc among South African businesses and significantly stifle economic growth.

On 23 July 2024, President Cyril Ramaphosa signed the Climate Change Bill into law, setting out a national climate change response.

Members of the executive and the Presidential Climate Commission (PCC) welcomed the new act, saying it is a big step for South Africa to help the environment.

Ramaphosa explained that the act would help to align policies to influence South Africa’s climate change response.

The law also aims to enhance South Africa’s ability and capacity to reduce greenhouse gas emissions and build climate resilience over time.

Ramaphosa said this will be done while reducing the risk of job losses and promoting new job opportunities in the emerging green economy.

The Minister of Forestry, Fisheries and the Environment, Dion George, welcomed the Climate Change Bill.

“The President’s signing of the climate change bill into law marks a significant milestone in our nation’s commitment to addressing climate change,” he said.

“The act sets out a national climate change response, including mitigation and adaptation actions.”

He added that the bill constitutes South Africa’s fair contribution to the global climate change response.

“This legislation provides a comprehensive framework for climate action across all our society and economy,” George said.

The Presidential Climate Commission (PCC) also welcomed the Climate Change Act, saying it sets out the legal mandate for countrywide climate change response.

“It enables the alignment of South Africa’s climate change response policy and actions, including mitigation and adaptation actions,” the PCC said.

It highlighted that the act clearly instructs every state organ to review and, if necessary, change its policies to align with the new legislation.

It said the act enables the development of an effective climate change response and a long-term transition to a low-carbon and climate-resilient economy.

Big impact on business

While the ministers and climate change organisations welcomed the Climate Change Act, business organisations have warned that it can have negative effects.

One of these organisations, Sakeliga, warned that the new act could disrupt the business world and cause problems for governmental institutions.

Sakeliga chief economist Russell Lamberti said the Act would create a hyper-bureaucracy over what can be produced in South Africa.

Lamberti said the legislation envisages an unfathomable level of bureaucratic and regulatory complexity.

The onerous conditions go beyond the additional work required by businesses. The state will also need to perform a tremendous amount of work.

It required intense reporting from municipal and provincial governments on their green energy policies and how many emissions they produce.

Considering that the state barely functions, this additional reporting burden will be a step too far for most government branches.

“If fully implemented, it will throw additional sand in the gears of the government and businesses,” Lamberti said.

He added that regulations must now be produced on top of the legislation, creating tremendous uncertainty about what the final version will look like.

Sakeliga’s chief executive, Piet le Roux, added that the Act prescribes a system for dividing the economy into categories.

Each category will be given a carbon quota, and each business in that category must apply for a slice of that carbon quota.

“Should a business exceed its carbon quota, it will be fined. If it uses less than its quota, it can be taken away and given to another business,” Le Roux said.

Even more concerning is that if a new business wants to enter a category, it will need to see if enough carbon quotas are available.

“It will create a massive fight, where big and small businesses turn on each other and businesses of the same size fight against each other,” he said.

Lamberti added that the impact of the Climate Change Act has been underreported and that businesses should take note of it.

“It is going to take a few years to play out. Get this on your radar. It will bubble to the surface in the coming quarters,” he said.