How South Africa’s new carbon tax will hit petrol prices from June and beyond

 ·16 May 2019

The Carbon Tax Bill will come into effect in from 1 June 2019 – bringing added costs for some South Africans.

According to environmental lawyer at Norton Rose Fulbright, Tina Costas, the bill aims to address the country’s carbon emissions which are disproportionately high.

There are various causes for these high levels, the primary one being the country’s reliance on coal in energy generation, she said.

“To minimise emissions, South Africa has made several international and national commitments to reduce greenhouse gas (GHG) emissions.

“The carbon tax, through the 2018 Carbon Tax Bill, will introduce the ‘polluter-pays principle’.

“This principle incorporates the costs of damage caused by greenhouse gases into the price of high carbon-emitting goods and services. It should change consumer behaviour and encourage investors to shift towards low carbon options.”

Costas said that companies, individuals and public entities will be liable to pay the carbon tax if conducting an activity that results in the emission of GHGs above the prescribed emission thresholds.

The greenhouse gases covered include carbon dioxide, methane, nitrous oxide, perfluorocarbons, hydrofluorocarbons and sulphur hexafluoride.

How the tax will work

The tax is measured per ton of CO2 or CO2 equivalent. The headline tax rate is R120 per ton of CO2 equivalent.

This rate is subject to inflation plus 2% (CPI+2%) until end of phase 1 (December 2022), and will then be increased in line with inflation.

The headline rate is subject to a number of tax breaks in the form of allowances and performance incentives.

These offsets provide a baseline tax break of 60%, and a maximum tax break of 95% during phase 1.

The tax breaks create an effective carbon tax rate of between R6/t and R48/t for carbon dioxide-equivalent (CO2e) emissions during phase 1.

According to Ayanda Msimang of law firm Shepstone Wylie, for liquid fuels, the estimated carbon tax will amount to 11 c/litre for petrol and 13 c/litre for diesel assuming a 60% basic tax-free allowance.

“This may affect the prices of petrol and diesel as petroleum producers and refiners will have to factor the carbon tax in their value chain assessment, particularly on diesel as the proposed carbon tax will result in a higher tax on diesel than on petrol due to the higher carbon intensity of diesel fuel relative to petrol,” he said.

Impact on South Africans

Costas said that while the impact of the bill will vary by sector, the average consumer will also feel the impact of direct and indirect costs as the price of goods and services rise.

Notably, the tax will cause a direct fuel increase of 9 c/l on petrol and 10c/l on diesel as of 5 June 2019.

“Businesses should assess the extent of their exposure to the tax and act accordingly. As an example, price increases on taxable activities such as transport could necessitate a supply chain review,” said Costas.

“Additionally, implementation of any mitigation measures to minimise the impact of the tax should be accomplished during phase one, since the operational specifics of phase two are still uncertain.

“Finally, and on a positive note, the intention to move away from carbon reliance, and the recent structural changes within Eskom, may create an opportunity for investors in the field of renewable energy and assorted green industries,” she said.

Read: Here is the expected petrol price for June

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