Industries that emit carbon to pay more tax

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South Africa’s carbon tax policy took nearly a decade to get off the ground, mostly because of resistance from climate deniers in the affected sectors. 

This was said during the environment, forestry and fisheries parliamentary portfolio committee briefing on Wednesday night by the treasury’s Ismail Momoniat. 

“In the earlier period whenever we came up with the tax — many opposed the tax. They were opposing the tax because they were against tax in general but others were against it because they did not believe in climate change,” he told the committee.

He said South Africa had already adopted the science showing that greenhouse gas emissions were accelerating global warming. 

The tax was first introduced in a policy paper in 2010 and it passed through parliament only in 2019. Carbon tax is a climate change mitigation tool meant to make industries with high carbon emissions pay for the environmental damage caused by their operations. 

Treasury officials told the committee that the country’s price on carbon was still much lower than the global average. 

High carbon emitters in South Africa such as the electricity and steel sectors pay as little as $0.50 (R7.59) to $3.6 (R54.68) per tonne of carbon. Treasury officials said the country’s carbon tax is doing little to reduce emissions. 

In the new proposals, any emissions outside the country’s “carbon budget” will be taxed higher and penalised because high emitters are not taxed for 60% of their emissions and the price on carbon is low. 

The biggest emitters in South Africa include Eskom, Sasol and smelters such as ArcelorMittal. In the future, according to the treasury, the price of carbon will increase above inflation. Officials told parliament that high emitters needed to be eased into the changes. 

According to their modelling estimates, the price of carbon per tonne will cost about R149 ($10) by 2030. 

The treasury said it will be better for South Africa’s domestic carbon pricing to increase significantly because this will open the door for negotiations with the European Union when the new carbon border adjusted mechanism takes effect in 2026. 

The EU is planning to slap importers with a tax on carbon intensive products, which will make a number of South Africa’s steel and other exports uncompetitive. 

A heftier price tag on emissions will have to be aligned to the country’s nationally determined contributions set to be deposited at the United Nations climate change conference in Glasgow, Scotland, in November. 

The nationally determined contributions, which are targets for cutting carbon emissions, have been subjected to public hearings at the Presidential Climate Commission. 

It’s recommended that South Africa accelerate the phasing out of coal-fired power to be competitive in a world dominated by green energies. 

The treasury said that to meet these international commitments and domestic targets, South Africa would need to rapidly scale up the price on carbon. 

“The primary purpose of the carbon tax is to see a cut in emissions,” Momoniat told the briefing. 

The treasury said the latest scientific findings of the Intergovernmental Panel on Climate Change begged the question of whether South Africa and the rest of the world were doing enough to deal with climate change — “and we are not”, Momoniat said. 

A green paper published for public comment in June warns that carbon intensive assets are at risk of being stranded. 

The climate change bill, in limbo between parliament and the National Economic Development and Labour Council, is expected to determine the next phase of the country’s carbon tax, while South Africa’s international commitments will influence the price of carbon. 

Phase two will take effect in January 2023 and the design will be announced in the 2022 budget statement. 

Tunicia Phillips is an Adamela Trust climate and economic justice reporting fellow, funded by the Open Society Foundation for South Africa