South Africa’s long-awaited and, for large polluters, long-dreaded carbon tax law will possibly allow companies to escape up to 95% of their liability and in effect reduce the cost of carbon from R120 to as little as R6 a ton.
National Treasury released its draft carbon tax bill this week, five years after the original discussion document.
As indicated years ago, the nominal price of greenhouse gas emissions will be set at R120 for the equivalent of a ton of carbon dioxide emission.
But the range of allowances provided for has grown since previous policy proposals, allowing key emitters of greenhouse gases to achieve tax-free thresholds of 90% to 95%.
In the previous 2013 proposal, the absolute maximum tax-free thresholds were 80% to 85%.
Even the preamble of the bill describes its intention as modestly “nudging” polluters towards reducing emissions.
The only sector with a significantly lower free threshold is electricity.
This means Eskom can “only” get 75% of its emissions exempted.
Eskom contributes the lion’s share of South Africa’s total greenhouse gas emissions and the implications for Eskom are, in many ways, the most important consideration regarding the carbon tax.
Treasury, however, claims the tax will not affect the cost of electricity.
That is because the existing electricity levy included in Eskom tariffs will fall as the carbon tax begins kicking in.
This follows an increase in the levy this year from 3.5c per kilowatt-hour (kWh), which brought in R8.8 billion last year, to 5.5c/kWh.
The draft bill tries hard to dismiss allegations that the carbon tax is a revenue-raising exercise that exploits the major polluters’ claimed inability to substantially reduce their emissions.
The free thresholds, levy reduction and other “revenue recycling” measures will be specifically aimed at not increasing costs in distressed sectors such as mining, says Treasury in a statement accompanying the bill.
Still, it would not “necessarily be neutral” for any given company, it added.
Although Treasury had signalled that the carbon tax should be implemented in 2016, the odds were that there would be another delay.
Not only must the bill be written into law, but Treasury still has to finish designing regulations around claiming offsets.