Carbon Tax Act

What is the Carbon Tax Act?

The Carbon Tax Act No. 13 (Gazette No. 42483) was passed on Thursday the 23rd May 2019. Carbon Tax is a vessel through which South Africa can contribute to the global effort to stabilise greenhouse gas concentrations in the atmosphere and drive sustainable economic growth.

Through the Carbon Tax Act, the South African National Treasury is imposing taxes on local activities that release significant amounts of greenhouse gases. Additionally, the Carbon Tax Act will reward entities that use energy efficiently through the incorporation of tax-free incentives. The Carbon Tax Act aims to encourage investments in energy efficient, low carbon technologies.

The act will be phased in over several years. Phase 1 will be from the 1st June 2019 to the 31st December 2022 and Phase 2 will be from 2023 to 2030. 2019 is the first tax year and it runs from 1st June 2019 until 31st December 2019. Thereafter each tax year will run from 1st January to 31st of December. Carbon Tax for the 2019 tax period will need to be submitted to the South African Revenue Service (SARS) before the last working day of July 2020.

The Carbon Tax Act embraces the principle of “the polluter pays” where the costs of environmental damage must be paid by those who are responsible for harming the environment. In other words, the amount of carbon tax that a company is required to pay is dependent on the amount of greenhouse gases that are emitted.

Greenhouse gases refer to compounds that have a long term, harmful effect on the environment. When greenhouse gases are released into the atmosphere in large quantities, they act like a blanket over the earth’s atmosphere and trap heat from the sun. This trapped heat causes the earth’s temperature to rise. This phenomenon is referred to as global warming.

WHAT POLLUTANTS DOES THE CARBON TAX ACT REGULATE?

There are many greenhouses gases, however, the Carbon Tax Act recognises six main greenhouse gases that are emitted from industrial activities. These are Carbon Dioxide (CO), Methane (CH4), Nitrous Oxide (N2O), Hydrofluorocarbons (HFC’s), Perfluorocarbons (PFC’s) and Sulphur hexafluoride (SF6). Some of these gases cause more global warming than others.

The Six Regulated Greenhouse Gases and their Sources

WHICH POLLUTANTS ARE MOST HARMFUL?

Each greenhouse gas causes a varying degree of harm to the atmosphere when compared to CO2. This degree of harm is referred to as the Global Warming Potential (GWP) of a greenhouse gas. Every greenhouse gas has its own GWP factor that was developed by the Intergovernmental Panel on Climate Change (IPCC).

For example, 1 kg of methane causes 28 times more global warming than 1kg of CO2. And 1kg of sulphur hexaflouride causes 23 500 times more global warming than 1kg of CO2. Carbon Tax regulates six pollutants and the table beneath shows how detrimental each of these is:

Greenhouse Gas
Global Warming Potential
Carbon Dioxide (CO2)
1
Methane (CH4)
23
Nitrous Oxide (N2O)
296
Hexafluoroethane (C2F6)
11 900
Carbon Tetrafluoride (CF4)
5 700
Sulphur hexafluoride (SF6)
22 200

To calculate a factory’s total greenhouse gas emissions, the quantity of each greenhouse gas (kg/year) is multiplied by its GWP factor and these six numbers are summed. This total is called the “Carbon Dioxide Equivalent” or CO2e.

WHERE DO THE POLLUTANTS COME FROM?

There are many ways in which greenhouse gases can enter the atmosphere as a result of industrial activities. The Carbon Tax Act divides the sources of greenhouse gas emissions into three categories which are described below.

Fuel combustion emissions
Most factories in South Africa burn fuel such as gas, coal, HFO or wood to create heat, which is used in the manufacturing of products. These fuels are burned in combustion appliances such as boilers, furnaces, kilns, and incinerators. Greenhouse gases are released during this combustion.

Industrial process emissions
In addition to the emissions from combustion appliances, greenhouse gases are also released from the manufacturing processes themselves when raw materials are chemically or physically transformed into products. Common manufacturing processes include cement manufacturing, steel making and the petroleum industry.
Pollutants from both the combustion of fuel and from manufacturing are typically emitted into the atmosphere via chimney stacks.

Fugitive emissions
Greenhouse gases can escape a process when they are not meant to do so, such as through leaks, evaporation, materials handling, expansion and contraction. These are referred to as fugitive emissions. Common sources of fugitive emissions include mines and the processing and transportation of liquid fuels.

WHO DOES CARBON TAX APPLY TO?

Schedule 2 of the Carbon Tax Act specifies a threshold for each activity that releases greenhouse gases. If a company conducts an activity and exceeds the given threshold, the company will be liable to pay carbon tax. You can download Schedule 2 below or contact one of our consultants to find out if the Carbon Tax Act applies to you.

EXAMPLES OF ACTIVITIES THAT ARE ELIGIBLE FOR CARBON TAX

Iron & Steel
Glass, Cement, Lime
Waste Incineration
Pulp, paper & print
Textiles & Leather
Wastewater Treatment
Wood & Wood Products
Non-ferrous Metals
Brick Manufacturing

How much Carbon Tax do I pay?

The amount of Carbon Tax is calculated by multiplying the carbon dioxide equivalent by the current rate of tax which is:

R120 per tonne of CO2e.

It is not necessary to actually measure the amount of greenhouse gas emissions that are released. The Carbon Tax Act specifies emissions factors for each industrial process that is regulated. The emissions factors were determined by the IPCC and are specified in schedule 2 of the Carbon Tax Act.

The tax rate is set to increase by the consumer price inflation (CPI) index plus 2 % each tax year until 31st December 2022. Thereafter, the tax rate is set to increase by CPI each tax year.

WHAT ARE TAX-FREE ALLOWANCES?

How do I register?

Companies will have to be licensed and register as manufacturing warehouses according to the Customs and Excise Act. Our Carbon Tax consultants can walk you through this process.

Tax-free allowances are included in the Carbon Tax Act to assist South Africa to smoothly transition into a low carbon economy. Tax-free allowances will reduce the amount of Carbon Tax that taxpayers are obliged to pay. Tax-free allowances will be applied as either rebates or refunds after the allowances are verified for each taxpayer. Taxpayers may be eligible for the following allowances:

Allowance Overview Percentage
Fossil Fuel Combustion Emissions For fuel combustion activities. 60%
Industrial Process Emissions For industrial process activities. 60/70%
Fugitive Emissions Activities releasing fugitive emissions. 10%
Trade Exposure Based on exports, imports and total production. 0-10%
Performance For above-average emissions performance. 0-5%
Carbon Budget Participation in phase 1 of the Carbon Budget System. 0-5%
Offset Provides additional flexibility to reduce GHG emissions. 0-10%

Meet our Consultants

Rumbi
MScMed (Biomaterials), BScEng (Chemical Engineering)

Rumbi
MScMed (Biomaterials), BScEng (Chemical Engineering)

Thanushri
BScEng (Chemical Engineering)

Multiple allowances can be granted to a tax payer. The total amount of tax-free allowances that are granted during Phase 1 (1st June 2019 – 31st December 2022) may not exceed 95 % and in some cases 90 %. Regulations regarding the trade exposure, performance and offset allowances still need to be developed. These regulations will indicate which industrial activities can qualify for these allowances and to what extent each allowance may be applied. For example, a certain activity may qualify for a full 5 % for the performance allowance or for a mere 3 %.

When do I need to pay my Carbon Tax?

The first tax period is 1st June 2019 until 31st December 2019. Thereafter in subsequent years, the tax period will span from 1st January until 31st December. Carbon Tax will be administered by the South African Revenue Service (SARS), and taxpayers will be expected to submit Carbon Tax payments annually to SARS by the last business day of July in the year after the tax period. Carbon Tax will be administered as an environmental levy in terms of the Customs and Excise Act, 1964 (No.91 of 1964).

Thanushri
BScEng (Chemical Engineering)

How can Yellow Tree help you?

We are specialists in South African Air Quality legislation and its various industrial applications. Our team consists of financial, technical and legal experts, enabling us to meet the exacting requirements of Carbon Tax consulting. We can identify whether you are liable for Carbon Tax and we can calculate your Carbon Tax. We can equip you with the knowledge to reduce your emissions and increase your tax-free allowances to minimise the Carbon Tax for your site, through responsible environmental stewardship.

IDENTIFY

Our chemical engineers will determine all sources of greenhouse gas emissions on site.

Calculate

We will determine the total greenhouse gas emissions, the total carbon tax liable, and apply tax-free allowances.

Recommend

We will make technical recommendations to reduce GHG emissions and increase tax-free allowances.