What Does the Climate Change Act Mean for South African Industry?

Introduction

It has been just over a year since the Climate Change Act (CCA) was promulgated. With the Department of Forestry, Fisheries and the Environment (DFFE) having now published the draft National Greenhouse Gas Carbon Budget and Mitigation Plan Regulations on the 1st August 2025 (which include a draft List of Greenhouse Gases [GHGs] and Activities), this is a good moment to reflect on what the CCA means for South African industry.

There has been much speculation on how government intends to implement these Carbon Budget Regulations, and businesses are asking themselves important questions such as:

• What effect will the CCA and Carbon Budget Regulations have on my business?
• Will my company be assigned a carbon budget?
• If so, how will my company be assigned a carbon budget?
• Will my carbon budget constrain my operation?
• Will my carbon tax increase if I exceed my carbon budget?
• If it will, then will I be taxed more on all my emissions, or only those in excess of my budget?
• Do I need a Greenhouse Gas mitigation plan?
• Will the Climate Change Response Fund (CCRF) come to my rescue to fund my mitigations?

If you have been asking these questions, you are not alone, and we hope to answer them as best we can in this article. However, these questions are always best discussed in the context of your specific operation, so please also contact Sasha to arrange a meeting.

Scope and Focus of the Climate Change Act

Sections 7 to 23 (Chapters 2 to 4) of the CCA, are of limited relevance to industry. These sections focus on policy alignment, institutional arrangements, provincial and municipal climate responses, and national adaptation planning.

Section 18 provides for a financial mechanism which, in practice, will be the Climate Change Response Fund (CCRF). Both the Act and this webinar that is presented by the Presidential Climate Commission make it clear that the CCRF will primarily focus on funding disaster prevention and relief. This is known as “adaptation” or “resilience”.

Climate change responses are broken down into two broad categories: adaptation (resilience) and mitigation. Mitigation involves reducing the emissions that lead to climate change, while adaptation involves preparing for the consequences of climate change. It must be noted that mitigation is entirely decoupled from adaptation. A country can mitigate its emissions significantly, but this does not shield it from the consequences of climate change that are inflicted by global emissions. For that, adaptation is required.

While Section 18 of the Climate Change Act may allow for some support to industry in implementing mitigation solutions, this is likely to form only a small part of the fund’s overall mandate, leaving industry with little support to mitigate its emissions beyond its existing access to finance.

Moving on, chapter 5 of the CCA is particularly relevant for industry as it sets obligations relating to emissions mitigation and carbon budgeting.

National Greenhouse Gas Emissions Trajectory and Sectoral Emissions Targets

Chapter 5 begins at a national level, with Section 24 establishing the national greenhouse gas emissions trajectory. This is essentially a budget stipulating how much carbon dioxide equivalent (CO₂e) South Africa can emit each year. One could understand it as a national carbon budget, or one could use the existing terminology: the nationally determined contribution (NDC). The term “NDC” comes from the notion that South Africa is committed to limiting its national contribution to global CO₂e emissions.

Until the Minister publishes the national greenhouse gas emissions trajectory, the latest NDC will serve as the interim trajectory. South Africa published its second NDC in draft form, at the end of July 2025. This NDC will need to be submitted to the UNFCCC (United Nations Framework Convention on Climate Change) under the Paris Agreement.

This emissions trajectory is essentially the national carbon budget and it will be broken down into smaller budgets, called sectoral emissions targets (SETs), under Section 25 of the Climate Change Act. Each sectoral emissions target will, in turn, be distributed among the companies operating in that sector – in the form of carbon budgets.

The wording of the CCA indicates that carbon budgets will be unilaterally assigned to businesses by government. This will involve dividing up the national carbon budget as fairly as possible by allocating a carbon budget to each company, using methods described later in this article. If Yellow Tree does not presently perform your annual GHG submission, please do contact us so that we can verify your GHG emissions before you are assigned a carbon budget. In so doing we can give you the best chance of ensuring that you are not prejudiced by historic reporting anomalies – which could be costly.

Listed Greenhouse Gases

Section 26(1) of the Climate Change Act requires the Minister to define the chemical species which comprise the Listed Greenhouse Gases. Annexure 1 of the draft Carbon Budget and Mitigation Plan Regulations list these specific chemical species:

The species proposed as Listed GHGs under the CCA differ from those defined under the National Greenhouse Gas Emissions Reporting Regulations (NGERs). The CCA includes additional substances, those being nitrogen trifluoride, trifluoromethyl sulphur pentafluoride, halogenated ethers, and other halocarbons (e.g. CF₃I, CH₂Br₂, CHCl₃, CH₃Cl, CH₂Cl₂), as shown in yellow text above.

This difference is important for companies that are used to reporting under the NGERs, as they may face new obligations under the Carbon Budget Regulations for these additional substances. However, the technical guidelines to the Carbon Budget Regulations specifically state that carbon budget requirements should align with GHG reporting under the NGERs which creates an apparent inconsistency. Our team will raise this with the DFFE.

Listed Activities and Emission Thresholds

Section 26(2) of the CCA requires the Minister to publish a list of GHG-emitting activities and the threshold above which carbon budgets and mitigation plans will apply. The draft Carbon Budget Regulations propose an emission threshold of 30 000 tonnes CO₂e per annum (averaged over 3 – 5 consecutive years). Carbon budgets and mitigation plans will apply to companies whose listed activities emit above this level.

This threshold of 30 000 tonnes per annum of CO₂e is stricter than our expectation of 100 000 tonnes of CO₂e per annum. Our expectation of 100 000 tonnes arose from the Declaration of Greenhouse Gases as Priority Air Pollutants of 2017 which, along with the National Pollution Prevention Plans Regulations of 2017, were the precursor to the Carbon Budget and Mitigation Plan Regulations discussed here.

In addition, the proposed list of activities that appears in Annexure 2 of the draft Carbon Budget Regulations has been expanded from the previous list of 2017. Annexure 2 includes all activities that are listed beneath, whereas the previous list from 2017 did not include the industries shown in yellow:

Annexure 3A of the draft Carbon Budget Regulations clarifies that carbon budgets and mitigation plans are mandatory only for certain scope 1 emission sources: stationary combustion, civil aviation, domestic navigation, fugitive emissions from fuels, and industrial processes and product use (IPPU). Scope 1 emissions from road transportation, agriculture, forestry and land use, and waste, as well as all scope 2 and scope 3 emissions, may be voluntarily included in carbon budgets and mitigation plans – but are not required. This is largely in alignment with the NGERs, although NGERs does require reporting of some agricultural emissions (emissions from poultry), forestry and land use, and waste emissions.

Interestingly, while the Carbon Budget Regulations themselves do not mention this, Section 3 of the technical guidelines suggest that only certain IPCC codes within the listed activities will be subject to carbon budgets and mitigation plans. This is very important. For most listed activities, both the “combustion” and “processing” codes for an activity are included. For example, in cement production, the requirements apply to emissions from fuel combustion to generate heat for the process and from the chemical process of making cement.

However, there are important exceptions, that are particularly relevant to some of Yellow Tree’s clients. In the food and beverage industry, only emissions under IPCC code 2H2 appear to be covered, excluding combustion emissions (IPCC code 1A2e). Furthermore, it is unclear specifically which emissions fall under IPCC code 2H2, as neither the Carbon Budget Regulations and their technical guidelines, nor the NGERs and their technical guidelines, provide a definition. The exclusion of IPCC code 1A2e for the food and beverage industry excludes most of their emissions!

Similarly, in the pulp and paper industry, the technical guidelines suggest that only emissions from the use of soda ash (IPCC code 2B7) and the treatment of liquid waste (IPCC code 4D2) are covered – not combustion emissions (IPCC code 1A2d). This contradicts Annexure 3A of the Carbon Budget Regulations which states that emissions from waste (including code 4D2) are not subject to carbon budgets and mitigation plans.

It is critical that these inconsistencies be clarified before the draft Carbon Budget Regulations are finalised.

Operational Control

Thankfully, an aspect of historical confusion that the technical guidelines for the Carbon Budget Regulations clarify, is the concept of operational control – specifically, which tier within a company the “data provider” represents and thus where carbon budgets and mitigation plans apply. This addresses confusion under the NGERs which are typically applied at the group level, and the Carbon Tax Act (CTA) which is typically applied at the entity (operating company) level.

The technical guidelines for the Carbon Budget Regulations clarify that a company has operational control if it can independently establish and enforce operational, environmental, and safety policies, and make decisions regarding energy use, waste management, and emissions reduction without needing approval from the parent company. This prevents a loophole where GHG-emitting facilities could be registered as separate companies solely to keep emissions below the threshold for carbon budgets and mitigation plans.

For example, consider a glass-producing group of companies (Glass Group) with two subsidiaries: Bottle Producers (Pty) Ltd and Jar Producers (Pty) Ltd. These subsidiaries can be treated as separate data providers and have their own 30 000 tonnes CO₂e threshold, but only if they independently control policies and strategies. If both subsidiaries must first obtain approval from the parent company, Glass Group, then Glass Group is considered the data provider and the 30 000 tonne threshold applies collectively to both Bottle Producers and Jar Producers.

Carbon Budget and Mitigation Plan Process for Listed Activities

Those companies that are classified as GHG data providers under the NGERS, and which are also classified as GHG listed activities in the Carbon Budget Regulations, will be allocated carbon budgets by the DFFE and will be required to submit mitigation plans describing interventions to meet their budgets. The diagram below shows the actions that will need to be taken by data providers and the competent authority (DFFE) to implement the Carbon Budget Regulations. Carbon budgets and mitigation plans are abbreviated to CB and MP respectively, or CB/MP collectively:

The Carbon Budget Regulations define the concept of the “first commitment period”. This is a five-year period during which a company is obliged to adhere to the carbon budget that is assigned to it, and to the mitigation plan that it submitted. However, carbon budget allocation submissions were required more than one year prior to the first commitment period (i.e., before 1 January 2025) and the competent authority (DFFE) was to issue the carbon budget allocation report more than six months before the start of the first commitment period (i.e., before 1 July 2025). Considering that these deadlines have passed, a delay to the first commitment period appears likely.

Carbon Budget Allocations

Carbon budgets will be allocated to companies by the DFFE. These budgets will be based on the forecast GHG emissions arising from forecast production for the five-year commitment period. These forecasts are submitted by the data provider through the carbon budgets allocation application with which Yellow Tree can assist you. The DFFE will also consider baseline emissions data from historical NGERs reports. The carbon budget will be set below the baseline to force emissions reductions and the budget will become stricter with each five-year commitment period.

Allocation will occur at company level, with the data provider responsible for distributing the budget across individual facilities. The budget will be calculated by multiplying forecast production over the five-year commitment period (tonnes of product), by a carbon intensity factor (tonnes CO₂e per tonne of product). The DFFE will adjust the overall carbon budget (tonnes CO₂e) annually so as to reflect actual production figures provided by the data provider through annual reports. Thereafter, compliance with the carbon budget will be assessed at the end of each five-year commitment period based on actual production data.

Carbon budgets will be allocated by the DFFE using one of three methods, in order of preference:

• fixed target,
• mitigation potential, and
• benchmarking.

The fixed target method divides the sectoral emissions target (SET) for the particular industrial or mining sector among companies but does not consider a company’s specific reduction potential or context. The mitigation potential approach evaluates feasible emissions reductions within the company, while the benchmarking method applies a product-specific benchmark based on relevant IPCC codes.

Draft Regulation 21 states that if a data provider exceeds its carbon budget allocation, it will be subject to a higher carbon tax rate. This aligns with previous policy documents, most recently the Carbon Tax Phase 2 Discussion Paper. The discussion paper clarifies that the higher tax rate will apply only to the portion of emissions that exceed the budget, meaning not all emissions will be subject to the increased rate. This is no doubt a relief for industry. It further indicates that the higher tax rate will be R 640/tonne which is more than double the 2026 carbon tax rate of R 308/tonne. This video provides a helpful overview of Phase 2 of carbon tax to refresh your memory.

Mitigation Plans

The draft Carbon Budget Regulations require mitigation plans to include several key elements, including:

• A description of production processes and the associated GHG emissions.
• Details of mitigation measures to be implemented during the commitment period, along with projected emissions reductions.
• Methods to monitor and track the efficacy of these measures.

It is critical to note that the draft regulations require mitigation measures to be ready for implementation during the commitment period and to have board-level approval before the mitigation plan is submitted to the DFFE, which is prior to the start of the first commitment period. GHG mitigation plans for listed activities must be sufficiently advanced to secure board approval before the first mitigation plan submission deadline.

Draft Regulation 19 states that failure to implement mitigation measures within the stipulated commitment period constitutes an offence. Penalties for first-time offenders include imprisonment of up to five years and/or fines of up to R 5 million. It is our experience that most companies lack mitigation plans/decarbonisation strategies that are at this level of readiness, making it imperative that plans be prepared without delay. We are here to assist.

Conclusion

Until now, the Climate Change Act has had limited practical impact on industry, largely because key provisions affecting industry were dependent on further regulations. However, the publication of the draft Carbon Budget Regulations provides much-needed clarity on how carbon budgets and mitigation plans will be implemented.

It is imperative that companies promptly assess whether their activities qualify as listed activities because this will determine whether they will be assigned a carbon budget and be required to submit a mitigation plan. For those companies that are identified as listed activities, it is essential to begin developing decarbonisation strategies and initiating board-level approval processes without delay.

Acting swiftly will ensure that companies are ready once the regulations take effect and will mitigate the risk of costly penalties in the form of increased carbon tax and fines. Please do contact us. Our team of bright chemical engineers have years of carbon accounting experience, robust relationships with the authorities and policy makers, and are here to support you.