Summary: Phase 2 of Carbon Tax

November 12, 2024

On the 12th November 2024, National Treasury announced how phase 2 of carbon tax will be implemented. The nine most significant changes for South African industry are:

  • In 2026 the basic tax free allowance of 60 % will reduce to 50 %. Thereafter, this allowance will reduce by 2.5 % per year until it is a mere 27.5 % in 2035.
  • The maximum performance allowance will increase from 5 % to 10 %, but is presently only available to 16 industries.
  • The maximum carbon offset allowance will increase by 15 %, but carbon credits will need to be purchased. We are working hard to stay abreast of credible carbon projects so that we can facilitate the purchase of credits and leverage the bulk buying power of our clients collectively.
  • The trade exposure allowance will fall away with respect to combustion appliances, and be harder to obtain for processes that are subject to carbon tax. Operators of taxable processes will need to prove more than 50 % trade exposure (as opposed to 30 % in the past) so as to obtain the full trade exposure allowance.
  • The voluntary carbon budget has been extended to include the 2024 and 2025 carbon tax years whereafter it will fall away.
  • Voluntary carbon budgets will be replaced with mandatory carbon budgets under the Climate Change Act. We are writing an article on how the Climate Change Act will affect your operation, which we will release shortly.
  • A tax rate of R 640 / tCO2e will be levied on emissions that exceed the carbon budget that you are assigned.
  • Section 12L energy efficiency initiatives will end in Dec 2025. However, it may be possible to claim the offset allowance for future energy efficiency projects that reduce non-taxable carbon emissions.
  • The generation of electricity will be subject to carbon tax in phase 2. Simultaneously, the electricity generation levy will fall away leading to price neutrality. This shift is to incentivise electricity producers to decarbonise.

Please do contact us if you would like us to review your carbon tax calculations and graph your projected tax liability up to 2035. Alternatively, if you would like us to assist you with a decarbonisation strategy (GHG mitigation plan) or a voluntary carbon budget to reduce your tax liability, please contact Sasha.

For a more in-depth look at phase 2 of carbon tax, please watch this informative video.