The Great Carbon Tax Reprieve?

In early February 2026, a story began circulating across South African boardrooms and industry forums.

Energy and Electricity Minister Kgosientsho Ramokgopa was reportedly developing a proposal to pause South Africa’s Carbon Tax. His rationale was that the tax is placing disproportionate pressure on industry (Eskom in particular) at a time when electricity tariffs are rising sharply and low-carbon alternatives are not yet widely available.

In fact, Eskom faced a carbon tax liability of approximately R 5.5 billion for the 2026 financial year, a consequence of a change in the mechanism that had previously shielded electricity producers from the tax. The application of the tax from January 2026 was expected to cause an immediate 1.6 % increase in electricity prices, with the effect in 2027 projected to be four times worse. Suspending the tax was a potential way to ease that pressure.

For many carbon-intensive businesses, it felt like a lifeline; a possibility that one of their most significant and escalating cost pressures might, at least temporarily, disappear – and there was great uncertainty that followed. “Should we proceed with our compliance programme? Is it worth investing in emissions reductions if the tax might be suspended? Can we hold off on our decarbonisation strategy and mitigation plans, until there is more clarity?” These were reasonable questions.

At the same time, the debate escalated.

Following the proposal, the Presidency requested that National Treasury provide a detailed motivation for the continuation of the carbon tax. This confirmed that the issue had reached the highest levels of government.

The 2026 National Budget (tabled 25th February) finally settled the matter decisively.

Carbon Tax was not suspended. It was increased from R 236 to R 308 per tonne of CO₂ equivalent, effective 01st January 2026. This represents a 31 % increase, the largest single increase since the tax was introduced in 2019. National Treasury described Carbon Tax as playing an integral role in South Africa’s climate change mitigation efforts, and contributing materially to the fiscus. There was no mention of review, suspension, or withdrawal.

The story that began as a potential reprieve ended as a reminder: Carbon Tax is not going away. In fact, under Phase 2 (2026 – 2030), the trajectory is clear:

• The Carbon Tax rate will continue to escalate to R 462 per tonne by 2030,
• Mandatory carbon budgets are being introduced,
• A punitive rate of R 640 per tonne will apply to emissions that exceed one’s mandatory budget,
• The cost of those excess emissions can not be reduced using allowances, which makes them incredibly expensive,
• SARS is actively cross-referencing the GHG submissions that one submits to the Department of Forestry, Fisheries and the Environment (DFFE) with Carbon Tax registrations and Excise accounts, therefore tightening the compliance net.
• Carbon offset allowances have increased to 15 % for fuel combustion emissions and 10 % for process and fugitive emissions from 01st January 2026, providing additional flexibility to reduce one’s Carbon Tax liability for the 2026 year of assessment (for the July 2027 tax submission).
• It is further proposed that the compliance threshold for certain activities (IPCC Code 1A4a – specifically those utilising backup diesel generators), has shifted from a threshold of 10 MW(th) design capacity, to a threshold of 25 000 tonnes CO₂e annually, effective from 01st January 2026.
• Companies using generators primarily during load shedding may now be eligible to deregister from carbon tax. If you aren’t sure where you stand, we offer a free consultation to assess your situation and give you peace of mind.

The suspension of carbon tax would also have carried significant trade and funding consequences, as South African exporters would have lost their ability to offset domestic carbon tax payments against the European Union (EU) Carbon Border Adjustment Mechanism (CBAM) where charges are projected at € 80 to € 100 per tonne CO₂e in 2026. This would have effectively transferred that revenue away from SARS, and to the European Union. Considering that approximately R 28 billion in South African exports are immediately exposed under the current CBAM scope, it is understandable that SARS would not have wanted to lose the carbon tax on this revenue to the EU.

Lastly, analysts and civil society groups warned that suspending Carbon Tax could undermine South Africa’s international climate commitments under the Paris Agreement, weaken confidence in the country’s decarbonisation pathways and potentially place funding for Just Energy Transition Partnerships (JETP) at risk.

While the final Taxation Laws Amendment Bill of 2025 was more favourable for carbon taxpayers than initially proposed in the Discussion Paper (click here to learn more), compliance obligations will only increase over time. In conclusion, the direction of travel has not changed. Only the pace.

So now is the time to ensure that your carbon tax is in order, to maximise the use of the allowances, and to begin actively investigating decarbonisation strategies rather than hoping for unlikely leniency.

If you would like an independent review of your organisation’s Carbon Tax position in light of these developments, or to begin work on decarbonising your business, please reply to this email or click here to schedule a meeting.

We have begun work on site visits and decarbonisation strategies for a number of our blue chip clients. It is prudent to begin your planning now and we are here to help.