2020 was an eventful year on the Carbon Tax front, however, 2021 shows no signs of slowing down. In fact, South Africa is going to have to ramp up efforts if we are to meet our target in line with our global Paris Accord commitments. We are moving closer to the second phase of the Carbon Tax Act, which will see a reduction in tax-free allowances and an increase in liabilities. Furthermore, from the end of 2022 medium-to-large enterprises previously omitted will find themselves subject to the tax. This makes it especially important to reflect on the lessons that have come out of 2020 so that we can move forward with confidence into 2021 and beyond, working toward a low carbon economy to avert global warming and climate change.
South Africa’s Carbon Tax: the facts
In 2016 South Africa became a signatory to the Paris Accord which is a comprehensive framework to guide international efforts to limit greenhouse gas emissions and to address the threat of climate change. The Carbon Tax Act has been designed to target intensive users of “dirty energy”, such as fossil fuel-based energy and it is these industries that will be the most affected. This tax is to be implemented in phases. The first phase runs from the 1st of June 2019 to the 31st of December 2022 and scope one emitters liable under this phase should have already submitted their first Carbon Tax return to the South African Revenue Service (SARS).
In the first phase, direct emissions from the stationary combustion of fossil fuels (such as diesel generators) are taxable. The second phase will address scope two emissions (gases that escape through venting or from landfills) and the third phase will address indirect emissions. Waste, agricultural, forest and other land-use sectors have been excluded from liability in the first phase along with Eskom, South Africa’s electricity utility. It is Eskom’s exclusion along with generous tax-free allowances contained in the Act that has cushioned the Carbon Tax financial blow for many intensive energy users thus far.
Tough lessons from 2020
While most businesses this year have been concerned solely with survival amid a global health crisis, Carbon Tax liability is not a responsibility that can be ignored forever. There are only two years left before the second phase of the Act extends the net of liability to include scope 2 emitters.
While it is still unclear whether tax-free allowances will be reduced or eliminated at this point, businesses need to make the most of the time available to utilise these tax-free allowances that are meant to act as incentives to offset and reduce their carbon output by adopting greener technologies. 2020 has seen an increase in awareness, especially from an urban consumer standpoint, of the impact of carbon emissions on our planet. People are making more environmentally conscious choices when it comes to how they spend their money, which includes switching to brands that have shown a commitment to reducing their carbon footprint. Consumers in peri-urban or rural areas are unfortunately still unaware, which will require increased effort from Government to create awareness of both climate change and carbon tax in such areas.
The pressure is mounting for industries to meet their Carbon Tax obligations and clean up their operations, but this isn’t going to happen overnight or without a plan of action. South Africa has committed to net-zero carbon emissions by 2050 – an obligation we won’t fulfil if we continue on our current trajectory. While there is still much uncertainty surrounding the specifics of the second phase of the Act, this should not stop organisations from taking matters into their own hands now because there’s a lot of work to be done between now and 2023, in terms of public and industry consultations in order to define the next phase of the Act.
Measurable change is needed
As challenging as 2020 was for businesses, the Carbon Tax cannot be ignored for much longer. Organisations need to get a clear view of their carbon footprint as a starting point for decarbonisation initiatives as well as a means to calculate Carbon Tax liability, leveraging the tax-free allowances and off-set opportunities. Cloud-based Carbon Tax calculator applications like EcoGauge have been designed locally to make this easy. No more spreadsheets or complicated manual calculations, organisations can simply input their emissions or process data to obtain a report that breaks down tax liability by emissions source and applies offsets, while giving complete visibility of carbon output across operations and facilities. Such tools offer real-time insight into the effectiveness of efforts taken to clean up operations while making it almost effortless to monitor and report regularly on the carbon footprint of the organisation.
By: Eckart Zollner, Head of Business Development, EDS Systems