The Ministry of Finance of South Africa has decided to postpone the implementation of a carbon tax by six months, from 1 January 2019 to 1 June 2019, due to the concerns of business and labour during the parliamentary hearings. The Ministry plans to align the budgeting system and the carbon tax, by imposing a higher tax rate as a penalty for CO2 emissions above the carbon budget.
The carbon tax level would be set at ZAR 120/tCO2eq (US$10/tCO2eq). The project was first proposed in 2010, has been postponed at least three times but came back on the agenda as part of broader tax changes aimed at improving state revenues. A second draft carbon tax bill was released in December 2017. The new carbon tax would impact 1,000 to 1,500 companies and cover 75% of domestic CO2 emissions. Companies could benefit from tax breaks and progressive increases in the early years, paying ZAR 6 to ZAR 48 per tonne (US$0.5-4.1/tCO2eq) in the first phase. In addition, total tax-free allowances could be as high as 95% in the first phase until 2022.
The introduction of a carbon tax is expected to help South Africa meet its Paris Agreement pledge to halve CO2 emissions by 2030, when they should peak between 398 and 614 MtCO2eq. Under its nationally-determined contribution (NDC), South Africa committed to limit greenhouse gas (GHG) emissions, which should peak in 2020-2025, plateau until 2035 and decline as of 2036. Large emitters, such as state-owned power utility Eskom, mining companies and steel groups, are fiercely opposed to this tax, which would erode their profits and increase electricity prices.