Chemical Technology March 2016

The Draft Carbon Tax Bill Part 2 - Allowances and offsets by Carl Schonborn Pr Eng

In November, 2015, the South African National Treasury published for comment the Draft Carbon Tax Bill. To enable engineers to better understand the Bill, its contents have been edited for brevity and examples included to introduce the structure of the Bill as a commentary. This is a three-part series.

P art 1 (How the tax is calculatedbasedonCO 2 emissions, Industrial emissions, will be published next month. From the media statement by the National Treasury of the Publication of the Draft Carbon Tax Bill for public comment on 2 November 2015, the following emerged: Carbon tax design as contained in the Draft Carbon Tax Bill includes the following features: A basic 60 % tax-free threshold during the first phase of the carbon tax, from implementation date up to 2020; • An additional 10 % tax-free allowance for process emissions; • Additional tax-free allowance for trade exposed sectors of up to 10 %; • Recognition for early actions and/or efforts to reduce emissions that beat the industry average in the form of a tax-free allowance of up to 5 %; • A carbon offsets tax-free allowance of 5 to 10 %; equivalent emissions for stationary and non-stationary/mobile sources)appearedintheFebruaryissue.Part3-Fugitive

• To recognize to role of carbon budgets, an additional 5 % tax free allowance for companies participating in phase 1 (up to 2020) of the carbon budgeting system; • The combined effect of all of the above tax-free thresh- olds will be capped at 95 %; and • An initial marginal carbon tax rate of R120 per ton CO 2 e will apply. However taking into account all of the above tax-free thresholds, the effective carbon tax rate will vary between R6 and R48 per ton CO 2 e. These tax-free exemptions will range between 60 and 95 % of total emissions. This implies that the carbon tax will be imposed on only 5 to 40 % of actual emissions dur- ing this period. The Department of Environmental Affairs (DEA) and the National Treasury have embarked on a process to ensure that the carbon tax is aligned with the proposed carbon budget system. During the first phase of the carbon tax (up to 2020), companies participating in the carbon budgeting process will qualify for an additional tax-free allowance of 5 %.

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Chemical Technology • March 2016