Jul 9,2013 / News / Legal Brief

A carbon price can drive changes in producer and consumer behaviour and in so doing, address climate change. Sometimes, the manner in which one can regulate detrimental conduct is by placing a price on its effects – and this is exactly what an imposition of carbon taxation intends to do.


According to a Business Day report[1], the aim of the imposition of carbon tax is to “punish polluters in the interest of the planet” and as a result, all South Africans – registered taxpayers or not – should have a basic idea of how the carbon tax affects them. According to the report, KPMG reports that South Africa is the thirteenth most active country in attempts to reduce carbon emissions[2]. South Africa’s strategy to make a contribution towards greenhouse gas emissions mitigation was adopted by government in 2011 when Cabinet approved the Government’s National Climate Change Response White Paper (gazetted in October 2011)[3]. This was after the commitment made by South Africa at the 2009 Copenhagen Conference of Parties (“COP17”) to undertake appropriate national actions to curb greenhouse gas emissions by 34% by 2020 and a further 42% by 2025[4].

South Africa is ranked among the top twenty countries measured by absolute carbon dioxide emissions, with emissions per capita in the region of 10 metric tons per annum. The South African government is of the view that South Africa needs to reduce its greenhouse gas emissions while working to ensure economic growth, increase employment, and reduce poverty and inequality[5]. At COP17 in 2011, the South African government reiterated and emphasised South Africa’s commitment to support efforts addressing the adverse factors posed by climate change.[6]

The White Paper on the Renewable Energy Policy of the Republic of South Africa (DME, 2003b) (“White Paper”) recognised climate change as one of the major environmental threats facing the world today. In its recognition of this, the South African government has taken concerted efforts as a responsible global citizen, in undertaking to reduce its use of fossil fuels through the implementation of renewable energy programmes aimed at reducing South Africa’s significant reliance on conventional fossil fuels.[7]

South Africa has a number of renewable energy programmes that are currently underway such as the Renewable Energy Independent Power Producer Procurement Programme (“REIPP”). South Africa has a high level of renewable energy potential and presently has in place a target of 10 000 GWh of renewable energy[8]. The Minister of Energy has determined that 3 725 megawatts (“MW”) to be generated from renewable energy sources is required to ensure the continued uninterrupted supply of electricity[9]. This 3 725 MW is broadly in accordance with the capacity allocated to renewable energy generation in IRP 2010-2030[10]. The IPP Procurement Programme has been designed so as to contribute towards the target of 3 725 MW and towards socio-economic and environmentally sustainable growth, and to start and stimulate the renewable industry in South Africa[11].

Further, Eskom’s Renewable Programme supports the development of the utility’s first large-scale wind and Concentrating Solar Power (“CSP“) plants[12]. The Sere Wind Farm project, located near Koekenaap, in the Western Cape, will have an approximate installed gross capacity of 100 MW. Cumulative emissions savings from this project, based on an expected annual output of 219 GWh, will be five million tons of CO2 over a twenty-year life of the plant. Eskom’s CSP project involves the development of a 100 MW plant, located in Upington in the Northern Cape. CSP is the renewable energy source with the largest potential in South Africa and can provide generation capacity potentially comparable to that of base-load power plants.


According to the Policy Paper, the primary objective of implementing carbon taxes is to change current and future behaviour, rather than to raise revenue. It therefore starts with a relatively low carbon price, progressively increasing significantly after five to ten years and beyond. This approach provides industry and other major emitters sufficient time to innovate and invest in greener technologies for the future.

According to the National Treasury’s press release on 2 May 2013 (“Press Release”), there are at least three ways in which the imposition of a carbon tax will work to drive changes in producer and consumer behaviour and therefore address the adverse effects of climate change. Carbon pricing is the generic term for putting a price on carbon through subsidies, a carbon tax, or an emissions trading (cap-and-trade) system. Firstly, carbon pricing will encourage a shift in production and consumption patterns towards low carbon and more energy efficient technologies by altering the relative prices of goods and services based on their emissions intensity and encouraging the adoption of cost-effective and low carbon alternatives. Pricing carbon emissions addresses the problem of negative externalities, obliging polluters to pay for their carbon emissions. Secondly, carbon-intensive factors of production, products and services are likely to be replaced with low-carbon emitting alternatives. Finally, a carbon price is envisaged to create dynamic incentives for research, development and technology innovation in low-carbon alternatives in order to achieve the reduction and reduce the price gap between conventional, carbon-intensive technologies and new low-carbon alternatives.


South Africa is pushing ahead with a carbon tax even as businesses say it will impact on the economy, costing jobs and investment. However, it seems increasingly unlikely that South Africa will finalise legislation and regulations in time to impose a carbon tax from January 2015, according to Jana Marais[13]. Marais says the new law will make South Africa the first developing country to impose a comprehensive tax to cut carbon emissions blamed for climate change. But, notes Marais, critics say it will have a limited effect on global emissions and will render the economy uncompetitive, costing jobs and investment.

The biggest carbon emitters are fossil fuel electricity generators, petroleum producers and manufacturers of steel and cement. According to Marais’ report, Cecil Morden stated that: “We hope to have the regime in place by January 2015, but things may happen that force us to push it out by a month or two or three. It is not up for discussion at this stage, but we won’t implement something that is not workable.” According to Marais, Treasury’s Carbon Tax Policy Paper, published last month, is open for public comment until August and follows the Carbon Tax Discussion Paper issued in December 2010.

According to a report by Nelly Magubane, Director-General at the Department of Energy, representatives of companies including Sasol, AngloGold Ashanti and Arcelor Mittal SA say more clarity is needed on how a carbon tax will be implemented in 2015[14]. Magubane’s report states that at a National Business Initiative Briefing, the concerns of business representatives from Sasol, AngloGold Ashanti and Arcelor Mittal SA raised about the Carbon Tax Policy Paper seemed to echo those raised earlier this month by Members of Parliament[15]. Magubane further states that Members of Parliament warned that hasty implementation of a carbon tax could have a negative effect on South Africa’s rate of growth, and a comparably small effect on global greenhouse gas emissions[16].

The proposed carbon tax seeks to internalise external costs associated with excessive greenhouse gas emissions by adjusting relative prices in order to reflect the social costs of carbon‑intensive goods and services. Therefore effective tax requires that the tax base be as broad as possible, covering as many greenhouse gases and sectors as practically possible[17].

According to the Press Release, a carbon tax rate of R120.00 per ton of CO2e increasing at 10% per annum will be implemented from 1 January 2015 to 31 December 2019 (the first phase). When the tax-free threshold and additional relief are taken into account, the effective tax rate will range between R12.00 and R48.00 per ton of CO2e (and zero for agriculture and waste).


South Africa is not the first country to introduce a system of carbon taxation. Various countries in the world have implemented carbon pricing policies. According to the Policy Paper, several countries have implemented carbon pricing policies; including both carbon taxes and cap-and-trade schemes, particularly the Scandinavian nations, who began implementing energy and carbon taxes aimed at reducing emissions and raising revenues. In 2005, the European Union (“EU”) introduced the EU Emissions Trading System (ETS) under which several sectors previously covered by carbon taxes were absorbed into the trading system.


According to the Policy Paper, pricing energy appropriately is important to ensure that the external costs of climate change and other environmental damage are reflected in the price of energy; and the relative prices of carbon-intensive and low-carbon technologies should be reflected correctly[18]. The energy sector’s environmental externalities include greenhouse gas emissions, as well as local air pollution damage through emissions of sulphur oxides and nitrogen oxides. In the case of the electricity sector, it may be necessary to phase out high emissions-intensive power stations over time and provide support for renewables[19].


The long-debated introduction of carbon tax is seen by some as an individualised penalty for polluting the atmosphere. The reduction of carbon emissions is a long-term goal; similarly, carbon tax is slowly being introduced in South Africa as a means of attempting to find a sustainable way to help reduce emissions of carbon dioxide and other harmful gases into the atmosphere. The imposition of carbon tax is on one hand seen as a positive step towards the reduction of greenhouse emissions and other harmful gas emissions, but on the other hand has been criticised in that it is believed that it will increase unemployment and decrease investments in South Africa. Although the initiatives to reduce harmful emissions are in the form of long-term projects, South Africa is definitely committed to its undertakings to the global community in its endeavours to reduce harmful emissions. South Africa can only hope that its efforts are substantial enough to make a valuable contribution to this worldwide crisis.

[1] Lester M; 2013, “Carbon Tax must be explained to laymen”; (2013) Business Day Live, 19 May.

[2] Ibid.

[3] National Treasury press release; “Updated Carbon Tax Policy Paper”; 2 May 2013.

[4] Ibid.

[5] Carbon Tax Policy Paper; “Reducing greenhouse gas emissions and facilitating the transition to a greener economy”; (May 2013) at section 63.

[6] Ibid.

[7] Ibid, Section 83.

[8] https://www.ipprenewables.co.za/; accessed 25 June 2013.

[9] Ibid.

[10] Ibid.

[11] Ibid.

[12]https://www.eskom.co.za/content/Funding%20for%20Eskom%5C’s%20Renewable%20Energy%20Programme.pdf; accessed 25 June 2013.

[13] Marais J; “Carbon tax regime faces hurdles”; Business Day; 23 June 2013.

[14] Magubane K; “Business calls for clarity on proposed carbon tax”; Business Day; 19 June 2013.

[15] Ibid.

[16] Ibid.

[17] See note 5, Section 40.

[18] Ibid, Section 55.

[19] Ibid, Section 56.