Finance Minister Nene delivered his annual budget speech to the National Assembly on 25 February 2015. In terms of green taxes there are some sticks, but also some carrots.
The “sticks”:
- The carbon tax will be introduced in 2016 with a draft carbon tax bill published later in 2015 for public consultation
- The electricity levy will increase temporarily from 3.5c/kWh to 5.5c/kWh until the electricity shortage is over and/or until the carbon tax is implemented.
The “carrots”:
- The energy efficiency tax deduction for companies will be increased from 45c/kWh to 95c/kWh for energy saved and will be extended to cogeneration projects;
- Renewable energy projects that generate electricity could benefit from accelerated depreciation deductions, the full details which will emerge after the next legislative cycle;
- The carbon tax’s design will include a number of measures (such as tax free allowances and the use of offsets) which will reduce a company’s tax liability.
What does this mean for your company?
- Legislation will be passed to implement the carbon tax in 2016. We estimate legislation could be passed sometime before mid-2015 (and most likely not be dependant on finalisation of the carbon budget design currently underway at the Department of Environmental Affairs);
- All companies will be directly or indirectly affected;
- If your company owns or controls facilities that emit greenhouse gases resulting from fuel combustion, gasification and other industrial processes you may be directly impacted and subject to the carbon tax;
- If you do not, you may be indirectly impacted as you may pay higher prices to your (carbon tax liable) suppliers.
What should your company do now?
- If you haven’t done so already carry out a carbon footprint as you cannot change what you haven’t measured;
- Calculate your possible tax liability based on existing carbon tax policy documents. Please note that your final tax liability might change somewhat once the final carbon tax bill is published;
- Get a (better) grip on your supply chain in order to understand the possible increased costs that may be passed on to you by your suppliers. There are a number of innovative supply chain tools on the market, such as EcoChain;
- Carry out an energy audit so you can implement energy efficiency measures. A good place to start is the PSEE programme being run by the National Business Initiative (NBI). Once you have realised energy savings your company will benefit financially from the generous energy efficiency tax allowance as well as a reduced energy bill.
- If you are carbon tax liable, develop and implement a carbon offset purchase strategy as the use of carbon credits may end up reducing your annual carbon tax bill by up to 25% depending on the sector your company falls in and the price you secure your credits for. Currently South African offsets are trading at low prices but once the carbon tax bill is passed prices are expected to rise sharply and trade in the region of R80/t – R100/t. We also expect a significant shortage of eligible carbon credits with demand far outweighing supply, at least in the first phase of the tax from 2016 – 2019.
- If your company is not directly liable for carbon tax you may develop carbon projects by implement activities that reduce your own carbon emissions. The resulting carbon credits can be sold to carbon tax liable companies thereby generating additional revenue for your firm. It is advisable to make use of a reputable carbon management consultancy as this process can be complex and time consuming.
By next year every company in South Africa will have to manage its carbon impact. Your company will report on it to the government, your shareholders, your employees and your customers. Why wait? Companies managing their climate impact today are better equipped to deal with the risks and opportunities in an increasingly complex carbon, energy and water regulatory environment.
Source: Climate Neutral Group