National Treasury on cost of ‘Just Transition’; with Minister

Environment, Forestry and Fisheries

18 August 2021
Chairperson: Mr F Xasa (ANC)
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Meeting Summary

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The Committee was briefed in a virtual meeting by National Treasury on the carbon tax policy update and sustainable finance initiatives.

The Carbon Tax Act had been signed and implemented during 2019. The Committee was given a background of the carbon tax and a policy update, explaining that the tax would be priced at R134 per ton of carbon dioxide during Phase 1, which was from 2019 to 2022, and would increase thereafter. The tax would be payable six months after the tax period to help companies cope with the transitional phase. The aim of the tax was for firms and consumers to consider such costs in future production, consumption and investment decisions. Rapid and transformational changes needed to be made in the move towards cleaner and renewable energy. Risks also needed to be measured and managed.

Members wanted to know the impact that the carbon tax had had thus far in South Africa. The response was that the impact was not yet noticeable, as it was fairly new, but other countries had implemented the tax and had seen immense positive changes over time. Members also questioned whether there would be taxes on other greenhouse gases in future, and were told it had been considered and could be another possible instrument in the future. Disincentives were addressed, and it was pointed out that because the rates would be increasing in the future, companies would be compelled to restructure themselves to be more eco-friendly. The offset level was still in discussion, and different options were being assessed.

The issue of a "just transition" would be addressed in a future briefing. However, Eskom had said that a "just transition" was unachievable due to financial restrictions. Multiple consultations with different sectors would be involved, and more work needed to be done in this regard.

Meeting report

Opening remarks

The Chairperson welcomed Ms Barbara Creecy, Minister of Environment, Forestry and Fisheries (DEFF), and said the National Treasury delegation would be led by, Mr Ismail Momoniat, Deputy Director-General: Tax and Financial Sector Policy. The Minister would leave the meeting early due to other commitments.

Minister Creecy said that Deputy Minister Maggie Sotyu was unable to attend the meeting, and conveyed greetings from the new Minister of Finance, Mr Enoch Godongwana.

Carbon tax policy update and sustainable finance initiatives

Mr Momoniat described the background to the carbon tax, and said that the Carbon Tax Act had been signed and implemented during 2019. The aim of the carbon tax was for firms and consumers to consider such costs in future production, consumption and investment decisions. The tax went through a consultation process which had taken place between 2007 and 2020.

The main goal of the carbon tax was to save South Africa from adverse climate change.

The carbon tax policy created incentives such as development through the adoption of low carbon technologies and accessing global green climate financing. It would also lead to an improvement in air and environmental quality.

Mr Momoniat provided an outline of the carbon tax, saying that it was priced at R134 per ton of carbon dioxide in Phase 1 -- which was from 2019 to 2022 -- and would increase thereafter. The tax rate was provided with a tax-free allowance of 60%-95%.

More needed to be done to combat global warming, and taxing greenhouse gases were a step in the right direction. Some impacts were irreversible, such as rising sea levels, but rapid and transformational changes need to be made.

There was a need to move towards cleaner and renewable energy, and many companies, including Eskom, had made commitments towards net zero targets on emissions.

There was a good platform and strategies to build on following the Paris Agreement, and other countries were moving forward.

The Nationally Determined Contribution (NDC) was looking at the 2 degree temperature goal, and considered the carbon tax as vital towards achieving this goal.

Several countries, such as Mexico, India and Colombia, had implemented the carbon tax and had been successful thus far.

The purpose of the carbon offset was to provide flexibility and to incentivise mitigation, and it was important that risks were measured and managed.

Discussion

Ms C Phillips (DA) questioned whether the offset allowance would increase, decrease, stay the same or be removed as the carbon tax increased. Would the solar-heated water geysers be for the general public, or just for low-cost housing? Would there be future taxes on other greenhouse gases? How would the taxes be policed?

Mr D Bryant (DA) asked if the proposals were strong enough to present a disincentive so that emitters could build this into their costs effectively.

Mr P Modise (ANC) asked whether the application of the carbon tax was generic, or if it differed according to greenhouse gas and combustion levels. Should there be more consultations, and if there were any on this matter, where would they take place?

Mr N Singh (IFP) asked about the effects of the taxes and incentives on carbon emissions. He said that Eskom and Sasol have commented that they were in need of funding to change towards cleaner technology, and that the National Treasury should speak up on the matter. He suggested that it would have been better to have had this briefing before the Committee had its engagement with Eskom and Sasol. People should be kept up to speed on the environmental dangers that were associated with carbon emissions, and the tax that was being put in place.

He added that Eskom was one of the biggest culprits for environmental pollution, and should have been held accountable.

DEFF’s response

Mr Momoniat said that the main approach was to price carbon. As to whether changes would be made to the carbon tax put in place, the impact of the tax was not yet noticeable as it was fairly new. However, data from other countries that had implemented the tax had shown that it was effective.

Many companies had made changes to lessen the harm to the environment.

Increasing carbon taxes and placing penalties on companies that failed to pay their taxes may encourage them to change their behavior for the better.

Regarding the suggestion that Eskom needed to be held more accountable, Mr Momoniat said that Eskom in particular had been embracing the need to improve their operations to become more environmentally friendly.

He pointed out that the DEFF was responsible for verifying all the emissions from the companies and for reporting the findings to the South African Revenue Service (SARS). SARS then did its own audits and checked up on values, and processes were put in place to ensure that everything was calculated accurately.

Addressing the issue of disincentives, he said that because the rates would be increasing in future, companies would be compelled to restructure themselves to be more eco-friendly.

The extent of the offset was still in discussion, and different options were being assessed. The main aim of the offset was to provide flexibility to companies to reduce emissions, and it was capped at 10%.

The Department dispelled concerns on electricity prices, stating that the first phase of the carbon tax did not have an effect on them.

Allowances on the design of the tax were currently being considered, especially where it affected sectors such as the iron and steel industry.

The taxing of other greenhouse gases had been considered, and could be another possible instrument in the future.

Eskom and Sasol would be reporting separately under different categories, but both would report to the DEFF. SARS would then deal with the carbon tax placed on the companies, based on their emissions. The tax would have to be paid six months after the tax period, to help companies to deal with the transitional phase.

Tax incentives had been successful so far, and had led to large savings on emissions.

So far, communities had not been involved in consultations on the tax.

A possible future briefing would address the "just transition." However, Eskom had spoken out on the "just transition," saying that it was unachievable due to financial limitations. It was acknowledged that the just transition would involve multiple consultations with different sectors, and more work needed to be done on matter.

The meeting was adjourned.

 

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