Carbon Tax Draft Bill: National Treasury briefing

Finance Standing Committee
13 February 2018

Chairperson: Mr Y Carrim (ANC), Mr P Mapulane (ANC) (co-chairperson) & Mr C De Beer (ANC) (co-chairperson)

Carbon Tax Draft Bill: National Treasury briefing

First Draft Carbon Tax Bill 2015 Response Document December 2017
Explanatory Memorandum for the Carbon Tax Bill, 2017 [December 2017]
Socio-Economic Impact Assessment System (SEIAS) Final Impact Assessment Template (Phase 2) July 2017
Media Statement Release of Carbon Tax Bill for Introduction in Parliament and Public Comment
Draft Carbon Tax Bill [B-2017]: national Treasury presentation
South Africa’s Greenhouse Gas Emission Reduction System

Meeting Summary

The briefing by National Treasury on the draft Carbon Tax Bill consisted of two presentations. The first presentation clarified South Africa’s Greenhouse Gas (GHG) emission reduction system, while the second detailed South Africa’s Draft Carbon Tax Bill, 2017.

In 2015, Cabinet had approved South Africa’s climate change mitigation system framework. The system included the following key elements:

  • Greenhouse gas inventory;
  • Mitigation potential analysis;
  • National emissions trajectory;
  • A carbon budget for each company;
  • Pollution prevention plans by companies with carbon budgets;
  • Desired emissions reduction outcomes for key economic sectors;
  • A reporting system, to gather information on the actual emissions of users; and
  • A variety of other measures to be applied to support and/or complement the carbon budget system including a carbon tax.

The system would be introduced in two phases. Phase one (2016-2020) would be voluntary, as there was no legal basis to set emission limits for sectors or companies. Phase two and subsequent phases (post-2020 period) would become mandatory only when climate change response legislation was in place.

The second presentation detailing South Africa’s draft Carbon Tax Bill indicated that according to the country’s Nationally Determined Contributions (NDCs), a carbon tax was an important component of its mitigation policy strategy to lower GHG emissions and ensure it would meet its NDC commitments as part of its ratification of the 2015 Paris Agreement. Emissions in 2035 were expected to be 33% lower than in the baseline, and the carbon tax could make an important contribution to meeting South Africa’s NDC, but would not be sufficient by itself under these settings. In the context of the expected growth of the economy, the impact of the tax on gross domestic product (GDP) was small.

Important points raised in the discussion included the need to determine the most recent statistics in respect of the GHG inventory so that the impact of the Carbon Tax Bill could be more readily assessed. It was emphasised that Carbon Tax legislation needed to be geared towards addressing the triple challenge of poverty, inequality and unemployment facing South Africa. Moreover, the need to fast track the finalisation of the legislation was stressed. Since 2020 was just around the corner, the legislation had to be processed so that when 2020 arrived, there were some binding legislative instruments that could be used to facilitate the necessary transition.

Meeting Report

Opening remarks by Chairpersons

Mr Y Carrim (ANC), Chairperson of the Finance Portfolio Committee, commented that the matter before the joint Committee was essentially a policy issue. Money bills could be processed only by the Standing Committee on Finance. What the Committee did was to engage with the policy Committee, after which the way forward was determined. There were various options on the table in this regard.

Mr P Mapulane (ANC), Chairperson of the Environmental Affairs Portfolio Committee, said that since the Carbon Tax Bill was a money bill, it had to be processed by the Standing Committee on Finance. The Portfolio Committee on Environmental Affairs had been invited to consider the Bill, but during the voting process its Members would remain observers. It was very important that the Portfolio Committee was part of the process, as the Carbon Tax Bill had an impact on the work it was doing.

Mr CJ De Beer (ANC), Chairperson of the Select Committee on Finance, National Council of Provinces (NCOP), said the two Finance Committees in the two Houses would embark in a joint fashion on a process for 2018 and 2019 to bring the Select Committee on Finance and the NCOP earlier into the process of processing these Money bills.

Carbon Tax Bill

Mr Ismail Momoniat, Head of Tax and Financial Sector Policy: National Treasury, commented that the Bill was largely motivated by trying to deal with the environmental challenges. Climate change was the biggest challenge facing the planet. The issue with the Carbon Tax was that it needed to get the price of carbon emissions right.

Ms Nosipho Ngcaba, Director General: Department of Environmental Affairs (DEA), by way of context, continued that South Africa was a signatory of the United Nations Convention on Climate Change. It also had a policy that was processed by Parliament, namely, the White Paper on Climate Change, which outlined what South Africa needed to do both in terms of reducing carbon emissions, as well preparing South Africa to adapt to the variable climate that the globe and South Africa would experience. The presentation would outline why South Africa needed a Carbon Tax -- a tax that would be able to regulate industry and citizens’ carbon emissions so as to meet South Africa’s commitments.

South Africa had ratified the Paris Agreement, an undertaking that seeks to reduce carbon emissions globally and to ensure that the globe does not exceed temperature increases of 2 degrees Celsius. It was important that South Africa played its part in terms of mitigating its contribution to carbon emissions. This had to be done in a way that allowed a transition both from South Africa’s high-carbon intensity industries, especially the power-generation sector, and towards the introduction of renewables. With regard to the latter, there was a project which was led by the Department of Energy. The Carbon Tax took into account a swathe of these interventions. With the Carbon Tax, the goal was to ensure that South Africa transitioned to a ‘green economy.’ The Carbon Tax employed a ‘carrot and stick’ approach to encourage a change of behaviour on the part of Industry. Those who did not change their behaviour accordingly would be penalised. South Africa’s mitigations system was based on carbon budgets.

South Africa’s Greenhouse Gas Emission Reduction System

Ms Deborah Ramalope, Chief Director: Climate Change Mitigation, DEA, spoke to South Africa’s Nationally Determined Contributions (NDCs), which had three key elements. Firstly, the long term goal was in the form of a national emissions trajectory range to 2050. Secondly, a medium term goal would be within the range of 398-614 Mt CO2 eq in the years 2025 and 2030. Thirdly, it provided flexibility in the form of a range, which would require a periodic review in the medium/longer term in the light of science and national circumstances. She said one of the central principles of the Paris Agreement was that countries would submit progressively more ambitious goals – and South Africa’s current NDCs were not sufficient to meet the two degree target.

National Climate Change Response Policy

Ms Ramalope outlined the vision and objectives of the National Climate Change Response Policy. The vision of the policy was to transition to a climate resilient and lower-carbon economy and society. The policy had two objectives. Firstly, it aimed to manage climate change impacts through interventions that would build and sustain South Africa’s social, economic and environmental resilience. Secondly, it aimed to make a fair contribution to the global effort to stabilise green house gas (GHG) concentrations. The Carbon Tax Bill would contribute to the second aim.

Approach to Mitigation

The approach to mitigation seeks to achieve a balance between, on the one hand, the economic and social opportunities presented by the transition to a lower carbon economy and, on the other hand, the country’s contribution as a responsible global citizen to the international effort to curb global emissions.

In 2015, Cabinet had approved South Africa’s climate change mitigation system framework. The system included the following key elements:

  • Greenhouse gas inventory;
  • Mitigation potential analysis;
  • National emissions trajectory;
  • A carbon budget for each company;
  • Pollution prevention plans by companies with carbon budgets;
  • Desired emissions reduction outcomes for key economic sectors;
  • A reporting system, to gather information on the actual emissions of users; and
  • A variety of other measures to be applied to support and/or complement the carbon budget system including a carbon tax.

The system would be introduced in two phases. Phase one (2016-2020) would be voluntary, as there was no legal basis to set emission limits for sectors or companies. Phase two and subsequent phases (post-2020 period) would become mandatory only when climate change response legislation was in place.

Ms Ramalope clarified that phase one involved the migration potential analysis being conducted in five sectors, with particular attention to the Integrated Resource Plan (2010), setting carbon budgets, calls for pollution prevention plans, annual reporting (from 2016 to 2020), and assessing compliance (end of the cycle, in 2021). Phase two would be introduced after 2021 (See Slide 9).

Mitigation System: Carbon Tax

Ms Ramalope contextualised the carbon tax in the mitigation system. Firstly, the price of carbon was one of the instruments available to achieve the objective of transitioning to a low carbon economy and society. Secondly, this had the effect of incentivising large carbon emitters to take measures to reduce their emissions. Thirdly, the emission reduction achieved would contribute to South Africa’s efforts in meeting its Nationally Determined Contribution (NDC) under the Paris Agreement.

The key issues that arose in relation to the carbon tax included, firstly, that pricing carbon was key to driving the transition to a green economy. Secondly, the carbon tax was part of the spectrum of measures available to achieve emission reductions. Thirdly, the integration of the carbon tax with other measures to achieve reductions, would result in increased energy efficiency and increased productivity, competitiveness and local manufacturing of green technologies. Fourthly, options for the carbon tax to interface with measures for achieving emission reductions depended primarily on the level and nature of the emission reduction outcomes per sector.

The DEA and National Treasury (NT) had examined various options for the alignment of the two instruments, the Carbon Tax and Carbon Budget, for phases one and two. Phase one entailed that companies which participated in the carbon budget system may receive an additional 5% allowance, and this additional allowance would raise the overall maximum tax-free threshold to 95% and a reduction in tax liability. With regard to phase two, there was an in-principle agreement on the alignment option -- there was no double penalty scenario, that is, at no point would the alignment between the carbon tax and carbon budget penalise companies twice. The integration of the current design features of the carbon tax and carbon budget was still under discussion. The carbon tax legislation would require amendments to include the designs that would allow for the phase 2 interface.

Draft Carbon Tax Bill 2017

Mr Momoniat highlighted that South Africa’s Carbon Tax policy process had begun with the Environmental Fiscal Reform Policy Paper (2006). A Discussion Paper on the Carbon Tax had been approved by Cabinet and published for public comment in 2010. The paper had been revised to take into account stakeholder comments, and the Carbon Tax Policy Paper was published in May 2013. An initial draft Carbon Tax bill was published for public comment in November 2015, following Cabinet approval in October 2015.

There were extensive consultations on the draft bill during 2016. Cabinet had requested that the draft Carbon Tax Bill be re-submitted to Cabinet for further consideration after taking into account comments received from the public consultations on the Bill. 91 written comments had been received from a broad range of stakeholders, including industry associations, companies, state-owned entities, non-governmental organisations, organised labour, academia, individuals and consultants, while bilateral meetings and workshops were held with key sectors and industry associations in 2016. Cabinet had adopted the second draft Carbon Tax Bill and approved its submission to Parliament on 16 August 2017, noting that the carbon tax was an integral part of the system for implementing government policy on climate change. National Treasury had published the second draft Carbon Tax Bill in December in December 2017 for public comment, its introduction in Parliament, and the convening of public hearings by Parliament in early 2018.

Introduction and Policy Context

Ms Sharlin Hemraj, Director: National Treasury, commented that South Africa had voluntarily committed at COP 15 in 2009, to curb GHG emissions by 34% by 2020 and 42% by 2025 below the “business as usual” (BAU) trajectory, subject to support from developed countries – climate finance, capacity building and technology transfers. South Africa had ratified the Paris Agreement in November 2016 and endorsed the submission of its Nationally Determined Contribution (NDC) which required that emissions peak in 2020 to 2025, plateau for a ten-year period from 2025 to 2035 and decline from 2036 onwards. South Africa’s emissions by 2025 and 2030 would be in a range between 398 and 614 Mt CO2-eq, as defined in national policy.

The Paris Agreement would require sizable reductions in energy-related GHG emissions by large emitting countries, including in developing economies. According to South Africa’s NDCs, carbon tax was an important component of its mitigation policy strategy to lower GHG emissions. Carbon tax formed an integral part of the climate change response policy package under the National Climate Change Response Policy (NCCRP) of 2011, and the National Development Plan (NDP), as an important cost-effective instrument. The Carbon Tax Bill gives effect to the polluter-pays-principle and helps to ensure that firms and consumers take these costs into account in their future production, consumption and investment decisions. It would assist in reducing GHG emissions and ensuring South Africa would meet its NDC commitments as part of its ratification of the 2015 Paris Agreement.

The main sources of GHGs were air transport, oil production, fertilization, land transport, landfills, coal plants, industrial processes, coal mining and thawing permafrost.

Sobering facts of climate change

Ms Hemraj brought to the attention of the meeting the sobering facts of climate change. The last three years were the hottest on record, according to the United Nations weather agency, citing new global data underscoring the dramatic warming of the planet. Of the 17 hottest years on record globally, 16 had now occurred since 2000. Consolidated data from five leading international weather agencies showed that 2015, 2016 and 2017 had been confirmed as the three warmest years of record, the World Meteorological Organisation (WMO) said. Impacts of this rapid warming ranged from triggering long-term drought in places accustomed to higher rainfall (Cape Town, for instance) to threatening mass extinctions, with up to a sixth of all species alive today at risk.

South Africa’s Western Cape province had been suffering a drought since 2015, when it received about 60 per cent of its normal rainfall. Rain amounts had continued to plummet in the two subsequent years. Ms Hemraj referred to images of the Theewaterskloof Dam, the province’s largest reservoir, at full capacity in October 2014 and at 27 per cent of capacity in October 2017. Exposed sediment around the edge of the basin in the later images showed where the water level had declined. The World Economic Forum said climate change was the number one threat to the global economy.

Ms Hemraj placed South Africa in the global context in terms of its fuel combustion. In 2008, fuel combustion constituted 1.31% of South Africa’s total carbon dioxide (CO2) emissions (15th globally), while in 2010, fuel combustion amounted to 1.15% of South Africa’s total CO2 emissions (18th globally) (see slide 15).

She explained that South Africa’s four major GHG emission sectors were energy, industrial processes and product use, agriculture, forestry and other land use, and waste. The energy sector was the major overall contributor to South Africa’s GHG emissions (82.66%). Industrial processes and product use constituted 8.56%, agriculture, forestry and other land use 4.96%, and waste 3.82% of South Africa’s overall GHG emissions (518 239 CO2 Eq [Gg]) (See slide 6).  

South Africa’s National Climate Change Response White Paper, 2011

In accordance with South Africa’s National Climate Change Response White Paper, 2011, one of the elements in the overall approach to mitigation was the development of a range of economic instruments to support the system of desired emission reduction outcomes, including the appropriate pricing of carbon and economic incentives, as well as the possible use of emissions offsets or emission reduction trading mechanisms.

Ms Hemraj subsequently commented on the National Development Plan’s (2011) position on climate change (see Slide 18).


Mr Mapulane referred to the GHG inventory of 2010, and asked whether more recent statistics were available which took into consideration developments since 2010.

Ms Ngcaba answered that a 2012 report with more recent statistics still had to be approved by Cabinet, but it would be forwarded to Parliament as and when that happened.

Mr Mapulane advised that the most recent statistics had to be determined so that the impact of the Carbon Tax Bill could be more readily assessed. This was very important information going forward.

Mr De Beer reiterated that it was important for the Committees to have the most recent indicators. Otherwise, they would have to be reviewed on an annual basis.

Mr Momoniat answered that generally, statistics were gathered once every five years. The goal was to achieve a regular cycle of statistics.

Ms Hemraj explained South Africa’s climate change response governance framework (see Slide 19). Referring to the National Treasury Environmental Fiscal Reform Policy Paper (2010), she drew attention to and explained several design considerations for environmentally-related taxes: environmental effectiveness, tax rate and revenue, competitiveness impacts, distributional impacts, adjoining policy areas, support for the tax, and legal, technical and administrative feasibility (see Slide 20).

Rationale for a carbon tax / price

Ms Hemraj said that a carbon tax was a means by which government could intervene by way of a market-based instrument to appropriately take into account the social costs resulting from carbon emissions. A carbon tax seeks to level the playing field between carbon intensive (fossil fuel-based firms) and low carbon emitting sectors (renewable energy and energy efficient technologies). Although this option does not set a fixed quantitative limit to carbon emission over the short term, a carbon tax at an appropriate level and phased in over time to the ‘correct level’ would provide a strong price signal to both producers and consumers to change their behaviour over the medium to long term. At COP 22 in Morocco in 2016, Joseph Stiglitz, Nobel Laureate in Economics, and Lord Nicolas Stern had agreed to chair a new high level commission on carbon pricing. According to the report of the commission, ‘a carbon tax guarantees a maximum cost per unit of pollution in the sectors covered by it. If a carbon tax underperforms environmentally…the tax could be raised or designed in a way that it would rise automatically in response to emission trends.’

Ms Hemraj brought into sharp focus and unpacked three key messages of the report of the Commission. Firstly, tackling climate change was an urgent and fundamental challenge. Secondly, a designed carbon price was an indispensable strategy for reducing emissions in an efficient way. Thirdly, the Commission had concluded that the explicit carbon-price level consistent with achieving the Paris temperature target was at least US$40 – 80/tCO2 by 2020, and US$50 – 100/tCO2 by 2030, provided a supportive policy environment was in place (see Slides 22-23).

International Developments

Ms Hemraj remarked on international developments with regard to the introduction of a carbon tax. China had introduced seven regional carbon trading pilot schemes. A carbon tax had been introduced by Mexico in 2014 and applied to fossil fuels. India had implemented a coal tax effective from 2010, currently at US$ 6/ton coal. Chile had implemented a carbon tax at the rate of US$5 from 2017. In 2008, the Canadian Province of British Colombia had launched its carbon tax at a rate of Can$10 per tonne of CO2. Colombia had implemented a carbon tax in 2017 on transport fuels. Brazil, Ivory Coast and Morocco were exploring a carbon tax. Singapore was scheduled to implement a carbon tax in 2019.

South Africa Carbon Tax Carbon Tax Design Features:

Ms Hemraj clarified the design features of the proposed South African carbon tax.


  • Carbon tax at R120 per ton of CO2;
  • 60% basic tax-free threshold;
  • Maximum of 10% tax-free allowance for trade exposure;
  • 10% tax-free allowance for process and fugitive emissions;
  • Up to 5% performance allowance;
  • 5% tax-free allowance for complying with carbon budgets information requirements;
  • 5-10% allowance for carbon offsets – to reduce the carbon tax liability.

Tax-free allowances:

  • Tax-free allowances of 60-95%;
  • Effective tax-rate of R6 –R48 t/CO2e;
  • No impact on electricity prices in the first phase;

Revenue recycling:

  • Energy efficiency savings tax incentive;
  • Credit against Eskom’s carbon tax liability for the renewable energy premium built into the electricity tariffs;
  • Credit for the electricity levy;
  • Support for the installation of solar water geysers;
  • Enhanced free basic electricity / energy for low income households;
  • Improved public passenger transport and support for shift of freight from road to rail.

Tax-free allowances

Ms Hemraj referred the meeting to the table on tax-free allowances (see Slide 27).

Carbon offsetting under the Carbon Tax

In the phase one, permitted carbon credits should be developed under the Clean Development Mechanism (CDM), the Verified Carbon Standard (VCS), and the Gold Standard. The allowance for potential domestic standards to cover project types was not well catered for under international standards e.g. Agriculture, Forestry and Other Land Use (AFOLU).

Ms Hemraj outlined the specific eligibility criteria for carbon offset projects for effective implementation of the offset mechanism in South Africa. These provided that:

  • Project activities must occur outside the scope of activities subject to the carbon tax;
  • Only South African based credits would be eligible for use within the carbon offset scheme;
  • Carbon offset projects registered and / or implemented before the introduction of the carbon tax regime would be accepted subject to certain conditions.

She briefly commented on revenue recycling measures and the phasing in of the Carbon Tax (see Slide 29), the energy sector and carbon pricing (see Slide 30) and the energy efficiency savings tax incentive (see Slide 31).

Carbon Tax Modelling Results

Under the World Bank Partnership for Market Readiness Project, a carbon tax modelling study had been completed, and the report was published in 2016. The results of the carbon tax modelling showed that the carbon tax would have a significant impact in reducing the country’s emissions, and that these emission reductions could be delivered while realising sustained growth in the economy. The results of the simulations showed that the tax would lead to an estimated decrease in emissions of 13% to 14.5% by 2025, and 26-33% by 2035 compared with ‘business as usual’. The tax was expected to lead to a marginal reduction in the annual average growth rate of the economy of just 0.05-0.15 percentage points, compared to BAU.

Ms Hemraj discussed the various scenarios that the modelling considered (see Slide 33).

Emissions in 2035 were expected to be 33% lower than in the baselines (see Slide 34).The carbon tax could make an important contribution to meeting South Africa’s NDC, but would not be sufficient by itself under these settings. In the context of the expected growth of the economy, the impact of the tax on gross domestic product (GDP) was small. The average annual growth rate of the economy was expected to be 0.15 percentage points lower, leading to GDP in 2035 being 3% lower than in the baseline. Other macroeconomic aggregates were also only modestly affected: household consumption (-4,6% ) and employment (-1.4%) (see Slide 36).

2015 Draft Carbon Tax Bill: Main Comments

Ms Hemraj said the main comments made in relation to the 2015 Draft Carbon Tax Bill were related to electricity pricing and electricity levy; tax rates and thresholds and the request for certainty for phases one and two of the carbon tax; alignment of the carbon tax policy with the carbon budgeting system of the DEA; carbon tax modelling results and the socio-economic impact of the carbon tax; international competitiveness impacts; timing and long-term policy certainty; and the GHG reporting framework and tax administration.

Responses to the comments on 2015 Draft Bill

Some of the responses to the comments on draft Bill were:

  • Electricity pricing and electricity levy: the Carbon Tax (taken with electricity levy) would be revenue neutral in the first phase and would have no impact on the price of electricity (see Slide 38);
  • Tax rates and thresholds and the request for certainty for phases one and two of the carbon tax: Section 5 of the bill had been amended to include the headline, a marginal tax rate of R120/tCO2e; and specified an annual increase to the nominal carbon tax rate by a maximum of inflation plus 2 per cent;
  • Alignment of the carbon tax policy with the carbon budgeting system of the DEA: the DEA and the National Treasury were working on alignment and integration of the carbon tax and carbon budget instruments of phase 2, and no double penalty (see Slide 38);
  • Carbon tax modelling results and the socio-economic impact of the carbon tax showed a significant impact in reducing the country’s emissions (see Slide 38).
  • International competitiveness impacts: The design of the trade exposure allowance had been adjusted from a company to a sector-based trade exposure allowance, and mining and iron and steel would qualify for full 10% allowance.


Ms T Tobias (ANC) raised a number of questions and concerns. Firstly, especially in relation to fuel combustion, had it been determined whether or not the GHG inventory was adequate? Secondly, had a comparative study been conducted which compared the nature and scope of fuel combustion in South Africa with that of Europe? Thirdly, more by way of comment, an in-depth study was needed as to why the utilization of certain energies had to be discouraged in the energy sector that would be detrimental to what the objectives were in the long-term. Fourthly, the situation should not arise where one sector subsidised another sector which was actually the main polluter. Fifthly, in terms of the offsets, there may be a need to consider and encourage companies that were taking the initiative.

Mr A Lees (DA) asked what exactly a carbon budget was. Had there been a substantive assessment of the possible impact that the withdrawal of second highest emitter -- the United States of America -- from the Paris Climate Change agreement would be? What was being done in terms of the costs of administering the plan? What were the details concerning the implementation phases of the plan? What would the impact be if Parliament decided that the Carbon Tax Bill should not be passed? Since there was no chance of recycling taking place, what was the mechanism, other than ring-fencing, to ensure that state revenue was channelled towards this plan? Taking into account that South Africans were faced with a massive tax burden at a time of minimal economic growth, there was no merit in additional taxes. Moreover, how many jobs were at risk with the introduction of the Bill?      

Mr De Beer reminded the gathering that the Bill was yet to undergo the process of public hearings.

Ms H Nyambi (ANC) asked if there was any indication of how much carbon emissions would be reduced by the Carbon Tax Bill once it was introduced?

Mr S Makhubele (ANC) asked, concerning the consideration and integration of the three elements -- sustainable development, social impacts, and economic opportunities -- who did the balancing act between implementing the carbon tax and ensuring that these elements were promoted? Based on the 91 written submissions received from various stakeholders, what were the actual expectations? Regarding international experience, the presentation had not reflected on countries which had adopted a carbon tax, only to do away with it later. Could the DEA share with the Committees why these countries had abandoned their Carbon Tax Bills? Since the Carbon Tax was only one of the instruments employed with a view to reducing carbon emissions, was it known what their contributions had been? What were some of the choices that had been made around the offsets?

Mr T Motlashuping (ANC) asked how the Carbon Tax legislation was geared towards addressing the triple challenge of poverty, inequality and unemployment facing South Africa, as none of the presenters had addressed these issues in their presentations. How was the shortfall of R50 billion going to be addressed? To avoid problems in the future, had a comprehensive study been conducted which verified that the Bill in question complied with the applicable treaties and legislation? What were the impacts of the Carbon Tax Bill on the taxpayer? Could the DEA unpack the issue of employment against what the expected output would be in passing the legislation? It was important to assess what approach would be best suited to the South African context. What was important to consider was the impact that the passing of the legislation would have on the ordinary citizens of South Africa. Passing legislation for its own sake would not necessarily benefit South Africa.  

Mr Mapulane asked how far the DEA was in finalising the legislation considering the fact that phase two (post-2020) -- when it would become mandatory to set emission limits -- was just around the corner?  

Mr Momoniat answered that since South Africa had begun this process in 2006, it was not adopting the Bill because of international pressure to do so. It was a voluntary commitment. It had emerged out of looking at what challenges the world faced and, in the face of these challenges, what needed to be done. It was also reasoned that, if the global context was changing, it was preferable to stay ahead of the curve. At this moment, jobs were being lost, for example, due to the water crisis. When it came to job losses, the question arose how to reverse these job losses.

In terms of the Carbon Tax Bill, it was critical that growth, development and job creation were a priority. Many stakeholders and political actors needed to weigh in to realise this. For the Paris Agreement to be realised, the world had to work together, especially the major carbon emitters, such as China, the USA and India. The goals could be leap-frogged through the use of advanced technology. This was why an important stakeholder would the Department of Science and Technology.

Countries that had removed the carbon tax included Canada. These governments were not in agreement with the Kyoto Protocol and the Paris Agreement, and were not countries that South Africa would like to be associated with. In respect of the United States, in spite of the President’s proclamations, various cities had come quite far in relation to independently reducing their carbon footprint. Contrary to the use of coal mines, taking action on climate change was like taking out an insurance policy. Cities that did not take steps to mitigate risks would end up paying much higher insurance rates.

While South Africa did not have all the answers, the worst position was to say that nothing should be done. Unless one was certain that climate science was 100% wrong, there was a lot to be gained from taking steps to mitigate the effects of climate change, including the creation of job opportunities. Unlike other taxes, the DEA and National Treasury had taken a very long term view on the carbon tax to allow industries to project where the tax was going by gradually bringing it in line with inflation. Moreover, those industries which did not comply would be punished by an increase in the carbon tax. While not all the information was available, after two or three years of implementing the carbon tax, there would be another review.

Ms Ramalope said that although there were some data gaps in the inventory, the GHG inventory was adequate at the moment. Because the DEA was using a methodology provided by the International Panel on Climate Change, there were ways of closing the data gaps. It would improve on a year-by-year basis. The DEA had just published and proclaimed the regulations for the data gaps on GHGs.

Insofar as the socio-economic benefits of climate-change technology was concerned, South Africa had a responsibility to contribute its fair share to carbon emission reductions. It was also about managing South Africa’s transition to a lower carbon economy. The International Standards Organization was developing a standard on carbon footprints. This would be looking at the carbon-footprint of different products, which could have a positive or negative effect on the export of certain products. The sooner that South Africa started managing its own transition the better.

Regarding what a carbon budget was and whether it was voluntary or not, a carbon budget was a GHG emission allowance. An allowance given to a company referred to the carbon space given to a company. Since at present it was voluntary for all companies, what the DEA had done was come up with an agreement which had been discussed with all stakeholders. Among others, the criteria had been that any company that emitted more the 0.1 billion tons per annum fell into the category of companies that had to submit applications for a carbon budget. Companies were not forced to participate in the first phase, because it was voluntary.

Concerning the question of job losses, a project in which the DEA had partnered with the Department of Economic Development entailed undertaking National Impact Vulnerability Assessments (NIVAs) and coming up with sector job plans. The aim was to look at the impact of climate change interventions, both adaptation and mitigation, on jobs and whether the impact was positive or negative. If the impact was negative, steps needed to be taken to counter the negative impact. The sector job plans were geared towards countering the potential negative impact.

Regarding the contribution of other carbon-reducing measures, the DEA was conducting a project in which it was interrogating other processes and measures and their impact on South Africa’s NDC and possible gaps. While South Africa’s current NDC was known, the plan was to assess what the impact of these measures, including the Carbon Tax, would be on South Africa’s emission reduction and NDC, and if there were gaps, how South Africa should fill them. 

Mr Tlou Ramaru, Deputy Director General: Climate Change, DEA, said there was no technical study which clarified what was at stake with the US withdrawal in terms of carbon emissions. It had to be understood in the context that the US withdrawal could not be effective after three years after the coming into effect of the Paris Agreement, according to which the USA would still have to observe the Agreement for three years. However, although the US had indicated its intention to withdraw, there were different competing voices, such as the private sector, which were still committed to the Paris Agreement. France and the US had indicated that they intended to plug the financial gap stemming from the withdrawal.

He said it was anticipated that the legislation would be approved for public consultation in April this year.

Mr Lees asked, if Parliament did not approve the Carbon Tax, what the impact would be in terms of South Africa’s obligations under the Paris Agreement? Had research been done about the administrative costs of the Carbon Tax Bill?

Ms Hemraj responded that a high-level assessment had been conducted outlining the costs of implementing the Carbon Tax Bill, which would amount to R20 million. The tax would be administered through the DEA’s GHG reporting system, which required entities to report their GHG emissions to the DEA. The DEA would also be responsible for the verification of the emissions. SARS would rely on the GHG reporting system that was being developed.

Regarding the impact of not adopting the tax, the reason for proposing a carbon tax was that it helped to internalise the costs that already existed. It gave the State an opportunity to give flexibility to companies on how they could reduce their emissions. The other option was to adopt a command and control mechanism which dictated what was allowed, and companies would be fined if they infringed upon the limit, irrespective of their processes and activities. The tax had to be part of a package of measures.

Ms Ramalope commented that the impact of not implementing the carbon tax would have to be measured in relation to the impact of the other measures and could, therefore, be determined only once the impact of the other measures had been measured.  

Mr Mapulane thanked all the presenters for the engagement. An opportunity for various stakeholders to give their views on the legislation was pending. The climate change legislation was an important piece of legislation which allowed South Africa to move progressively towards meeting its commitments -- for example, the Paris Agreement. It was important for the DEA to speed up the process. 2020 was just around the corner. As such, the legislation had to be processed so that when 2020 arrived, there were some binding legislative instruments that could be used to facilitate the necessary transition. This would force companies to restructure their operations and meet the obligation that South Africa has. Climate change was a reality. There was a consensus in the scientific community. The question was: how soon could South Africa transition?

The meeting was adjourned.