Overview of the Carbon Tax regulation which South African companies have to adhere to

1. Carbon Tax

2. Why a Carbon Tax?
• South Africa is the 14th largest emitter of Greenhouse Gases (GHG’s) in the world,
mainly due to the reliance on coal.
• The South African government has committed to GHG emissions reductions of 34% by
2020 and 42% by 2025 against a business as usual curve.
• Emissions are projected to peak between 2020 and 2025, plateau for 10 years and then
fall

3. What is Carbon Tax
⁻ Carbon Tax means a tax on the carbon dioxide (CO2) equivalent of greenhouse gas
emissions imposed;
⁻ Carbon dioxide (CO2) equivalent means the concentration of carbon dioxide that would
cause the same amount of radiative forcing (the difference between sunlight absorbed
by the Earth and energy radiated back to space) as a given mixture of carbon dioxide
and other greenhouse gases

4. The Greenhouse Gases
‘Greenhouse Gas’ means gaseous constituents of the atmosphere, both natural and
anthropogenic, that absorb and re-emit infrared radiation.
Includes:
⁻ Carbon dioxide (CO2)
⁻ Methane (CH4)
⁻ Nitrous oxide (N2O)
⁻ Sulphur hexafluoride (SF6)
⁻ Hydrofluorocarbons (HFCs)
⁻ Perfluorocarbons (PFCs)

5. Global Warming Potential
A GWP is a relative measure of how much heat a GHG traps in the atmosphere (measure of
how much a GHG contributes to global warming) relative to CO2 i.e. it compares the
amount of heat trapped by a certain mass of the gas in relation to the amount of heat
trapped by a similar mass of carbon dioxide.
Carbon Dioxide CO2 1 Deforestation, fossil fuel combustion
Methane CH4 23 Livestock farming, fossil fuel combustion, landfills
Nitrous Oxide N2O 296 Agriculture, synthetic fertilizer, fossil fuel
combustion
Sulphur
Hexachloride
SF6 22 200 Leakages from electrical switchgear
Hydrofluorocarbons HFC’s 11 900 Leakages from refrigerators and air-conditioners
Perflourocarbons PFC’s 5 700 Aluminium production processes

6. The Greenhouse Gases
To calculate emissions and tax liability, the GHG’s have to be converted to the carbon
equivalent: CO2e,
This is achieved by multiplying the Global Warming Potential (GWP) of each gas by the
tonnes of gas emitted
i.e.
GWP x tonnes = CO2 e
e.g. the CO2 e of 1 tonne of methane is 23 x 1 = 23 tonnes CO2 e
*Th e A c t makes th is easy for you an d p rovid es a b reakd own in S 1

7. Who Is Responsible For Carbon Tax
Taxpayer” means a person liable for the carbon tax
A person is—
a) a taxpayer for the purposes of the Act; and
b) liable to pay an amount of carbon tax calculated in respect of a tax period as
if that person conducts an activity in the Republic resulting in greenhouse gas emissions
above the threshold
(determined by matching the activity listed in the column Activity/Sector in Schedule 2
with the number in the corresponding line of the column Threshold of that table.
c) Person includes a partnership, trust, municipal entity and a public entity

8. Persons Covered in Schedule 2

9. Persons Covered - Example
10MW(th) – means a combined boiler capacity equal to or above 10MW(th) net heat
input. For example, the combined boiler design capacity for six (6) 2MW(th) equals
12MW(th) which is above the reporting threshold of 10MW(th). Therefore, the data
provider has to report GHG emissions associated with stationary combustion in this case.
none – means that the data provider has to report activity data and GHG emissions
irrespective of the size of GHG emissions and the scale of operation of the activity.
NA (Not Applicable) - means that data providers do not need to report emissions
associated with such activities to the DEA.

10. Persons Covered - Example
A company mines coal from underground and uses diesel in most of its stationary
equipment
• 1A Fuel Combustion Activities
– 1A1c: Manufacture of Solid Fuels and Other Energy Industries -(Threshold: 10MW(th))
• 1B Fugitive Emissions from fuels
– 1B1a: Coal Mining and Handling - (Threshold: none)
Company is liable for carbon tax

11. Tax Base
The tax base = sum of the GHG emissions expressed as a CO2e
In Phase 1, only Scope 1 emissions are subject to the tax
Scope 1 emissions are direct emissions that are owned or controlled by a company
The carbon tax covers all direct stationary and non-stationary GHG emissions. These
emissions relate to production and use of energy (i.e. fuel combustion and gasification) and
non-energy industrial processes.

12. Tax Base
The carbon tax will apply to direct emissions in the following categories:
⁻ Fuel combustion, which deals with emissions released from fuel combustion activities,
of which there are 2 types – stationary and mobile. Only stationary combustion is liable
for carbon tax;
⁻ Fugitive emissions from fuels, which deals with emissions mainly released from the
extraction, production, processing and distribution of fossil fuels; and

13. Tax Base
⁻ Industrial processes emissions, which deals with emissions released from the
consumption of carbonates and the use of fuels as feedstocks or as carbon reductants,
and the emission of synthetic gases in particular cases
- examples of carbonates are: raw materials in different industrial processes such as drug
development, glass making, pulp and paper industry, sodium chemicals (silicates), soap
and detergent production, paper industry, water softener, clay and concrete production
- Carbon reductants are used in the processing of metallic ores and the manufacture of iron
and steel

14. Tax Base - Scopes
Principally the result of the
following activities
• Generation of electricity,
heat or steam – stationary
combustion of fossil fuels
• physical or chemical
processing
• Transportation in
company owed/controlled
mobile combustion
sources
• Fugitive emissions

16. Rate of Tax
1. R120 per tonne of carbon dioxide equivalent of the greenhouse gas emissions of a
taxpayer
2. increased by the amount of the consumer price inflation plus two per cent for the
preceding tax period as determined by Statistics South Africa per year until 31
December 2022.
3. The rate of tax must be increased after 31 December 2022 by the amount of the
consumer price inflation for the preceding tax year as determined by Statistics South
Africa.

17. Tax Period
1. A taxpayer must pay the carbon tax for every tax period.
2. A tax period in relation to a taxpayer is—
(a) commencing on 1 June 2019 and ending on 31 December 2019 (Phase 1)
(b)Thereafter, the period commencing on 1 January of each year and ending on 31
December of that year

18. Tax Payment
⁻ A taxpayer must submit yearly environmental levy accounts and payments as prescribed
by the rules in terms of the Customs and Excise Act, 1964 (Act No. 91 of 1964), for every
tax period
⁻ Payment must be made to SARS
⁻ DEA will audit the emissions

19. Calculating GHG Emissions
Step 1
Exclude all non-
South African
emission
sources
Step 2
Exclude
emissions from
purchased
electricity, heat
or steam (Scope
2 sources)
Step 3
Identify all
emission
sources from
facilities/
operations that
the company
controls
operationally
Step 4
Exclude road
transportation
emission
sources
Step 5
Ensure that the
data is for the
most recent
calendar year

20. Calculating GHG Emissions
Step 6
Align remaining
emissions into
IPCC
Categories
( fuel, industrial
process, or
fugitive)
Step 7
Convert energy
data from
physical units
into energy units
using net
calorific values
Step 8
Convert data
into GHG
emissions using
emission factors
Step 9
Convert GHG
emissions into
CO2e using
Global Warming
Potential (GWP)
Step 10
Report GHG
emissions in
tonnes CO2e for
each GHG
separately

21. Emission Factors
The volume of GHG emissions is determined based on the fossil fuel combusted or product
processed multiplied by a corresponding emission factor x the calorific value
For example
• Reportable activity = Diesel consumption
• Source date = Invoices (500,000L - equivalent to 418.5 tonnes)
• GHG Emissions = Consumption x Emissions Factor

22. Emission Factors
• Emissions factor = [ (74,100 x 1) +(3 x 23) + (0.6 x 296) ] / 1000 ] x 0.0381 = 2.8326
* The gaseous component of diesel and its calorific value is found in Schedule 1
• GHG Emissions = 418.5 tonnes x 2.8326 = 1,185.44 tCO2e

23. The Carbon Tax Formula

24. Carbon Tax Formula

25. Carbon Tax Allowances
Basic Allowance
• Fuel combustion (60%)
• Industrial process (10%)
• Fugitive emissions (10%)
Carbon budget
allowance (5%)
Trade exposure
allowance (variable
up to 10%)
Performance
allowance (variable
up to 5%)
Offset allowance
(5% / 10%)
Capped
at 95%

26. Allowance for Fuel Combustion Emissions

27. Allowance for Industrial Process Emissions

28. Allowance for Fugitive Emissions

29. Sector Allowance Example

30. Carbon Tax Administration

31. ⁻ The CBT is assessed, collected and enforced as an environmental levy in terms of the
Customs and Excise Act, 1964, read with the relevant provisions of the Carbon Tax Act,
⁻ The South African Revenue Service (SARS) will be the main implementing administrative
authority on tax liability assessment and will have access to the DEA emissions
database. In order to audit the self-reported tax liability by entities, SARS will be assisted
by the DEA to verify the reported emissions.
⁻ the reporting entity as registered with the DEA can use their DEA registration details for
the SARS process.
Administration

32. ⁻ The DEA will lead the MRV process, collecting the GHG emissions data which will form
the tax base, hence incorporating the carbon tax within the South African National
Atmospheric Emissions Inventory System (NAEIS) – part of the South African Air Quality
Information System (SAAQIS).
⁻ The National GHG Emissions Reporting Regulations of the DEA provides for GHG
emissions reporting by taxpayers.
⁻ The DoE currently hosts the Designated National Authority (DNA) who will be
responsible for administering the carbon offsets
Administration

33. Persons conducting an activity or activities in South Africa resulting in greenhouse gas
emissions above the threshold must license each of their emissions generation facilities
with SARS as customs and excise manufacturing warehouses for environmental levy
purposes.
All licensees must be registered for eFiling as the submission and payment of CBT accounts
should be made via eFiling. The following process should be followed:
• Register on eFiling;
• Once registered, log on;
• Click on the Request Declaration button;
• Insert the warehouse number;
• Click on continue and the form will be generated.
Paying the Tax

34. The amount of tax payable by a taxpayer for the generation of electricity
from fossil fuels must be calculated in accordance with theformula:
X =A- B - C
X = the amount to be determined that must not be less than zero;
A = the amount of tax payable in respect of a tax period
B = the renewable energy premium in respect of a tax period, from the commencement of
the tax period until 31 December 2022, constituted by an amount expressed in Rand
determined by the Minister by notice in the Gazette; and
C = an amount equal to the environmental levy contemplated in respect of electricity
generated in the Republic in Section B of Part 3 of Schedule 1 to the Customs and Excise
Act, 1964 (Act No. 91 of 1964), paid until 31 December 2022.
Electricity Production

35. Thank You
Yasmine Miemiec
yasmine@5inc.co.za