As part of the investment plans for the $8.5bn in climate finance pledged to SA by the governments of the UK, US, France, Germany and the EU at COP26 in Glasgow, Scotland in 2021, Treasury is busy negotiation the terms of loans amounting to about $6bn.
The loans are being negotiated with European development banks including Germany’s KfW Development Bank, a Treasury official said during a media briefing on the medium-term budget policy statement (MTBPS) on Wednesday.
The investment plan for the Just Energy Transition Partnership was accepted by the cabinet last week but it has not been made available to the public yet.
Finance minister Enoch Godongwana said in his speech to parliament on Wednesday that the Treasury was finalising negotiations on the pledges by the international partner group.
“Climate change is reshaping the world around us, including our economic context. It poses physical risks to our people, infrastructure, the environment and production including of critical goods such as food. The global response to climate must be co-ordinated,” Godongwana said.
As an ongoing commitment to ensure SA’s “fiscal policy [plays] its part to shift economic incentives towards cleaner forms of energy”, the Treasury said it would continue with the implementation of “significantly” higher carbon tax rates from 2023, as was announced in the 2022 Budget, despite recent objections by business organisations and high-emitting companies such as Sasol.
The Treasury has, however, acquiesced to some of the proposals made for changes to the carbon tax bill: for example, it has made the carbon tax rand-denominated instead of dollar-denominated.
This was confirmed in the amendments to the Carbon Tax Act that formed part of the Taxation Laws Amendment Bill tabled by Godowgwana in parliament on Wednesday, alongside the medium-term budget.
SA introduced the first phase of the carbon tax in June 2019 as part of the government’s broader climate-change mitigation policy. This first phase, which makes provision for companies to receive 60%-95% tax allowances such as rebates or exemptions, was scheduled to end in 2022. However, the Treasury announced in the 2022 budget that it would be extended by three more years to the end of 2025. The Treasury has also previously indicated that certain allowances to reduce the effects of carbon taxes on businesses will apply up to 2030.
A paper on the design options for tax-free allowances under the carbon tax will be published in 2023 for public comment and consultation, according to the MTBPS.
Measures announced in February were for the carbon tax rate to increase progressively every year to reach $20 per tonne by 2026 and $30 by 2030, before accelerating to higher levels of about $120 beyond 2050.
Stated in rand terms, as contained in the amendments to the act published on Wednesday, the carbon tax rate will now increase to R159 per tonne for 2023 and then to R236 by 2025. After that the rate will go up to R308 before increasing incrementally to R462 per tonne by 2030.
According to the amendments, these rates may be adjusted by an amount to be announced by finance minister in the national budget in 2025, and thereafter at three-year intervals to take into account the effects of exchange-rate movements on the comparability of the rate to global carbon pricing.
At the public hearings on the Treasury’s carbon tax proposals held in September, companies such as Sasol and various organised business groupings said the tax would come at a great cost to individual businesses and the economy.
In a letter to parliament’s finance committee chair Joe Maswanganyi, prior to the public hearings, the Energy Council of SA, Minerals Council SA, Business Leadership SA, Business Unity SA, the SA Petroleum Industry Association and the Energy Intensive Users Group said that the economy would not be able to accommodate the steepness of the carbon tax rate increase in the proposed deadlines. They proposed that the annual increases continue to be based on the consumer price index plus two percentage points until at least 2030, to allow for the review and alignment of different policies.
They also propose that a higher carbon price be considered only after 2035.
The World Bank recommends carbon prices of $50 to $100 by 2030 while the International Monetary Fund recommends lower carbon prices for developing countries of between $25 to $50 by 2030.
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