South Africa’s revised carbon tax aims to balance the rival demands of climate activists and polluters by lowering tax-free allowances while letting companies make greater use of offsets, National Treasury acting head of tax and financial sector policy Chris Axelson said on Friday.
The changes, to come into effect in 2026, will help South Africa meet climate commitments but give “hard-to-abate” sectors more flexibility.
South Africa is one of the world’s top 15 greenhouse gas emitters, and the only country in Africa with a carbon tax. “It is a change to the previous structure [in which] the offsets were a small percentage,” Axelson said in a videocall interview.
At the COP29 talks in Azerbaijan, developing countries pressured their richer counterparts for up to $1-trillion (R18.17-trillion) in climate finance to help nations historically least responsible for the crisis to shift to greener energy and adapt.
The COP29 meeting took place mere days after a major shift in political leadership in the US, when Donald Trump was re-elected as president of the largest economy on earth. His climate scepticism and partiality to the fossil fuels industry for energy security domestically, signals a setback for broader efforts to mitigate the impacts of climate change.
A Treasury policy paper released on Wednesday shows the offset allowance for combustion emissions going up to 25%, from 10%, after 2026. This is counterbalanced by slashing tax-free allowances from 60% to half in 2026 and by a further 2.5 percentage points annually until 2030.
South Africa enacted its carbon tax in May 2019 after nearly a decade of shelving it over objections from mining companies, steelmakers and state-owned power utility Eskom. Since then, industry has complained the tax is too onerous, while climate activists decry it as too generous. “We’re in a place where they’re all shouting at us,” Axelson said.
“We’re trying to find that balance. We don’t want one side to say, ‘well, you’re hurting us too much’, and the other side to say, ‘well, you aren’t doing enough’.”
The proposal also replaces a 3.5c/kW levy on non-renewable power with the carbon tax, which Axelson said would encourage Eskom — whose overreliance on coal has made South Africa a bigger emitter than Britain or France — to use renewables “but without the potential of passing on costs to the consumers”.
Speaking to Business Times last week on the sidelines of the Abu Dhabi International Petroleum Exhibition and Conference (Adipec), senior managing director of Eurasia Analytics Gulmira Rzayeva said going forward, the world's climate programme needed to be just, and all members of society brought on board.
“Apart of the funding, no one country in the global south can implement their climate target without it, it is also important to have adaptation plans. These countries are already suffering from flooding, droughts and hurricanes which involve mass migration consequences and political turmoil. In order to be ready and resilient to these events, South Africa needs early alarm processes.”
Also speaking to Business Times during Adipec, Mark Brownstein, senior vice-president of the Environmental Defence Fund (EDF), said the good news for South Africa was that while it had many climate challenges, these challenges also presented opportunities to leverage its major renewable resource in sun and wind.
“When one talks about South Africa, one thinks about the trillema that characterises the global conversation on carbon. It’s a country with a history of high dependence on coal. It is a country of deep inequalities. But it is also a ground zero for the effects of climate change.”
Brownstein said South Africa and other emerging markets should take a leaf out of Namibia’s book, as his attendance at the Namibia Green Hydrogen Conference in September showed that country was gearing up to put major investment into green hydrogen for the European and global economy.
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