Carbon Tax – Key design features

On 27 February 2013 the Minister of Finance announced that a carbon tax will be introduced with effect from 1 January 2015. He also announced that a carbon tax policy paper would be published that will contain the details for the carbon tax. That policy paper was published on 2 May 2013. This article contains the key design features of the carbon tax as set out in the policy paper.

The carbon tax is a cornerstone of South Africa’s plan for reducing its greenhouse gas emissions. The introduction of the carbon tax will have implications for all South African business sectors; not only those who are liable to pay the carbon tax. The table below sets out the key elements of the carbon tax.


Table: Key elements of the carbon tax


                1st  Phase

                2nd Phase

dates of operation

1 January 2015 – 31 December 2019

1 January 2020 – 31 December 2025

tax rate

R120 per ton of CO2e above tax free thresholds which will increase by 10% per annum

revised rate

greenhouse gases covered

Carbon-dioxide, methane, nitrous oxide and per-fluorocarbons, hydro-fluorocarbons and sulphur hexafluoride.

same as first phase

emissions included

direct emissions (scope 1)

same as first phase

emissions excluded

indirect emissions from electricity (scope 2) & indirect emissions from the supply chain (scope 3)

same as first phase

covered sectors

  • electricity
  • petroleum (coal/gas to liquid)
  • petroleum – oil refinery
  • iron & steel
  • cement
  • glass  & ceramics
  • chemicals
  • pulp & paper
  • fugitive emissions: coal mining
  • other

same as first phase

sectors not covered  

  • agriculture, forestry and land use
  • waste

will be included during the 2nd phase

tax-free thresholds 

percentage based thresholds 

the tax-free thresholds will be decreased progressively and may be replaced with absolute emissions thresholds thereafter 


Phased approach
The carbon tax will be implemented in a phased approach. During the first phase that will run from 1 January 2015 to 31 December 2019 the carbon tax will be introduced at an initially low rate (see below) with an increase of 10% per annum. The rationale for this approach is to enhance the acceptability of the carbon tax. The second phase will run from 1 January 2020 to 31 December 2025. 

The covered sectors
Entities with facilities in the covered sectors will be liable for the carbon tax. It should not necessarily be assumed that sectors (such as retail, commercial property, etc.) that are excluded from the covered sectors are therefore not subject to the carbon tax. The covered sectors include a catch-all category named “other”. Much will depend on how widely or narrowly the word “other” is interpreted.

The carbon tax rate
During the first phase the carbon tax rate of R120 per ton of CO2-e will only apply to those emissions above the applicable tax-free thresholds. The carbon tax rate will be increased annually by 10% (2016 – R132; 2017 – R145.20; etc.). Taking into account the applicable tax-free thresholds the real carbon tax rate will range from R12 to R48 per ton of CO2-e (during the first year of the first phase). The rate will be revised during the second phase.

The tax-free thresholds
Each of the covered sectors will be entitled to a 60% tax-free threshold while certain of the covered sectors will be entitled to a maximum trade exposure allowance and a process emissions allowance. Finally, certain of the covered sectors will be entitled to offset their carbon tax liability by purchasing carbon credits. The tax-free thresholds will be reduced during the second phase and may be replaced with absolute emissions thresholds.

The covered greenhouse gasses
The carbon tax will not only cover CO2. It will also cover carbon dioxide equivalent emissions such as methane, nitrous oxide, per-fluorocarbons, hydro-fluorocarbons and
sulphur-hexafluoride. It is for this reason that the carbon tax will be levied on CO2-e
(or CO2-eq) emissions.

 The covered emissions
The carbon tax will only be levied on scope 1 emissions. A scope 1 emission is a carbon emission occurring within the boundary of a facility from sources such as power stations and industrial processes that are measured at the source of the emission. Scope 1 emissions also include carbon emissions from the burning of fuel. Organisations should also consider their exposure to scope 2 emissions. Although organisations that are subject to scope 2 emissions are not subject to the carbon tax there will be a financial impact as the cost of the carbon tax is passed on by scope 1 emitters in the covered sectors.

Edward Nathan Sonnenbergs
National Treasury Carbon Tax Policy Paper