Integration of the Carbon Tax and Carbon Budgets in South Africa

Department of Environmental Affairs, March 2017.

I n 2009, at the UNFCCC Conference of the Parties (COP) in Copenhagen, South Africa made a voluntary commitment to reduce its greenhouse gas (GHG) emissions by 34 percent in 2020 and 42 percent in 2025 relative to business-as-usual (BAU). This was part of a wider commitment by South Africa to contribute to the global effort in mitigating anthropogenic climate change and to transition to a lower-carbon economy. This was reaffirmed in its Intended Nationally Determined Contribution (INDC) submission to the UNFCCC, in advance of COP 21 in Paris in 2015, which identifies the intention that South African emissions should follow a ‘Peak Plateau and Decline’ (PPD) trajectory: peaking in 2025 within a range of 398 to 614 MtCO2e; plateauing for approximately a decade; before beginning to decline in absolute terms, falling to between 212 to 428 MtCO2e by 2050. Among a suite of different policies, two, in particular, have been designed with the intention of delivering a significant proportion of these emission reductions: • A carbon tax designed by the National Treasury (NT) to provide a price signal to producers and consumers of carbon-intensive products and to create an incentive to invest in cleaner technology. The carbon tax is expected to come into operation in 2017 at a headline rate of R120/tCO2e, although the effective tax rate will initially be lower as a result of a series of tax free allowances. • A series of carbon budgets designed by the Department of Environmental Affairs (DEA) envisaged to provide a GHG emissions allowance (in other words, a cap), against which physical emissions arising from the operations of a company during a defined time period will be tracked. In the period to 2020, the carbon budgets will not be a compliance instrument but rather will be used to increase understanding of the emissions profile of participating companies, and to establish monitoring, reporting, and verification (MRV) processes. Beyond 2020, they are intended to become compulsory.

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