Cool heads needed on new carbon tax
Mining Council’s estimates are overstated, says expert, but he agrees regulations are needed as soon as possible
SA’s industry is in a tizz over the new carbon tax, but as independent tax experts begin to crunch the numbers in earnest, it may not be as bad as it seems. Phase one of the carbon tax came into effect in June and ends in December 2022. The tax on direct carbon dioxide emissions is R120 a ton, but emitters automatically receive a 60% discount and can qualify for allowances that could see some pay as little as R6 a ton.
SA’s industry is in a tizz over the new carbon tax, but as independent tax experts begin to crunch the numbers in earnest, it may not be as bad as it seems.
Phase one of the carbon tax came into effect in June and ends in December 2022. The tax on direct carbon dioxide emissions is R120 a ton, but emitters automatically receive a 60% discount and can qualify for allowances, which could see some pay as little as R6 a ton. The government will take stock of the first phase of carbon tax before adjusting it for phase two.
According to Duane Newman, carbon tax expert and director at Cova Advisory, SA’s total combined carbon tax liability for 2019 will be about R8bn, rising to R14bn in 2020 and R15.7bn in 2021.
If SA’s largest emitter, Eskom, is removed from the equation (which it should be because it is exempt from the tax in the first phase) the numbers drop to R2.4bn, R4.4bn and R4.6bn. Excluding Sasol, SA’s secondlargest emitter, the numbers drop to R863m in 2019, R1.57bn in 2020, and R1.67bn in 2021.
Newman has estimated the liability for SA’s mining industry, which has been vocal about the effect carbon tax will have on it.
His estimates, based on data from the Carbon Disclosure Project, a global carbon disclosure system that includes data from most large companies, show that SA mining will pay R230m in carbon tax in 2019, R415m in 2020 and R440m in 2021. To put this in perspective, R440m is 1.5% of about R29.6bn in royalties and company taxes paid by SA’s mining industry in the 2017/2018 financial year.
That is less than estimates published by the Minerals Council SA. A survey of just 18 of its members found that they estimate the cost to be R517m a year in the first phase. With about 2,000 mining operations in the country, the council says this is a conservative number.
Another estimate from the council is that tax could cost the entire mining sector R900mR1.8bn a year in the first phase.
Newman said the industry’s estimates are “way overstated”. For example, the latter estimate includes an environmental levy, which has been part of Eskom’s electricity tariffs since 2009.
For the mining industry it is largely fuel burnt in its vehicles that would be subject to the tax. Since June 5 a carbon levy of 7c and 8c has been applied per litre of petrol and diesel respectively.
Newman said there is an argument that even this should be removed from the calculation as it is absorbed in the regular fuel price fluctuations that all South Africans are used to and so should already be budgeted for in the run-of-the-mill business forecasting.
The Minerals Council has, however, flagged that there is material uncertainty over how the allowances will work and has called for the carbon tax to be delayed until regulations are in place.
Newman agrees this is an issue for all SA business and said the Treasury must publish all the regulations for the allowances as soon as possible so business can plan on maximising them.
Business is also worried about phase two. The 18 miners surveyed see their liability rising to R5.5bn a year in the second phase. A huge jump in tax is unlikely, said Newman, who expects an effective increase of no more than 10%, in line with other excise tax hikes.
“Carbon tax is a long-term price signal,” he said. “Anything excessively above inflation will impact business negatively.”
It is unlikely that all the allowances will be removed in phase two, but they may well be reduced, he said.
In an interview with Business Day earlier in 2019, Promethium Carbon director Robbie Louw noted that the carbon tax was necessary if SA, and especially the mining industry, were to keep its trading partners happy.