Sustainability comes at a price
New environmental taxes will hit consumers — but incentives will ease the pain for business
The cost of sustainability weighed on consumers and business in the 2019 budget, with all indications that it’s taxes and more taxes that will pay for SA’S transition to a greener economy.
In his budget speech on Wednesday, finance minister Tito Mboweni highlighted the “sustainability challenge” which, he said, affects us all. “Climate change is real,” the minister noted in his maiden budget speech.
Certainly, the world is moving towards a low-carbon economy and SA is already finding the inevitable transition quite painful.
Mboweni announced that the long-debated carbon tax will come into effect on June 1.
“The tax will assist in reducing emissions and ensuring SA meets its commitments under the 2015 Paris Climate Agreement. It will be reviewed after three years,” the Treasury says in its Budget Review.
Motorists can expect to pay a carbon tax of 9c/l on petrol and 10c/l on diesel, as of June 5.
This is on top of the general fuel levy which will increase by 15c/l for petrol and diesel from April 3.
Treasury expects the carbon tax on fuel to bring about R1.8bn into the fiscus in the 2019/2020 financial year.
Shaun Nel, spokesperson for the Energy Intensive User Group of Southern Africa, says industry has come to terms with the implementation of carbon tax.
“On the whole, we think it will be workable, [though] there will be some teething pains.”
Nel, however, warns that large increases in the electricity price — like the ones Eskom is asking for — would cause many large power users to go out of business.
But it’s not all bad. Lodewijk Nell, partner at Ecometrix Africa, says the development could lead to a revival of SA’S carbon market, which hit a slump in 2012 just when carbon offset projects were gaining traction.
The government’s energy-efficiency savings tax incentive allows businesses to claim deductions for energy-efficiency savings at a rate of 95c/kwh.
It is intended to expire at the end of this year, but the government proposes to extend the incentive to the end of 2022.
The National Treasury will publish a draft Environmental Fiscal Reform Policy Paper in 2019. It will outline options to reform existing environmental taxes and will also consider the role new taxes can play in addressing air pollution and climate change, promoting efficient water use, reducing waste and encouraging improvements in waste management.
The government will also investigate a tax on single-use plastics including straws, caps, beverage cups and lids, and containers.
Straws aside, at the centre of SA’S sustainability is its largest and most troubled state-owned entity, Eskom.
Though many of Eskom’s problems are of its own making, some are due to the transition to a lowcarbon economy.
New green technologies are allowing consumers to defect from the national power grid in favour of cheaper, often renewable alternatives. As sales decline, the utility is forced to hike rates to cover its huge costs — thereby encouraging even more consumers to seek out alternatives.
The utility generates almost all of its electricity from coal-fired power stations and, saddled with R420bn in debt, it can’t afford to do much else.
The Treasury’s Budget Review, however, says steps being undertaken to restructure Eskom will create a competitive electricity sector that will encourage expansion of renewable energy and create jobs.
Recent mutterings from the public enterprises minister about renegotiating contracts with some green power projects under the government’s Renewable Energy Independent Power Producer Procurement Programme were met with alarm by the renewable energy industry.
However, the Treasury’s budget affirmed government’s commitment to renewables — and the sanctity of the contracts.
Government guarantees mean the state will be liable if it terminates the agreements owing to a change in legislation or policy, the Treasury says.
“Both outcomes are unlikely, and the risk of this contingent liability materialising is low,” the
says.
The value of signed projects, which represents government’s exposure, is expected to amount to R146.9bn by March this year. Over the next three years, the department of energy will focus on increasing household access to electricity and fund an estimated 590,500 new connections to the power grid.
An additional 20,000 households will be provided with nongrid (stand-alone power system) connections each year.
It will also continue to implement the solar water heater programme and provide subsidies to municipalities to encourage the use of more energy-efficient technology.
To date, the department has produced and installed 87,200 solar water heaters.
This year, provision is made for municipalities to start a new programme which invites private companies to invest in the large-scale retrofitting of municipal infrastructure, to be paid back through the savings achieved on energy costs.
“This has the potential to unlock energy and cost savings on a much larger scale,” the Budget Review says.
Treasury expects the carbon tax on fuel to bring about R1.8bn into the fiscus in the 2019/2020 financial year