Carbon tax creates ’a toxic mix’
Mining industry lobby group Minerals Council SA has called for the country’s carbon tax to be set aside, arguing the second phase of the tax will cost companies up to R5.5bn a year and add to deep regulatory uncertainty bedevilling the industry.
Mining industry lobby group Minerals Council SA has called for the country’s carbon tax to be set aside, arguing the second phase of the tax will cost companies up to R5.5bn a year and add to deep regulatory uncertainty bedevilling the industry.
The carbon tax was signed into law by President Cyril Ramaphosa in May and will be implemented in two phases, with the first phase running from the start of June 2019 to end-December 2022.
The second phase, which thus far has none of the allowances made for electricity users in the first phase, will run from 2023 to 2030. The government intends to assess the effect of the tax and the reduction in greenhouse gas emissions made from the first phase before structuring the second phase.
The council noted that mining companies secured a 60% reduction on carbon tax but there was no clarity yet whether those companies would qualify for another 35% reduction because regulations to implement aspects of the tax were not finalised.
The Minerals Council surveyed 18 large mining companies to judge the financial consequences of the tax.
“The significant uncertainty associated with phase two of the implementation of the carbon tax will be materially negative for SA mining, in the absence of any tax-free incentives,” said council CEO Roger Baxter.
Companies estimate the first phase would cost up to R517m a year, while the second phase could cost R5.5bn annually.
The council is also in talks and has started a court application to contest a number of key clauses in the third iteration of the Mining Charter, which it argues make investment decisions difficult and add to the uncertainty of mining in SA.
MAJOR CHALLENGE
“The Minerals Council believes that the timing of the implementation of the carbon tax presents a major challenge and should be delayed until all the enabling regulations and the establishment of a legislative regime providing for carbon budget [as proposed in the Climate Change Bill] are in place,” said Baxter.
“Failure to do so exacerbates the regulatory uncertainty, which in turn materially undermines investment in the mining sector,” he said.
SA could hit its greenhouse gas emissions target despite the tax because of a slowing economy, reduced energy use as prices push industries like smelting out of business, and a general shift in the economy to industries that are less carbon intensive, like financial services and retail, he said.
“The socioeconomic implication of the tax and regulatory uncertainty, which negatively impacts on the competitiveness of the mining industry, remain significant concerns,” he said.
Mining companies’ CEOs have spoken of their frustration in securing permits from the National Energy Regulator of SA to install renewable energy projects at their operations, with solar the preferred option.
THE MINERALS COUNCIL SURVEYED 18 LARGE MINING COMPANIES TO JUDGE THE FINANCIAL CONSEQUENCES
RENEWABLE POWER
Eskom increased electricity tariffs for the mining industry, one of its major industrial consumers, by 523% since 2006, the council has said.
Tariffs will rise by another 30% over the next three years.
The complications of securing renewable power sources included reaching agreement with Eskom to use its power lines to transmit power as well as clear a host of environmental regulatory hurdles, Baxter said.
“This significantly frustrates their ability to invest in and implement these new projects.”