15 December 2015


South Africa’s carbon tax: good for solar but queries remain

Author: Jason Deign, Solarplaza

Solar power looks to benefit from a South African carbon tax bill under consultation this week, even if some details surrounding its implementation are unclear.
“It will be a significant incentive for solar,” predicted Wendy Gardner, director of transaction tax at the accountancy firm EY in South Africa, despite the fact that distributed energy generators are still not able to sell power to the grid.
South Africa’s National Treasury issued a draft of the carbon tax bill for public comment last month, following a five-year consultation. The draft will remain open for comment until December 15.
“The carbon tax seeks to price carbon by obliging the polluter to internalise the external costs of emitting carbon, and contribute towards addressing the harm caused by such pollution,” says the draft. The Treasury proposes an initial marginal tax rate of ZARR120 (USD$8.24) per ton of carbon-dioxide equivalent. The effective rate up to 2020 would be between R6 ($0.41) and R48 ($3.30) per ton after exemptions, however.
South African Minister of Finance may set out the final tax rate, plus its start date and details of exemptions, in his budget at the end of February 2016. The Ministry says the levy is intended to have a neutral overall effect on revenues and electricity costs. That does not mean all it will affect all parties equally, of course.
While “it should be to change behaviour,” said EY South Africa indirect tax partner Folkert Gaarlandt, “it has a budgetary effect as well. If you have a carrot and a stick, this is the stick.”
One concern about the law is that while it establishes clear penalties for carbon polluters, in practice it is difficult for large energy consumers to switch to low-carbon alternatives, since there is essentially just one power supplier: Eskom. However, even the South African utility is likely to be keen for people to exploit alternative energy sources. It faces a squeeze on power supplies and has had to be stopped from upping electricity prices by the government.
At the same time, uncertainties over how emissions will be measured mean it is not clear how companies that manage to reduce their carbon footprint through efficiency measures will be able to benefit from tax reductions. These factors all seem to indicate the carbon tax will strengthen the case for companies to use renewable energy where possible, but EY believes more could be done to provide a “carrot” as well.
“It’s up to the government to incentivise solar and wind power,” Gardner said. “One way would be [to allow consumers to participate in] selling energy onto the grid.”
Although this is a topic that crops up at social gatherings in South Africa, said Gaarlandt, “the government isn’t talking about it.” And that is a shame, he believes, since solar energy makes a lot of sense in the country. “There is a surplus of sun.”

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