FIFI PETERS: I’m shifting focus to the carbon tax now. It seems like government and business are not seeing eye-to-eye on how to treat the carbon tax in the years ahead. Business feels like the increase in the carbon-tax rate over the 2026 to 2030 period will be too steep, too soon, while government argues that it is needed for South Africa to meet its commitments of reducing its emissions by 2030.
Furthermore, it seems government believes that certain exemptions and tax allowances for business that lower their carbon emissions should have a net-positive impact over the initial tax.
We’ve got Happy Khambule, the environment and energy manager at Business Unity South Africa for more on this. Happy, thanks so much for taking the time. I see Busa is one of the organisations to speak against what government is doing right now in terms of its proposed carbon-tax form. Why are you so unhappy about it?
HAPPY KHAMBULE: Thank you for having me. Well, firstly there are a number of issues with the proposals that government has put forward. The first one is that out of the blue the government has started to denominate the price of carbon in South Africa into US dollars. So that’s something that is totally irrational and we don’t understand where that comes from. So that’s the first part, but we are glad that they’ve moved away from that.
Secondly is that the rate of increase of the carbon tax is quite steep. We’re talking about $20 by 2026, and $30 by 2030. And where we sitting right now, we’re about at R80.40. So that’s drastically steep.
We’re talking about carbon emissions of companies that are saying one million tonnes of carbon, then you multiply all of that with the current proposed bill, and you’re talking about some companies going out of business, some companies not even making anything close to what is going to be their carbon-tax liability.
So there’s material considerations that [are needed] around what it means for the industrial base of South Africa.
FIFI PETERS: But from my understanding government is saying that there are a whole lot of exemptions that are thrown into that equation and a whole lot of tax allowances. That will mean you won’t actually end up paying that much. What’s your response to that?
HAPPY KHAMBULE: That is correct. But when, when you look at the actual TLAB, it didn’t say anything about continuing the allowances. What it has said is a level of increase as well as the denomination of that increase – and nothing on the allowances and the incentives.
On the explanation by National Treasury as to what is going to happen to the allowances, they were of the opinion that when their rate increases the allowances will decrease. Only today did we get a better response from them to say that the allowances will stay in order to safeguard the actual industrial base of South Africa. So that’s a good sign out of that.
FIFI PETERS: You’re saying it was a good sign.
HAPPY KHAMBULE: Then secondly, what was in there – which I think people don’t understand about the carbon tax – is that even if you increase the carbon tax and you reduce the allowances, the amount that companies are going to be paying is going to be much higher. But the end product, whatever has been produced, is also going to have to start carrying those costs. And in order for us to be able to recover from the current state that we’re in, in the economic sense, as well as in terms of our production, we would require to not pass through most of these costs. And that means that companies would have to internalise those costs [for] which some companies, as you would understand, do not have the bandwidth to do that.
FIFI PETERS: But government is also saying that if they don’t do it this way, we’re not going to meet our climate targets. A lot of these companies that you’re talking about may fall by the wayside in terms of global competitiveness, when we’re moving towards a world whereby companies will be engaging with other companies that tick all the green boxes. What’s your response to that?
HAPPY KHAMBULE: There are two things. One is there is a logical fallacy, which the government is doing, which we can address a little bit. But the more direct answer is that actually the carbon tax started in 2019, and in 2020 basically we stopped the imposition of the carbon tax until January 1, 2022, because of the Covid issue.
But from 2017 our emissions have been dropping. And when you look at our actual commitment to the United Nations Framework Convention on Climate Change, we are within the initial commitment around our emission deductions. So we are actually exceeding what we had put forward as our emission reductions, even with the carbon tax being at the rate that it is now.
Number two is that Treasury itself has been asked by many people, not only business, [for] the impact assessment of what the emission reductions have achieved as a result of the carbon tax, because we need to understand whether or not this is a revenue-generating model, or an actual behavioural change and emission-reductions model – and Treasury has not been able to do that.
So what they’re saying is only in the normative sense, but in practice no one really knows because we haven’t done that assessment.
But the logical fallacy, which I would like to point to, is that the companies [they] are talking about are the very companies that are very, very sensitive to international competitiveness. Why would a company that knows that they need to be competitive internationally undertake steps to undercut their own competitiveness? No one in business has said that the carbon tax should be scrapped. No one should say that the carbon tax should not increase. It is really just the minutiae details of the rate of increase, as well as the applicable allowances to allow companies to be able to be safeguarded from some of the other impending unilateral decisions that are coming from our trade partners, such as the CBAM.
FIFI PETERS: What’s that?
HAPPY KHAMBULE: The CBAM is the Carbon Boarder Adjustment Mechanism that the EU is proposing.
FIFI PETERS: Which will do what?
HAPPY KHAMBULE: What it will essentially do is, if a product comes from a country that doesn’t have a carbon price, that product will then be priced at the border when it’s entering – this is very simplistic, obviously, just so that it’s easier to understand – and that when the product enters the European market it’s going to have to have a tax apportioned on top of it. So not only is it about products that don’t have a tax or a price on them where they come from, but also products that don’t have the necessary standards around the regulatory standards for detailing exactly where they come from and what they do, and the amount of carbon content that they hold.
So there will be some penalties, some measures, some form of taxation that is applied on countries that don’t have a pricing on their carbon – which we do obviously, and it has to be understood in the context of a developing and a developed country. Hence understandings of agreements are being made to ensure that countries are actually measured at the right rate and measured at an appropriate level.
FIFI PETERS: Happy, we’re going to have to leave it there, just in the interest of time. Thanks so much for that explainer. It gave us a better understanding of your industry and what is going on right now. Happy Khambule is the environment and energy manager at Busa.