The Carbon Tax Act (Act No. 15 of 2019) was signed into law by the President in May 2019 and came into effect from 1 June 2019. In terms of section 19(c) of the Carbon Tax Act, the Carbon Offsets Regulation was gazetted on Friday 29 November 2019 (Gazette No. 42873) and is available on the National Treasury website.

The National Treasury has published, for public comment, two further sets of regulations, namely Draft Regulations for the Trade Exposure Allowance for purposes of section 10 and Draft Regulations for the Greenhouse Gas (GHG) Emissions Intensity Benchmarks for purposes of section 11 in terms of section 19(b) and (a) of the Act, respectively.

This follows on an extensive stakeholder consultation process on the design of the carbon tax and tax-free allowances since the publication of the Carbon Tax Policy Paper in 2013 and the 2015 version of the Carbon Tax bill. The National Treasury will ensure that the final regulations are gazetted by the first quarter of 2020 to be aligned with the greenhouse emissions reporting period of the Department of Environment, Forestry and Fisheries.

The carbon tax is an integral part of Government’s package of policy measures to mitigate climate change as outlined in the National Climate Change Response Policy, National Development Plan and its Nationally Determined Contribution commitments under the 2015 Paris Agreement. It provides for the introduction of the carbon tax in a phased manner at a relatively low rate initially to allow businesses time to make the necessary structural adjustments to their production processes and practices and to ensure a just transition to a low carbon, climate resilient economy.

To ensure a cost effective transition, the design of the tax provides for the recycling of revenues through the electricity generation levy credit and energy efficiency savings tax incentive, and significant tax free-allowances of up to 95 per cent of the total greenhouse gas emissions to firms, consisting of a basic tax free allowance of 60 per cent for direct, scope 1 emissions and allowances for sectors that are trade exposed up to a maximum of 10 per cent and a performance allowance up to a maximum of 5 per cent. The trade exposure allowance aims to assist companies that potentially face competitiveness pressures whilst the performance allowance seeks to encourage firms to reduce the carbon intensity of their production processes relative to their peers and promote the competitiveness of local products.

The Draft Regulations and a detailed summary of the regulations are available on the National Treasury website. Written comments on the 2019 Draft Regulations must be submitted to carbontax@treasury.gov.za by close of business on 17 January 2020.