Former President of Ireland and United Nations High Commissioner for Human Rights, Mary Robinson, described climate change as the biggest and most dangerous threat to human rights and human existence. In the face of the dire effects of climate change, this has been interpreted as a global call to action for countries to implement strict policies and legislation in order to reduce greenhouse gas (GHG) emissions and related activities, which contribute to climate change. With South Africa (SA) warming at twice the global rate, the country has had to consider initiatives that are aimed at addressing this issue.
One such initiative is the recently introduced Carbon Tax Act 15 of 2019, which came into effect on 1 June and imposes a tax on the carbon dioxide equivalent of GHG emissions. The enactment of this piece of legislation represents SA’s commitment to play its part in global efforts to mitigate GHG emissions as outlined in the National Climate Change Response White Paper (GenN 757 GG34695/19-10-2011) and the National Development Plan for 2030. South Africa subsequently set its own domestic targets as outlined in the Nationally Determined Contribution, which was incorporated as the South African commitment in the Paris Agreement (convened by the United Nations Framework Convention on Climate Change). South Africa ratified the Paris Agreement in November 2016. The carbon tax forms an integral part of ensuring that SA meets these targets.
The premise of the carbon tax is that by charging a fee on the carbon emitted from fossil fuels, businesses will decrease the amount of energy harvested from fossil fuels in order to reduce fees. The tax aims to divert taxpayers’ money to renewable projects, which in turn, will encourage businesses to transition to renewable energy. Furthermore, new alternative energy sources may increase construction jobs and development. The reduction of pollution from the introduction of renewables will also benefit the country from a health perspective. It is estimated that currently 20 000 people die per year from pollution in SA.
Such a behavioural change to the use of sustainable sources of energy should spawn an expansion of the country’s growing renewable industry from an industrial, commercial and residential perspective.
The applicability of the Act extends to South African taxpayers, partnerships, trusts, municipal entities, and public entities that participate in or initiate activities resulting in GHG emissions. In this regard, the Act functions on the ‘polluter pays principle’, which means that whoever pollutes, must pay for the damage done or harm caused to the environment. Carbon tax will be regulated by the Commissioner for the South African Revenue Services in terms of s 15 of the Act. To this end, carbon tax will fall within the scope of a collectable environmental levy as defined in the Customs and Excise Act 91 of 1964.
Every person or entity will be liable to pay carbon tax in the event that any activities that result in GHG emissions above the relevant thresholds as envisaged in sch 2 of the Act. The relevant thresholds are determined by the National Greenhouse Gas Emission Reporting Regulations of 2017 to the National Environmental Management: Air Quality Act 39 of 2004. The current rate of carbon tax on GHG emissions amounts to R 120 per metric ton carbon dioxide equivalent of the GHG emissions and will increase yearly. Provision is made for certain percentages of tax-free allowances in sch 2 of the Act and these will hopefully prompt and encourage polluters to take action against and minimise activities that adversely affect climate change.
Notably, the Act has not been welcomed and endorsed by everyone and many have reservations about the practicalities and implementation of the Act. One of the critics, the Minerals Council South Africa, is of the opinion that the Act will create immense instability for the struggling mining sector in terms of employment opportunities and increased costs. The tax implications of the Act will impose a heavy financial burden on the mining sector, which it will most likely not be able to fulfil. Eskom reiterates this notion and states that the Act will have a remarkable impact on profitability. Non-governmental organisations, such as the World Wildlife Fund South Africa, view this Act as a victory and a step towards a sustainable future.
Some commentators have expressed concerns regarding the constitutional validity of the taxing measures bought about by the Act. The Act was passed as a money bill, and to fall under that category the dominant objective must be to raise revenue for the state. However, it has been argued that the legislation is essentially a regulatory tool aimed at changing public behaviour. The sector has also called for more clarity on the Act, as associated regulations have not yet been finalised, meaning that companies are not able to calculate their tax liabilities due to the lack of subordinate legislation. It remains to be seen if any interested parties will follow through such criticism with a constitutional challenge in the courts.
Since it is still early days and the Act will be implemented in two phases, the real impact of the Act will only be properly assessed in time. While the introduction of the Act will come at some short-term cost to the country, it is hoped that the long term envisaged benefits of addressing climate change will benefit several future generations.
Gari Matarirano LLB (UWC) is a legal practitioner and Tanya Calitz LLB (cum laude) (UFS) LLM (with merit) (University of Edinburgh) is a legal practitioner at Pinsent Masons in Johannesburg.
This article was first published in De Rebus in 2019 (Dec) DR 38.
