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Consolidated Comparison: Discussion Paper vs Tax Law Amendment Bill 2025

March 9th 2026

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The Taxation Laws Amendment Bill (TLAB) 2025 provides clarity on the implementation of Phase 2 of South Africa’s Carbon Tax. Several proposals contained in the earlier Phase 2 Discussion Paper have been revised or reversed, resulting in a more moderate transition framework.

The table below summarises the key differences between the Phase 2 Discussion Paper proposals and the current TLAB 2025 position.

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Status	Provision	Discussion Paper Proposal	TLAB 2025 / Current Position
REVERSED	Basic Tax-Free Allowance	Reduced from 60% → 50% from 2026	Retained at 60%
REVERSED	Further Basic Tax-Free Allowance Reductions (2027-2030)	Additional 2.5% per year reduction	No reductions proposed
REVERSED	Performance Allowance	Increase from 5% → 10% for combustion processes	Retained at 5%
REVERSED	Trade Exposure Threshold	Increase threshold 30% → 50%	Retained at 30%
MODIFIED	Carbon Offset Allowance	Increase to 25% (combustion) and 20% (process & fugitive)	15% (combustion) and 10% (process & fugitive)
REVERSED	Section 12L Energy Efficiency Incentive	End December 2025	Extended to 31 December 2030
CONFIRMED	Voluntary Carbon Budgets	Extended for 2024–2025	Confirmed for 2024–2025
CONFIRMED	Mandatory Carbon Budgets	Implementation from 2026 under CCA	CCA assented; commencement date TBD
CONFIRMED*	Carbon Budget Exceedance Rate	R 640/tCO2e proposed on exceedance	Introduced under Section 14A of CTA (effective date TBD)
NEW PROVISION	Allowances on Emissions Exceeding Carbon Budgets	Not included in original proposal summary	No carbon allowance may be applied to emissions exceeding the carbon budget

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Key Implications

• The basic tax-free allowance remains at 60 %, with no reductions introduced for Phase 2 under TLAB 2025. The previously proposed reduction of the allowance has therefore been reversed for the time being.
• The performance allowance remains capped at 5 %, rather than increasing to 10 % as proposed in the Phase 2 Discussion Paper.
• Carbon offset allowances are expanded relative to Phase 1, but at lower levels than initially proposed, with 15 % for combustion emissions and 10 % for process and fugitive emissions
• The trade exposure allowance remains unchanged, with the minimum trade exposure threshold retained at 30 %. The proposed increase to 50 % has not been adopted.
• The voluntary carbon budget system applicable during Phase 1 will transition to mandatory carbon budgets aligned with the Climate Change Act (CCA) framework once the relevant regulations come into effect.
• Emissions exceeding an approved carbon budget will be taxed at a rate of R 640 per tonne of CO₂e. No carbon tax allowances may be applied to these excess emissions.
• The Section 12L Energy Efficiency tax incentive has been extended to 31 December 2030, providing continued support for industrial energy efficiency initiatives.
• The electricity price neutrality adjustment, designed to avoid double action cost impacts from electricity tariffs, has been extended to 31 December 2030.

Conclusion

The TLAB 2025 revisions indicate a more gradual transition into Phase 2 of South Africa’s carbon tax framework. Key tax-free allowances remain largely intact, while new compliance mechanisms, particularly mandatory carbon budgets and exceedance penalties, are introduced to strengthen emissions reduction incentives.

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What Does the Climate Change Act Mean for South African Industry?

25th August 2025

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Introduction

It has been just over a year since the Climate Change Act (CCA) was promulgated. With the Department of Forestry, Fisheries and the Environment (DFFE) having now published the draft National Greenhouse Gas Carbon Budget and Mitigation Plan Regulations on the 1st August 2025 (which include a draft List of Greenhouse Gases [GHGs] and Activities), this is a good moment to reflect on what the CCA means for South African industry.

There has been much speculation on how government intends to implement these Carbon Budget Regulations, and businesses are asking themselves important questions such as:

• What effect will the CCA and Carbon Budget Regulations have on my business?
• Will my company be assigned a carbon budget?
• If so, how will my company be assigned a carbon budget?
• Will my carbon budget constrain my operation?
• Will my carbon tax increase if I exceed my carbon budget?
• If it will, then will I be taxed more on all my emissions, or only those in excess of my budget?
• Do I need a Greenhouse Gas mitigation plan?
• Will the Climate Change Response Fund (CCRF) come to my rescue to fund my mitigations?

If you have been asking these questions, you are not alone, and we hope to answer them as best we can in this article. However, these questions are always best discussed in the context of your specific operation, so please also contact Sasha to arrange a meeting.

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Scope and Focus of the Climate Change Act

Sections 7 to 23 (Chapters 2 to 4) of the CCA, are of limited relevance to industry. These sections focus on policy alignment, institutional arrangements, provincial and municipal climate responses, and national adaptation planning.

Section 18 provides for a financial mechanism which, in practice, will be the Climate Change Response Fund (CCRF). Both the Act and this webinar that is presented by the Presidential Climate Commission make it clear that the CCRF will primarily focus on funding disaster prevention and relief. This is known as “adaptation” or “resilience”.

Climate change responses are broken down into two broad categories: adaptation (resilience) and mitigation. Mitigation involves reducing the emissions that lead to climate change, while adaptation involves preparing for the consequences of climate change. It must be noted that mitigation is entirely decoupled from adaptation. A country can mitigate its emissions significantly, but this does not shield it from the consequences of climate change that are inflicted by global emissions. For that, adaptation is required.

While Section 18 of the Climate Change Act may allow for some support to industry in implementing mitigation solutions, this is likely to form only a small part of the fund’s overall mandate, leaving industry with little support to mitigate its emissions beyond its existing access to finance.

Moving on, chapter 5 of the CCA is particularly relevant for industry as it sets obligations relating to emissions mitigation and carbon budgeting.

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National Greenhouse Gas Emissions Trajectory and Sectoral Emissions Targets

Chapter 5 begins at a national level, with Section 24 establishing the national greenhouse gas emissions trajectory. This is essentially a budget stipulating how much carbon dioxide equivalent (CO₂e) South Africa can emit each year. One could understand it as a national carbon budget, or one could use the existing terminology: the nationally determined contribution (NDC). The term “NDC” comes from the notion that South Africa is committed to limiting its national contribution to global CO₂e emissions.

Until the Minister publishes the national greenhouse gas emissions trajectory, the latest NDC will serve as the interim trajectory. South Africa published its second NDC in draft form, at the end of July 2025. This NDC will need to be submitted to the UNFCCC (United Nations Framework Convention on Climate Change) under the Paris Agreement.

This emissions trajectory is essentially the national carbon budget and it will be broken down into smaller budgets, called sectoral emissions targets (SETs), under Section 25 of the Climate Change Act. Each sectoral emissions target will, in turn, be distributed among the companies operating in that sector – in the form of carbon budgets.

The wording of the CCA indicates that carbon budgets will be unilaterally assigned to businesses by government. This will involve dividing up the national carbon budget as fairly as possible by allocating a carbon budget to each company, using methods described later in this article. If Yellow Tree does not presently perform your annual GHG submission, please do contact us so that we can verify your GHG emissions before you are assigned a carbon budget. In so doing we can give you the best chance of ensuring that you are not prejudiced by historic reporting anomalies – which could be costly.

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Listed Greenhouse Gases

Section 26(1) of the Climate Change Act requires the Minister to define the chemical species which comprise the Listed Greenhouse Gases. Annexure 1 of the draft Carbon Budget and Mitigation Plan Regulations list these specific chemical species:[/et_pb_text][et_pb_code _builder_version=”4.27.5″ _module_preset=”default” hover_enabled=”0″ global_colors_info=”{}” sticky_enabled=”0″]

Greenhouse Gas	Chemical Formula or Sub-Species Formulae
Carbon dioxide	CO2
Methane	CH4
Nitrous oxide	N2O
Hydrofluorocarbons (HFCs)	HFC-23 (CHF3) HFC-134a (CH2FCF3) HFC-152a (CH3CHF2) HFC-1234yf (CF3CF=CH2) including hydrofluoro-olefins (HFOs)
Perfluorocarbons (PFCs)	CF4, C2F6, C3F8, C4F6, C4F10, c-C4F8, C5F12, C6F14
Sulphur hexafluoride	SF6
Nitrogen trifluoride	NF3
Trifluoromethyl sulphur pentafluoride	SF5CF3
Halogenated ethers	C4F9OC2H5, CHF2OCF2OC2F4OCHF2, PFPMIE
Halocarbons excluded in Montreal Protocol	CF3I, CH2Br2, CHCI3, CH3CI, CH2CI2

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The species proposed as Listed GHGs under the CCA differ from those defined under the National Greenhouse Gas Emissions Reporting Regulations (NGERs). The CCA includes additional substances, those being nitrogen trifluoride, trifluoromethyl sulphur pentafluoride, halogenated ethers, and other halocarbons (e.g. CF₃I, CH₂Br₂, CHCl₃, CH₃Cl, CH₂Cl₂), as shown in yellow text above.

This difference is important for companies that are used to reporting under the NGERs, as they may face new obligations under the Carbon Budget Regulations for these additional substances. However, the technical guidelines to the Carbon Budget Regulations specifically state that carbon budget requirements should align with GHG reporting under the NGERs which creates an apparent inconsistency. Our team will raise this with the DFFE.

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Listed Activities and Emission Thresholds

Section 26(2) of the CCA requires the Minister to publish a list of GHG-emitting activities and the threshold above which carbon budgets and mitigation plans will apply. The draft Carbon Budget Regulations propose an emission threshold of 30 000 tonnes CO₂e per annum (averaged over 3 – 5 consecutive years). Carbon budgets and mitigation plans will apply to companies whose listed activities emit above this level.

This threshold of 30 000 tonnes per annum of CO₂e is stricter than our expectation of 100 000 tonnes of CO₂e per annum. Our expectation of 100 000 tonnes arose from the Declaration of Greenhouse Gases as Priority Air Pollutants of 2017 which, along with the National Pollution Prevention Plans Regulations of 2017, were the precursor to the Carbon Budget and Mitigation Plan Regulations discussed here.

In addition, the proposed list of activities that appears in Annexure 2 of the draft Carbon Budget Regulations has been expanded from the previous list of 2017. Annexure 2 includes all activities that are listed beneath, whereas the previous list from 2017 did not include the industries shown in yellow:

[/et_pb_text][et_pb_code _builder_version=”4.27.5″ _module_preset=”default” hover_enabled=”0″ border_width_top=”1px” global_colors_info=”{}” sticky_enabled=”0″]

A. Coal mining	P. Electricity production from fossil fuels excluding the use of back-up generators
B. Production and/or refining of crude oil	Q. Petroleum refining
C. Production and/or processing of natural gas	R. Chemical production
D. Production of synthetic fuels from coal or gas	S. Hydrogen production
E. Cement production	T. Sugar production
F. Glass production	U. Lead production
G. Ammonia production	V. Zinc Production
H. Nitric acid production	W. Charcoal and Biochar production
I. Carbon black production	X. Lime production
J. Iron and steel production	Y. Ceramics production
K. Ferro-alloys production	Z. Brick production
L. Aluminium production, excluding foundries	AA. Domestic Aviation
M. Polymers production	BB. Food and Beverage Productions (excluding sugar production)
N. Pulp and paper production	CC. Mining
O. Titanium

[/et_pb_code][et_pb_text ul_item_indent=”60px” ul_item_indent_tablet=”60px” ul_item_indent_phone=”60px” ul_item_indent_last_edited=”on|phone” _builder_version=”4.27.4″ _module_preset=”default” text_font=”Montserrat|500|||||||” text_font_size=”1rem” text_line_height=”1.5em” ul_font=”Montserrat|500|||||||” ul_font_size=”1rem” ul_line_height=”1.5em” ol_font=”Montserrat|500|||||||” ol_font_size=”1rem” ol_line_height=”1.5em” header_font=”Century Gothic|700|||||||” header_text_align=”left” header_text_color=”#ffd100″ header_line_height=”2em” header_2_font=”||||||||” header_2_text_align=”left” header_2_text_color=”#3d3d3d” header_2_font_size=”1.5rem” header_2_line_height=”1.5em” header_3_font=”|600|||||||” header_3_text_align=”justify” header_3_font_size=”1.1rem” text_orientation=”justify” custom_margin=”2%||||false|false” custom_padding=”||0%||false|false” header_2_font_size_tablet=”1.5rem” header_2_font_size_phone=”1.4em” header_2_font_size_last_edited=”on|phone” header_3_text_align_tablet=”justify” header_3_text_align_phone=”center” header_3_text_align_last_edited=”on|phone” header_3_font_size_tablet=”1.6em” header_3_font_size_phone=”1.4em” header_3_font_size_last_edited=”on|tablet” border_color_top=”#ffd100″ global_colors_info=”{}”]Annexure 3A of the draft Carbon Budget Regulations clarifies that carbon budgets and mitigation plans are mandatory only for certain scope 1 emission sources: stationary combustion, civil aviation, domestic navigation, fugitive emissions from fuels, and industrial processes and product use (IPPU). Scope 1 emissions from road transportation, agriculture, forestry and land use, and waste, as well as all scope 2 and scope 3 emissions, may be voluntarily included in carbon budgets and mitigation plans – but are not required. This is largely in alignment with the NGERs, although NGERs does require reporting of some agricultural emissions (emissions from poultry), forestry and land use, and waste emissions.

Interestingly, while the Carbon Budget Regulations themselves do not mention this, Section 3 of the technical guidelines suggest that only certain IPCC codes within the listed activities will be subject to carbon budgets and mitigation plans. This is very important. For most listed activities, both the “combustion” and “processing” codes for an activity are included. For example, in cement production, the requirements apply to emissions from fuel combustion to generate heat for the process and from the chemical process of making cement.

However, there are important exceptions, that are particularly relevant to some of Yellow Tree’s clients. In the food and beverage industry, only emissions under IPCC code 2H2 appear to be covered, excluding combustion emissions (IPCC code 1A2e). Furthermore, it is unclear specifically which emissions fall under IPCC code 2H2, as neither the Carbon Budget Regulations and their technical guidelines, nor the NGERs and their technical guidelines, provide a definition. The exclusion of IPCC code 1A2e for the food and beverage industry excludes most of their emissions!

Similarly, in the pulp and paper industry, the technical guidelines suggest that only emissions from the use of soda ash (IPCC code 2B7) and the treatment of liquid waste (IPCC code 4D2) are covered – not combustion emissions (IPCC code 1A2d). This contradicts Annexure 3A of the Carbon Budget Regulations which states that emissions from waste (including code 4D2) are not subject to carbon budgets and mitigation plans.

It is critical that these inconsistencies be clarified before the draft Carbon Budget Regulations are finalised.[/et_pb_text][et_pb_text ul_item_indent=”60px” ul_item_indent_tablet=”60px” ul_item_indent_phone=”60px” ul_item_indent_last_edited=”on|phone” _builder_version=”4.27.4″ _module_preset=”default” text_font=”Montserrat|500|||||||” text_font_size=”1rem” text_line_height=”1.5em” ul_font=”Montserrat|500|||||||” ul_font_size=”1rem” ul_line_height=”1.5em” ol_font=”Montserrat|500|||||||” ol_font_size=”1rem” ol_line_height=”1.5em” header_font=”Century Gothic|700|||||||” header_text_align=”left” header_text_color=”#ffd100″ header_line_height=”2em” header_2_font=”||||||||” header_2_text_align=”left” header_2_text_color=”#3d3d3d” header_2_font_size=”1.5rem” header_2_line_height=”1.5em” header_3_font=”|600|||||||” header_3_text_align=”justify” header_3_font_size=”1.1rem” text_orientation=”justify” custom_margin=”2%||||false|false” custom_padding=”||0%||false|false” header_2_font_size_tablet=”1.5rem” header_2_font_size_phone=”1.4em” header_2_font_size_last_edited=”on|phone” header_3_text_align_tablet=”justify” header_3_text_align_phone=”center” header_3_text_align_last_edited=”on|phone” header_3_font_size_tablet=”1.6em” header_3_font_size_phone=”1.4em” header_3_font_size_last_edited=”on|tablet” border_color_top=”#ffd100″ global_colors_info=”{}”]

Operational Control

Thankfully, an aspect of historical confusion that the technical guidelines for the Carbon Budget Regulations clarify, is the concept of operational control – specifically, which tier within a company the “data provider” represents and thus where carbon budgets and mitigation plans apply. This addresses confusion under the NGERs which are typically applied at the group level, and the Carbon Tax Act (CTA) which is typically applied at the entity (operating company) level.

The technical guidelines for the Carbon Budget Regulations clarify that a company has operational control if it can independently establish and enforce operational, environmental, and safety policies, and make decisions regarding energy use, waste management, and emissions reduction without needing approval from the parent company. This prevents a loophole where GHG-emitting facilities could be registered as separate companies solely to keep emissions below the threshold for carbon budgets and mitigation plans.

For example, consider a glass-producing group of companies (Glass Group) with two subsidiaries: Bottle Producers (Pty) Ltd and Jar Producers (Pty) Ltd. These subsidiaries can be treated as separate data providers and have their own 30 000 tonnes CO₂e threshold, but only if they independently control policies and strategies. If both subsidiaries must first obtain approval from the parent company, Glass Group, then Glass Group is considered the data provider and the 30 000 tonne threshold applies collectively to both Bottle Producers and Jar Producers.

[/et_pb_text][et_pb_text ul_item_indent=”60px” ul_item_indent_tablet=”60px” ul_item_indent_phone=”60px” ul_item_indent_last_edited=”on|phone” _builder_version=”4.27.4″ _module_preset=”default” text_font=”Montserrat|500|||||||” text_font_size=”1rem” text_line_height=”1.5em” ul_font=”Montserrat|500|||||||” ul_font_size=”1rem” ul_line_height=”1.5em” ol_font=”Montserrat|500|||||||” ol_font_size=”1rem” ol_line_height=”1.5em” header_font=”Century Gothic|700|||||||” header_text_align=”left” header_text_color=”#ffd100″ header_line_height=”2em” header_2_font=”||||||||” header_2_text_align=”left” header_2_text_color=”#3d3d3d” header_2_font_size=”1.5rem” header_2_line_height=”1.5em” header_3_font=”|600|||||||” header_3_text_align=”justify” header_3_font_size=”1.1rem” text_orientation=”justify” custom_margin=”2%||||false|false” custom_padding=”||0%||false|false” header_2_font_size_tablet=”1.5rem” header_2_font_size_phone=”1.4em” header_2_font_size_last_edited=”on|phone” header_3_text_align_tablet=”justify” header_3_text_align_phone=”center” header_3_text_align_last_edited=”on|phone” header_3_font_size_tablet=”1.6em” header_3_font_size_phone=”1.4em” header_3_font_size_last_edited=”on|tablet” border_color_top=”#ffd100″ global_colors_info=”{}”]

Carbon Budget and Mitigation Plan Process for Listed Activities

Those companies that are classified as GHG data providers under the NGERS, and which are also classified as GHG listed activities in the Carbon Budget Regulations, will be allocated carbon budgets by the DFFE and will be required to submit mitigation plans describing interventions to meet their budgets. The diagram below shows the actions that will need to be taken by data providers and the competent authority (DFFE) to implement the Carbon Budget Regulations. Carbon budgets and mitigation plans are abbreviated to CB and MP respectively, or CB/MP collectively:[/et_pb_text][et_pb_image src="https://nbwg0.wpdevsite.co/wp-content/uploads/2025/08/CB-MP-Process-Diagram_page-0001-2-scaled-1.jpg" alt="CB MP Process Diagram" title_text="CB MP Process Diagram_page-0001-2" _builder_version="4.27.4" _module_preset="default" global_colors_info="{}"][/et_pb_image][et_pb_text ul_item_indent="60px" ul_item_indent_tablet="60px" ul_item_indent_phone="60px" ul_item_indent_last_edited="on|phone" _builder_version="4.27.4" _module_preset="default" text_font="Montserrat|500|||||||" text_font_size="1rem" text_line_height="1.5em" ul_font="Montserrat|500|||||||" ul_font_size="1rem" ul_line_height="1.5em" ol_font="Montserrat|500|||||||" ol_font_size="1rem" ol_line_height="1.5em" header_font="Century Gothic|700|||||||" header_text_align="left" header_text_color="#ffd100" header_line_height="2em" header_2_font="||||||||" header_2_text_align="left" header_2_text_color="#3d3d3d" header_2_font_size="1.5rem" header_2_line_height="1.5em" header_3_font="|600|||||||" header_3_text_align="justify" header_3_font_size="1.1rem" text_orientation="justify" custom_margin="2%||||false|false" custom_padding="||0%||false|false" header_2_font_size_tablet="1.5rem" header_2_font_size_phone="1.4em" header_2_font_size_last_edited="on|phone" header_3_text_align_tablet="justify" header_3_text_align_phone="center" header_3_text_align_last_edited="on|phone" header_3_font_size_tablet="1.6em" header_3_font_size_phone="1.4em" header_3_font_size_last_edited="on|tablet" border_color_top="#ffd100" global_colors_info="{}"]The Carbon Budget Regulations define the concept of the “first commitment period”. This is a five-year period during which a company is obliged to adhere to the carbon budget that is assigned to it, and to the mitigation plan that it submitted. However, carbon budget allocation submissions were required more than one year prior to the first commitment period (i.e., before 1 January 2025) and the competent authority (DFFE) was to issue the carbon budget allocation report more than six months before the start of the first commitment period (i.e., before 1 July 2025). Considering that these deadlines have passed, a delay to the first commitment period appears likely.[/et_pb_text][et_pb_text ul_item_indent="60px" ul_item_indent_tablet="60px" ul_item_indent_phone="60px" ul_item_indent_last_edited="on|phone" _builder_version="4.27.4" _module_preset="default" text_font="Montserrat|500|||||||" text_font_size="1rem" text_line_height="1.5em" ul_font="Montserrat|500|||||||" ul_font_size="1rem" ul_line_height="1.5em" ol_font="Montserrat|500|||||||" ol_font_size="1rem" ol_line_height="1.5em" header_font="Century Gothic|700|||||||" header_text_align="left" header_text_color="#ffd100" header_line_height="2em" header_2_font="||||||||" header_2_text_align="left" header_2_text_color="#3d3d3d" header_2_font_size="1.5rem" header_2_line_height="1.5em" header_3_font="|600|||||||" header_3_text_align="justify" header_3_font_size="1.1rem" text_orientation="justify" custom_margin="2%||||false|false" custom_padding="||0%||false|false" header_2_font_size_tablet="1.5rem" header_2_font_size_phone="1.4em" header_2_font_size_last_edited="on|phone" header_3_text_align_tablet="justify" header_3_text_align_phone="center" header_3_text_align_last_edited="on|phone" header_3_font_size_tablet="1.6em" header_3_font_size_phone="1.4em" header_3_font_size_last_edited="on|tablet" border_color_top="#ffd100" global_colors_info="{}"]

Carbon Budget Allocations

Carbon budgets will be allocated to companies by the DFFE. These budgets will be based on the forecast GHG emissions arising from forecast production for the five-year commitment period. These forecasts are submitted by the data provider through the carbon budgets allocation application with which Yellow Tree can assist you. The DFFE will also consider baseline emissions data from historical NGERs reports. The carbon budget will be set below the baseline to force emissions reductions and the budget will become stricter with each five-year commitment period.

Allocation will occur at company level, with the data provider responsible for distributing the budget across individual facilities. The budget will be calculated by multiplying forecast production over the five-year commitment period (tonnes of product), by a carbon intensity factor (tonnes CO₂e per tonne of product). The DFFE will adjust the overall carbon budget (tonnes CO₂e) annually so as to reflect actual production figures provided by the data provider through annual reports. Thereafter, compliance with the carbon budget will be assessed at the end of each five-year commitment period based on actual production data.

Carbon budgets will be allocated by the DFFE using one of three methods, in order of preference:

• fixed target,
• mitigation potential, and
• benchmarking.

The fixed target method divides the sectoral emissions target (SET) for the particular industrial or mining sector among companies but does not consider a company’s specific reduction potential or context. The mitigation potential approach evaluates feasible emissions reductions within the company, while the benchmarking method applies a product-specific benchmark based on relevant IPCC codes.

Draft Regulation 21 states that if a data provider exceeds its carbon budget allocation, it will be subject to a higher carbon tax rate. This aligns with previous policy documents, most recently the Carbon Tax Phase 2 Discussion Paper. The discussion paper clarifies that the higher tax rate will apply only to the portion of emissions that exceed the budget, meaning not all emissions will be subject to the increased rate. This is no doubt a relief for industry. It further indicates that the higher tax rate will be R 640/tonne which is more than double the 2026 carbon tax rate of R 308/tonne. This video provides a helpful overview of Phase 2 of carbon tax to refresh your memory.

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Mitigation Plans

The draft Carbon Budget Regulations require mitigation plans to include several key elements, including:

• A description of production processes and the associated GHG emissions.
• Details of mitigation measures to be implemented during the commitment period, along with projected emissions reductions.
• Methods to monitor and track the efficacy of these measures.

It is critical to note that the draft regulations require mitigation measures to be ready for implementation during the commitment period and to have board-level approval before the mitigation plan is submitted to the DFFE, which is prior to the start of the first commitment period. GHG mitigation plans for listed activities must be sufficiently advanced to secure board approval before the first mitigation plan submission deadline.

Draft Regulation 19 states that failure to implement mitigation measures within the stipulated commitment period constitutes an offence. Penalties for first-time offenders include imprisonment of up to five years and/or fines of up to R 5 million. It is our experience that most companies lack mitigation plans/decarbonisation strategies that are at this level of readiness, making it imperative that plans be prepared without delay. We are here to assist.

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Conclusion

Until now, the Climate Change Act has had limited practical impact on industry, largely because key provisions affecting industry were dependent on further regulations. However, the publication of the draft Carbon Budget Regulations provides much-needed clarity on how carbon budgets and mitigation plans will be implemented.

It is imperative that companies promptly assess whether their activities qualify as listed activities because this will determine whether they will be assigned a carbon budget and be required to submit a mitigation plan. For those companies that are identified as listed activities, it is essential to begin developing decarbonisation strategies and initiating board-level approval processes without delay.

Acting swiftly will ensure that companies are ready once the regulations take effect and will mitigate the risk of costly penalties in the form of increased carbon tax and fines. Please do contact us. Our team of bright chemical engineers have years of carbon accounting experience, robust relationships with the authorities and policy makers, and are here to support you.[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]

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Summary: Phase 2 of Carbon Tax

November 12, 2024

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On the 12th November 2024, National Treasury announced how phase 2 of carbon tax will be implemented. The nine most significant changes for South African industry are:

• In 2026 the basic tax free allowance of 60 % will reduce to 50 %. Thereafter, this allowance will reduce by 2.5 % per year until it is a mere 27.5 % in 2035.
• The maximum performance allowance will increase from 5 % to 10 %, but is presently only available to 16 industries.
• The maximum carbon offset allowance will increase by 15 %, but carbon credits will need to be purchased. We are working hard to stay abreast of credible carbon projects so that we can facilitate the purchase of credits and leverage the bulk buying power of our clients collectively.
• The trade exposure allowance will fall away with respect to combustion appliances, and be harder to obtain for processes that are subject to carbon tax. Operators of taxable processes will need to prove more than 50 % trade exposure (as opposed to 30 % in the past) so as to obtain the full trade exposure allowance.
• The voluntary carbon budget has been extended to include the 2024 and 2025 carbon tax years whereafter it will fall away.
• Voluntary carbon budgets will be replaced with mandatory carbon budgets under the Climate Change Act. We are writing an article on how the Climate Change Act will affect your operation, which we will release shortly.
• A tax rate of R 640 / tCO₂e will be levied on emissions that exceed the carbon budget that you are assigned.
• Section 12L energy efficiency initiatives will end in Dec 2025. However, it may be possible to claim the offset allowance for future energy efficiency projects that reduce non-taxable carbon emissions.
• The generation of electricity will be subject to carbon tax in phase 2. Simultaneously, the electricity generation levy will fall away leading to price neutrality. This shift is to incentivise electricity producers to decarbonise.

Please do contact us if you would like us to review your carbon tax calculations and graph your projected tax liability up to 2035. Alternatively, if you would like us to assist you with a decarbonisation strategy (GHG mitigation plan) or a voluntary carbon budget to reduce your tax liability, please contact Sasha.

For a more in-depth look at phase 2 of carbon tax, please watch this informative video.

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Carbon Tax Phase 2

South Africa’s Carbon Tax: Phase 2 Announcement (November 12, 2024)

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Video Transcription (from YouTube)

Yesterday, on the 12th of November 2024, South Africa’s National Treasury announced Phase 2 of the Carbon Tax Act. By way of context, Phase 1 of the carbon tax was implemented in June 2019 and will span until the end of 2025, a period of 6.5 years. Phase 2 will run from the beginning of 2026 until 2030, spanning a 5-year period.

What’s important to note is that this 5-year period coincides with South Africa’s third Nationally Determined Contribution (NDC), which I’ll explain shortly. The first NDC goal that South Africa set spanned from 2015 until 2020, the second from 2020 until 2025, and the third, or NDC 3, will span from 2025 until 2030—the same as Phase 2 of South Africa’s carbon tax.

The concept of a Nationally Determined Contribution comes from South Africa’s commitment to the Paris Agreement, an internationally binding treaty from 2015. This agreement established that nations around the world would contribute fairly to reducing global greenhouse gas emissions by each determining their own emission reduction targets, called NDCs. The key principle was that each NDC, whether for the first, second, or third period, must be progressively stricter and more ambitious.

South Africa’s alignment of Phase 2 of the Carbon Tax Act with NDC 3 is no coincidence. It sends a strong signal to the market that South Africa has internationally binding obligations that the country is obliged to meet. Phase 2 of the carbon tax will be stricter than Phase 1, and it signals that the carbon tax is here to stay.

What’s also important to note is that South Africa’s greenhouse gas emissions target has been set at 350 to 420 million tons of CO2 equivalent per year. At present, South Africa is emitting about 450 million tons per year, which means we are significantly over our goal. In order to reach this goal, change is necessary, and carbon tax is the main driver of that change.

A number of our clients have asked us whether the carbon tax will be here to stay or whether South Africa can endure it. What we’ve seen through reading South Africa’s Low Emissions Development Strategy and technical documents from the United Nations Framework Convention on Climate Change (UNFCCC), is that carbon tax is here to stay. It is the primary driver through which South Africa hopes to bring its national greenhouse gas emissions downward.

Why is it Important for South Africa to Reduce Greenhouse Gas Emissions?

There are seven key reasons why South Africa needs a carbon tax:

1. South Africa’s Global Position: South Africa is one of the 20 largest greenhouse gas-emitting nations in the world and the largest emitter in Africa. We trade a lot with other nations, and in fact, in Phase 2 of the Carbon Tax Act, it was noted that the national average trade intensity for goods traded internationally is well above 50%. This means we cannot afford to fall out of favor with countries with whom we trade. Being one of the world’s largest emitters, we have a responsibility to be seen by our trading partners as taking concrete steps to reduce emissions if we want to continue trading with them.

2. The Effect of Climate Change on South Africa: Climate change predictions for South Africa include up to a 4°C increase in inland temperatures, 3°C at the coast, a 20% decrease in rainfall on the west coast, increased rainfall on the east coast, and large areas of the country becoming malaria-prone. These effects are already anticipated, regardless of how much we mitigate. However, we must still play our role as part of the global effort to reduce greenhouse gas emissions and manage climate change.

3. Attracting Investment in Manufacturing: Foreign companies like Volkswagen, BMW, Mercedes, Bridgestone, and Continental choose to manufacture in South Africa, but these companies evaluate their global carbon footprint, and South Africa’s emissions are a significant blot on it. If we do not take meaningful steps toward decarbonization, these companies may be deterred from investing further or starting new operations in South Africa.

4. Building a Green Economy: South Africa’s climate change response is built on three pillars: mitigation (reducing emissions), adaptation (becoming climate-resilient), and financial flows (attracting investments for green projects). A carbon tax is necessary to drive the financial flows that will allow us to finance carbon-resilience projects and become an attractive destination for green investments.

5. Protecting South African Businesses: Climate change will have an adverse impact on business operations, as seen in the April 2022 floods in KwaZulu-Natal, which forced the closure of the Toyota factory. Adverse weather conditions can disrupt business operations, supply chains, and labor. By implementing carbon tax and preparing businesses for these challenges, we can help them adapt and build resilience.

6. Carbon Border Adjustments: The EU and UK have implemented or are considering carbon border adjustment mechanisms (CBAM) for goods such as fertilizer, cement, steel, aluminum, and electricity. If South Africa does not have a carbon tax in place that is aligned with global standards, our exported goods will face additional taxes at the borders. However, if South Africa has a higher carbon tax rate, it can recover more tax revenue, which will benefit the country’s fiscal position.

7. A Just Energy Transition: According to Dr. Dion George, the new Minister of the Department of Finance, we need a just energy transition in which no one is left behind. This means transitioning to a green economy without harming job creation or domestic economic growth. The International Monetary Fund has estimated that even if carbon tax were raised to R120 per ton (compared to the current rate of about R8 per ton), the impact on South Africa’s growth would be negligible—between 0.04% and 0.12%—while the environmental benefits would be significant.

Phase 2 Carbon Tax Details

The Phase 1 carbon tax, implemented in 2019, set a carbon tax rate of R120 per ton of CO2 equivalent but included several tax-free allowances, including a 60% basic tax-free allowance, a 10% trade exposure allowance, and various other allowances such as carbon offset allowances and voluntary carbon budget allowances. These allowances meant that taxpayers were effectively paying only 10%–15% of the actual carbon tax.

However, Phase 2 is expected to phase out these allowances gradually (or more rapidly, depending on the documents reviewed). The tax rates will increase from R120 per ton in 2019 to R462 per ton by 2030, signaling that carbon tax is here to stay and will increase in value.

The discussion paper released on Phase 2 suggests a moderate approach to removing allowances:

1. Basic Tax-Free Allowance: The basic allowance will decrease from 60% in 2026 to 40% by 2030. For businesses that have been receiving 80% allowances, this will mean a doubling in their carbon tax liability by 2030.

2. Performance Allowance: This allowance will increase, but it will only apply to the 16 industries currently eligible.

3. Carbon Offset Allowance: This will increase by 15%, allowing companies to purchase more carbon credits to offset their carbon tax liability.

4. Voluntary Carbon Budget: This will be phased out starting in 2026 and replaced with mandatory carbon budgets. Companies will be assigned a carbon budget by the government, and exceeding that budget will result in a higher tax rate (R640 per ton compared to the standard R462).

5. Trade Exposure Allowance: Companies will need to prove they are more than 50% trade-exposed to qualify for this allowance. Companies with lower trade exposure (between 20% and 50%) will still qualify but with a smaller allowance.

6. Electricity Pricing Neutrality: A shift from the electricity generation levy to carbon tax will take place, ensuring that electricity producers are compelled to reduce their carbon footprint.

7. Section 12L for Energy Efficiency: This will end at the end of 2025, but similar initiatives will be included under the carbon offsets.

Conclusion

Carbon tax is here to stay, and it will become an increasingly important tool for driving South Africa’s emissions reductions. It’s a complex space to navigate, but we are here to help. If you would like us to undertake a carbon tax eligibility assessment, calculate your carbon tax liabilities, or help you with a greenhouse gas mitigation plan, please get in touch with us.

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Will a Fuel Switch Reduce my Carbon Tax – and by how Much?

[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”4.19.2″ _module_preset=”default” width=”100%” max_width=”2220px” custom_margin=”||0%||false|false” custom_padding=”||0%||false|false” global_colors_info=”{}”][et_pb_row _builder_version=”4.21.0″ _module_preset=”default” width=”96%” max_width=”100%” custom_margin=”||||false|false” custom_padding=”0%||0%||false|false” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.18.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.26.1″ text_font=”Montserrat|500|||||||” text_font_size=”1rem” text_line_height=”1.5em” header_font=”Century Gothic|700|||||||” header_text_align=”left” header_text_color=”#ffd100″ header_line_height=”2em” header_2_font=”|||on|||||” header_2_text_align=”left” header_2_text_color=”#3d3d3d” header_2_font_size=”2em” header_2_letter_spacing=”2px” header_2_line_height=”1.6em” header_3_text_align=”justify” header_3_font_size=”2em” text_orientation=”justify” custom_margin=”0%||0%||false|false” custom_padding=”0%||0%||false|false” hover_enabled=”0″ header_2_font_size_tablet=”” header_2_font_size_phone=”1.4em” header_2_font_size_last_edited=”on|phone” header_3_text_align_tablet=”” header_3_text_align_phone=”center” header_3_text_align_last_edited=”on|phone” header_3_font_size_tablet=”1.6em” header_3_font_size_phone=”1.4em” header_3_font_size_last_edited=”on|tablet” border_color_top=”#ffd100″ text_text_align=”justify” saved_tabs=”all” global_colors_info=”{}” sticky_enabled=”0″]To answer this question, we must understand how carbon tax is calculated. So let’s start at the beginning. One’s carbon tax is calculated by multiplying the prevailing tax rate (available here) by one’s total carbon dioxide emissions. The total carbon dioxide emissions are known as the carbon dioxide equivalent (CO₂e). The carbon dioxide equivalent (CO₂e) arising from combustion is the sum of three Greenhouse Gases (GHGs) – carbon dioxide (CO₂), methane (CH₄) and nitrous oxide (N₂O). However, these are only summed after they have been adjusted for their differing global warming potentials (GWPs), so that they are “equivalent” to CO₂. Global Warming Potentials (GWPs) are used to measure the impact of different GHGs on global warming. Each GHG is compared to the benchmark of carbon dioxide (CO₂) which has a GWP of 1. Methane (CH₄) has a GWP of 23 and nitrous oxide (N₂O) has an enormous GWP of 296! This means that nitrous oxide traps 296 times more heat in the atmosphere than CO₂ resulting in a significant impact on climate change. So the carbon dioxide equivalent is calculated as follows:[/et_pb_text][et_pb_image src="https://nbwg0.wpdevsite.co/wp-content/uploads/2024/09/carbon-tax-emissions-changes-formulaes.png" alt="carbon tax emissions changes formulaes" title_text="carbon tax emissions changes formulaes" align="center" _builder_version="4.26.1" _module_preset="default" global_colors_info="{}"][/et_pb_image][/et_pb_column][/et_pb_row][et_pb_row _builder_version="4.26.1" _module_preset="default" width="96%" max_width="100%" custom_margin="||||false|false" custom_padding="||||false|false" global_colors_info="{}"][et_pb_column type="4_4" _builder_version="4.18.0" _module_preset="default" global_colors_info="{}"][et_pb_text _builder_version="4.26.1" text_font="Montserrat|500|||||||" text_font_size="1rem" text_line_height="1.5em" header_font="Century Gothic|700|||||||" header_text_align="left" header_text_color="#ffd100" header_line_height="2em" header_2_font="|||on|||||" header_2_text_align="left" header_2_text_color="#3d3d3d" header_2_font_size="2em" header_2_letter_spacing="2px" header_2_line_height="1.6em" header_3_text_align="justify" header_3_font_size="2em" text_orientation="justify" custom_margin="0%||0%||false|false" custom_padding="0%||0%||false|false" hover_enabled="0" header_2_font_size_tablet="" header_2_font_size_phone="1.4em" header_2_font_size_last_edited="on|phone" header_3_text_align_tablet="" header_3_text_align_phone="center" header_3_text_align_last_edited="on|phone" header_3_font_size_tablet="1.6em" header_3_font_size_phone="1.4em" header_3_font_size_last_edited="on|tablet" border_color_top="#ffd100" text_text_align="justify" saved_tabs="all" global_colors_info="{}" sticky_enabled="0"]The formulae above were used to create the graph below which shows the tonnes of CO₂e that are released for every terajoule (TJ) of energy for the dominant South African fuels. The carbon footprint (and therefore carbon tax) of each fuel is compared to coal using the percentage above each bar. This number can be used to determine one’s carbon tax reduction if a fuel switch were to be performed.[/et_pb_text][/et_pb_column][/et_pb_row][et_pb_row _builder_version="4.21.0" _module_preset="default" width="96%" max_width="100%" global_colors_info="{}"][et_pb_column type="4_4" _builder_version="4.21.0" _module_preset="default" global_colors_info="{}"][et_pb_image src="https://nbwg0.wpdevsite.co/wp-content/uploads/2024/09/carbon-tax-fuel.png" alt="carbon tax – fuel change" title_text="carbon tax fuel" _builder_version="4.26.1" _module_preset="default" module_alignment="center" max_height="700px" global_colors_info="{}"][/et_pb_image][/et_pb_column][/et_pb_row][et_pb_row _builder_version="4.21.0" _module_preset="default" width="96%" max_width="100%" custom_margin="||||false|false" custom_padding="0%||0%||false|false" global_colors_info="{}"][et_pb_column type="4_4" _builder_version="4.18.0" _module_preset="default" global_colors_info="{}"][et_pb_text _builder_version="4.26.1" text_font="Montserrat|500|||||||" text_font_size="1rem" text_line_height="1.5em" header_font="Century Gothic|700|||||||" header_text_align="left" header_text_color="#ffd100" header_line_height="2em" header_2_font="|||on|||||" header_2_text_align="left" header_2_text_color="#3d3d3d" header_2_font_size="2em" header_2_letter_spacing="2px" header_2_line_height="1.6em" header_3_text_align="justify" header_3_font_size="2em" text_orientation="justify" custom_margin="0%||0%||false|false" custom_padding="0%||0%||false|false" hover_enabled="0" header_2_font_size_tablet="" header_2_font_size_phone="1.4em" header_2_font_size_last_edited="on|phone" header_3_text_align_tablet="" header_3_text_align_phone="center" header_3_text_align_last_edited="on|phone" header_3_font_size_tablet="1.6em" header_3_font_size_phone="1.4em" header_3_font_size_last_edited="on|tablet" border_color_top="#ffd100" text_text_align="justify" saved_tabs="all" global_colors_info="{}" sticky_enabled="0"]

It is clear that coal has the worst effect on global warming.

Gaseous fuels have a lesser effect as they typically consist of short hydrocarbon chains (C_nH_2n+2). The shorter the chain length (i.e. a low “n” value in the formula: C_nH_2n+2), the higher the ratio of hydrogen to carbon and the lower the carbon footprint.

While biomass (which includes wood, bagasse, sunflower husks, etc.) produces the least GHGs per unit of energy, it is not completely carbon neutral. The CO₂ emissions from the combustion of biomass are zero because the CO₂ that is released during combustion is absorbed during the growth of the plant. However, there remain CH₄ and N₂O emissions during the combustion of biomass. Because CO₂e is the sum of CO₂, CH₄ and N₂O (after being adjusted for GWPs) there remains a small CO₂e value when combusting biomass.

While switching to a fuel other than coal may reduce the carbon tax that is payable, there are many other ways to reduce carbon tax and businesses require long term energy strategies. Our team of experienced chemical engineers would love to help you, so please get in touch.

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