The Carbon Tax Act, enacted in June 2019, gives effect to the polluter-pays-principle for large emitters and helps to ensure that firms and consumers take the negative adverse costs (externalities) into account in their future production, consumption and investment decisions. Firms are incentivized towards adopting cleaner technologies over the next decade and beyond.
The carbon tax is initially only applied to scope 1 emitters in the first phase. The first phase lasted from 1 June 2019 to 31 December 2022, and the second phase will take place from 2023 to 2030.
The design of the carbon tax also provides significant tax-free emission allowances ranging from 60 per cent to 95 per cent in this first phase. This includes a basic tax-free allowance of 60 per cent for all activities, a 10 per cent process and fugitive emissions allowance, a maximum 10 per cent allowance for companies that use carbon offsets to reduce their tax liability, a performance allowance of up to 5 per cent for companies that reduce the emissions intensity of their activities, a 5 per cent carbon budget allowance for complying with the reporting requirements and a maximum 10 per cent allowance for trade exposed sectors.
The carbon tax rate is sustainably increasing over the years, ranging from R6 to R48 per tonne of CO2e - when taking into account free allowances.