Carbon tax will add to costs of JSE-listed firms

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The introduction of the carbon tax from June 1 is likely to add additional costs to a range of energy intensive companies on the JSE, but not those reliant on electricity, yet.

Group head of media relations Alex Anderson, in response to questions from Business Report, said: “Sasol, one of the most energy intensive companies on the bourse, said (on Tuesday) that its preliminary estimate of the impact was about R1billion a year subject to the allowances ultimately granted.”

Anderson noted, however, that regulations associated with the Carbon Tax, which inform certain allowances, remained outstanding.

Analysts polled yesterday also said that the lack of detail from the government on Phase 2 of the tax, scheduled to be implemented after 2022, also represented a longer-term potential risk to the costs of energy intensive companies on the JSE, from miners to various manufacturers.

Madelein Grobler, the South African Institute of Chartered Accountants project director: tax, said in a statement that Eskom was currently paying 3.5 cents per kilowatt-hour as an environmental levy on electricity generated from coal, nuclear and petroleum sources, that would serve as a “carbon tax credit”, so the price of electricity would probably not increase.

“However, the inevitable is only postponed, as consumers will fit the carbon tax bill in future Other energy intensive sectors such as mining, iron and steel will also benefit initially from Phase 1 as no additional production costs will arise with the electricity price staying the same.”

National Treasury has rolled out substantial relief in Phase 1 (until December 2022) for the electricity giant, due to the tax credit for the renewable energy premium built into the electricity tariffs and a credit for the existing electricity generation levy.

The Carbon Tax will be reflected in liquid fuel prices through the addition of a 9c a litre levy for petrol and 10c a litre for diesel, when fuel prices change on June 5.

“The additional carbon tax will also trickle down into everyday cost of living (ie food prices, cost of goods, online deliveries, etc) considering that most things in South Africa are transported by road,” Grobler said.

Sasol said there was limited accessibility and availability of lower carbon energy sources in South Africa and the transition to a lower-carbon economy “must not only be well considered but must take place in an orderly manner to avoid potential negative impacts.”

“Policy in the form of a stand-alone carbon tax in its current design is not in the best interests of South Africa as it further diminishes the country’s investment attractiveness and competitiveness,” the group said.

There were other instruments that could create a more efficient and effective mitigation signal in a flexible and economically sustainable manner, such as the carbon budget system of the Department of Environmental Affairs, combined with the appropriate incentive structures, the group said.

Sasol had taken a strategic decision to identify and use gas resources, natural gas being a cleaner hydrocarbon and a bridge to a lower carbon economy, as part of its role in a more climate-resilient economy.

In addition, various projects to reduce harmful gas emissions and promote energy efficiency had been implemented over the past 15 years.

The initial carbon tax rate was set at R120 a ton of carbon dioxide emissions, discounted to R48 a ton given various tax-free allowances.

Grobler said small to medium businesses may have to employ consultants to determine if they have a carbon tax liability and whether they fall within the ambit of having to report to the Department of Environmental Affairs.

The tax will increase annually at the rate of inflation plus 2 percent until December 31, 2022, in its first phase. The second phase will run from 2023 to 2030.