South Africa Launches a Carbon Tax on Energy Producers

South Africa Launches a Carbon Tax on Energy Producers

After years of deliberation, South Africa introduced a carbon pricing system in June 2019. Climate change is one of the leading challenges facing human kind and the primary objective of the carbon tax is to minimize greenhouse gas (GHG) emissions in a sustainable, cost effective and affordable manner. Consequently, the President Cyril Ramaphosa signed into law the Carbon Tax Act (No 15 of 2019), which came into effect from 01 June 2019. The Act was gazetted on 23 May 2019 together with the Customs and Excise Amendment Act (No 13 of 2019).

As outlined in the Act, the carbon tax will initially only apply to scope 1 emitters in the first phase. The first phase started from 1 June 2019 and will end in 31 December 2022, and the second phase will be from 2023 to 2030. The first mechanism is the carbon credits system, whereby a price is put on each metric ton of carbon and a country or company can buy these credits to offset their own emissions. The second mechanism is the more punitive carbon tax system, which imposes a different price per ton emitted by any company. This is based on a fundamental principle of environmental law, the ‘polluter pays principle’.

The design of the carbon tax provides significant tax-free emission allowances ranging from 60% to 95% in this first phase. This includes a basic tax-free allowance of 60% for all activities, a 10% process and fugitive emissions allowance, a maximum 10% allowance for companies that use carbon offsets to reduce their tax liability, a performance allowance of up to 5% for companies that reduce the emissions intensity of their activities, a 5% carbon budget allowance for complying with the reporting requirements and a maximum 10% allowance for trade exposed sectors.

A review of the impact of the tax will be conducted before the second phase, after at least three years of implementation of the tax, and will take into account the progress made to reduce GHG emissions in line with our Nationally Determined Contribution (NDC) commitments. Future changes to rates and tax-free thresholds in the Carbon Tax will follow after the review, and be subject to the normal transparent and consultative processes for all tax legislation, after any appropriate Budget announcements by the Minister of Finance.

Activity Rating: *** Right Direction

South Africa has shown its commitment to play its part in global efforts to mitigate GHG emissions as outlined in the National Climate Change Response Policy (NCCRP) of 2011 and the National Development Plan (NDP) of 2012. The carbon tax forms a fundamental part of ensuring that South Africa meets its own domestic targets as outlined in the NDC, which was incorporated as the South African commitment in the Paris Agreement.

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Dear Hon. Tito Titus Mboweni,

As the global economy shifts towards a lower-carbon economy, introducing a carbon tax is a good move. The Carbon Tax Act will help to ensure that firms and consumers take the negative adverse costs into account in their future production, consumption and investment decisions. Various studies have revealed that the costs of climate change impacts will be much higher than the cost of reducing emissions through mechanisms like the carbon tax. The transition to a low-carbon economy presents long-term investors with a range of new market opportunities.

Send to:

National Treasury

Private Bag X115

Tel: +27 12 315 5944

Learn more

For a more comprehensive view of Carbon Tax Act (NO 15 of 2019), see

An overview of the Media Statement – Publication of the 2019 Carbon Tax Act,


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