“With the start of June, the implementation date of the carbon tax has come, and for businesses who have not considered its potential impact, now is the time,” says Grahame Cruickshanks, Managing Executive: Market Engagement of the Green Building Council SA (GBCSA). “The tax will have an impact on every company’s bottom line, although the extent to which it will be affected will vary greatly depending on the sector and various other factors.”
The GBCSA has been on a sustainability journey to advance green building for the transformation of the South African built environment and construction sectors over the past twelve years, and welcome the long-awaited introduction of the tax. “It is pleasing to note that the sector has made noticeable inroads, and that building green is no longer a lofty ideal in South Africa. Beyond the significant environmental benefits (as well as social, such as increased employee productivity and satisfaction); the latest findings of the World Green Building Trends 2018 SmartMarket report states that the business benefits include an 8% operating cost savings in the first year, and an increased building asset values of 7%. With the building sector responsible for approximately a third of (global) greenhouse gas emissions, the carbon tax will serve to further level the playing field and strengthen the local business case for renewable options.”
The finer details
The initial marginal carbon tax rate is R120 per tonne of CO?e (carbon dioxide equivalent), and to allow businesses to adapt and transition to low carbon alternatives in the first phase (2019-2022), various tax-free allowances are applicable, to a maximum of 95% of taxable emissions. An offset allowance of 5 or 10% (depending on sector) can also significantly reduce carbon tax payable.
In relation to a business’s operations, sources of greenhouse gases are classified according to the level of control a business owner has in terms of making less emission- intensive operational choices. In simple terms, scope 1 emissions are “direct” emissions and scope 2 and 3 are “indirect” emissions. During the first phase of the carbon tax’s implementation, only direct emissions are considered.
Not all domestic South African greenhouse gas emitting activities and sectors are included, partly because emissions from some activities are too difficult to quantify and other emissions, including refrigerants and mobile fuels like petrol and diesel, are regulated by other mechanisms such as the Montreal Protocol and the general fuel levy. The carbon tax will be administered by the South African Revenue Service (SARS).
The business case for renewables
“It’s really difficult to make a blanket statement as to how businesses will be affected by the tax as different companies will be treated according to their unique contexts – things like how trade exposed they are, how difficult it is to reduce their emissions etc,” says Teresa Legg, Co-founder of Sustainable IT and product manager for The Carbon Report. “Obviously carbon-intensive businesses will be hit harder by the tax than those that don’t use carbon extensively in their processes. At a level where it’ll affect every business will be the rising fuel price, either directly or indirectly. And electricity; but that will only take effect in the second phase.” “The big positive is that increased costs will allow for renewable options to now become even more feasible than before.”
Kevin James of GCX (Global Carbon Exchange) agrees: “Whenever there’s an increase in the status quo, it makes the business cost for alternatives such as rooftop solar more viable.”
“And the fact that executives in boardrooms are now putting the carbon tax on their agenda as a risk, is important. They have to be aware of it and take steps to address it, as part of their fiduciary activities. Even the fact that it is ambiguous and difficult to understand is a positive; as it forces them to engage with consultants and ultimately work towards a lower carbon footprint.”
Cruickshanks emphasises the need for business to take the opportunity to assess the likelihood and extent of risk exposure to the tax. “Don’t delay the necessary process of planning a transition away from a reliance on carbon. Businesses that evolve their practices now will be better equipped in the long run.”
Alan Straton
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