By: Andrew Gilder

In his 2014 Budget speech, Finance Minister Pravin Gordhan indicated that the implementation of the proposed carbon tax, initially slated for January 2015, will be postponed by a year to 2016. To hear only that the carbon tax is delayed without considering the reasons for and the implications of the delay is to ignore an important message from government about the near-term consequences for the economy of climate change policy and carbon pricing.

There are two main aspects to government’s message around the carbon tax, namely that the public participation process in respect of the carbon tax demonstrates that 94% of the 115 participants support the notion of pricing carbon in the South African economy, while more than 50% of the respondents support the carbon tax (as the means of pricing carbon), and the design of the carbon tax continues to evolve, including a reduction of the renewable-energy levy on the implementation of the carbon tax, the use of carbon tax revenue to fund the energy efficiency tax incentive and the use of carbon offsets against a carbon tax liability.

Analysing the linkage between the carbon tax and national climate change policy provides insight into the immediate consequences for emitting industries of postponing the carbon tax.

Over the near to medium term, the Department of Environmental Affairs (DEA) will require the commencement of mandatory measurement, evaluation and reporting of the greenhouse-gas emissions of industries that emit in excess of 100 000 t of carbon-dioxide-equivalent (tCO2e) or which use electricity, the generation of which results in emissions in excess of 100 000 tCO2e. The legislative mechanism that the DEA intends using is to declare priority pollutants in terms of Section 29 of the National Environmental Management: Air Quality Act No 39 of 2004 (Nemaqa) and the related obligation that arises for emitters of such pollutants to devise and implement pollution prevention plans. On March 14, the DEA published draft regulations for a pollution prevention plan and the declaration of six greenhouse gases as priority pollutants. These are the initial steps towards establishing compliance and reporting mechanisms for the carbon tax.

One can identify at least two drivers for the DEA’s legislating in this manner: the requirement for integrated environmental management which flows from the environmental right in the Bill of Rights into the suite of environmental statutes that the DEA administers, and the role that South Africa plays in international climate change negotiations.

In relation to the former, namely the requirement for integrated environmental management, Nemaqa is widely considered essential to realising the environmental right which is articulated in Section 24 of the Constitution as the right “to an environment that is not harmful to health or wellbeing”. Nemaqa’s Section 2 provides for a direct link between this constitutional right and the objectives of Nemaqa, which include protecting and enhancing air quality and giving effect to the constitutional right in order to “. . . enhance the air quality of ambient air for the sake of securing an environment that is not harmful to the health and wellbeing of people”.

Nemaqa’s protection of air quality and health is a prominent part of current submissions from civil society in relation to air quality management issues – for example, the applications submitted to the DEA by various emitters seeking postponement of compliance timeframes of the air quality minimum emissions standards. The DEA is acutely aware of the standards to which civil society seeks to hold government and industry, and a delayed implementation of long-antici- pated obligations on emitting industries to quantify and report on greenhouse-gas emissions is likely to receive adverse attention. The net effect is heightened pressure on government, the DEA and the National Treasury to establish an operational carbon tax linked to the DEA’s mandatory emissions reporting within the Nemaqa legal framework.

In relation to its role in the international climate change negotiations, South Africa presents itself as a leader in international climate change negotiations. The country parties to the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol have set themselves until the end of 2015 to agree on the form and content of the international legal regime providing for the global response to climate change from 2020.

For South Africa to defend its perceived position as a developing country leader in the negotiations, it will need to demonstrate that it is taking domestic action to respond to climate change. The carbon tax is among the country’s most important greenhouse-gas mitigation measures and it would strengthen South Africa’s negotiation position to be able to place a fully operational carbon tax on the negotiation table as we progress towards the twenty-first conference of the parties to the UNFCCC, or COP 21, scheduled to be held in Paris, France, in November 2015.

The 2016 deadline does not amount to an easing of pressure on industry and must be considered in light of a greater complexity in the tax regime and the imperatives on government to have an operational carbon tax system as a contribution to national integrated environmental management and South Africa’s prestige and climate change negotiation position.

Gilder is senior associate in the environmental business area of law firm ENSafrica. He co-authored this article with Mansoor Parker, an executive in the tax business area of the same firm.