On 23 February 2021, the Department of Environment, Forestry and Fisheries (DEFF) gave a presentation at the Portfolio Committee Meeting on the Operationalisation of the Carbon Tax – Carbon Budget Mitigation System for Phase II (2023 – 2027). You can view that presentation by clicking the button at the end of this email.
We've summarised the most significant points here:
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The end date for Phase I voluntary carbon budgets submissions was 31 December 2020.
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A transition period has been agreed and gazetted (22 October 2020) running from January 2021 – December 2022.
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The two primary objectives for this transition period are:
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Phase I extension of existing carbon budget:
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Voluntary carbon budgets will continue to be accepted during the transition period (5% carbon budget allowance applicable).
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Budget submission must include the period 2021 – 2025.
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Phase II initiation of new carbon budget methodology:
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A methodology will be decided through an extensive process of engagement.
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Budgets to be reviewed in 2022 to commence the 2023 – 2027 period.
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Three potential carbon budget allocation methodologies were proposed.
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There are two proposed options for the integration with Carbon Tax:
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Option 1 relates to a carbon taxpayer being required to pay a different tax rate for exceeding the carbon budget (i.e. R600/ton CO2e exceeded).
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Option 2 relates to the transferral of a percentage of the basic allowance to the carbon budget allowance (for example the 60% basic allowance reduced to 20%, and the 5% carbon budget allowance increased to 40%).
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National Treasury and DEFF are leaning toward Option 1 as they believe this is the more progressive tax option and will allow for a smoother transition from Phase I to Phase II.
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Cova Advisory