The Effect of Carbon Tax on SA’s Agriculture

By Amy Grundling 

The Carbon Tax Act came into effect from 1 June 2019, aiming to decrease South Africa’s carbon emissions. The Carbon Tax Act will contribute towards achieving the objectives of the National Climate Change Response Policy of 2011 (NCCRP) and South Africa’s commitment to the Paris Agreement.

The NCCRP provides the general policy structure for facilitating the transition to a low carbon and climate resilient economy.  In order to achieve these objectives, the South African government uses Carbon Tax to change the market behaviour of the consumers and producers. As indicated in the Explanatory Memorandum on the Carbon Tax Bill of 2018, an emissions trading system (ETS) is currently unsuitable due to the dominance of the carbon emissions by only a few oligopolistic companies. Tax is also a financial instrument that is much easier to administer and regulate. 

A headline carbon tax of R120 will be levied on fuel combustion, industrial processes and fugitive emissions, for every tons CO2 emission above the allowable threshold. However, during the first phase a relatively low carbon tax ranging between R6 and R48 per tons of CO2 will be allocated. The low carbon tax rate the result of the following allowances:  

1. A basic tax-free allowance of 60 %;
2. An additional tax-free allowance of 10 % for process emissions;
3. An additional tax-free allowance of 10 % for fugitive emissions;
4. A variable tax-free allowance for trade-exposed sectors (up to a maximum of 10 %);
5. A maximum tax-free allowance of 5 % for above average performance;
6. A 5 % tax-free allowance for companies with a Carbon Budget;
7. A carbon offset allowance of either 5 or 10 %.

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The low carbon tax rate and the exemption of the electricity sector allows companies to transition to cleaner technology before the second phase starts. From 1 January 2023, the second phase of carbon taxation will come into effect, by increasing the headline carbon tax rate of R120 annually by consumer price inflation (CPI).
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The Agriculture Forestry and Other Land Use (AFOLU) sectors are also exempt from the first implementation phase, due to measurement difficulties. Therefore, carbon tax will only affect the agriculture sector indirectly through higher fuel prices. The increased fuel prices will have a great effect on our food prices due to the long distances agricultural products usually needs to travel in the value chain. Not only will the increased food prices influence South Africa’s food security but also farmers profit margins due to increased input cost.

Decreasing carbon emissions is a priority that all countries should partake in. However, the South African government needs to administer and allocate the extra carbon tax revenue wisely. The carbon tax revenue should be reinvested to promote and excel a greener economy that will benefit all South Africans.