The environment in which companies operate in is changing rapidly. Companies are facing new business risks and opportunities each day because of climate change. Those that adapt to the changing environment will thrive in the future as they mitigate these risks and capitalise on opportunities, while those that don’t could lose their competitive advantage.

Robbie Louw, a director at Promethium Carbon, discusses with Simon Foulds the implications of carbon tax on the country’s road transport and fleet management industries.

Promethium Carbon advises companies in South Africa and Africa on issues relating to climate change and carbon. Climate change links to important issues such as energy, water, regulatory risks, community vulnerability and supply chain stability. Promethium directs clients on the identification, qualification and mitigation of these climate change risks and opportunities.

Carbon Tax is going to be introduced in 2015 – how will this work?

Companies will pay R120 per tonne of carbon dioxide for 40% of their direct emissions, with some relief mechanisms for exposed sectors. These mechanisms include relief for process emission from industries that cannot reduce their emissions and the protection of industries exposed to international trade. Provision is also made to use carbon credits to offset the carbon tax obligation of companies.

If the first 60% of carbon tax is not taxable, how will a typical transport business calculate its tax?

Since businesses will pay R120 per tonne of carbon dioxide emissions on 40% of their direct emissions, a business with 600 vehicles, each travelling 200 000 km per annum, will travel 120 million kilometres per annum. If we assume that the trucks carry 33 tonnes and that the return loads are empty, the emissions associated with the operation will be in the order of 18 500 tonnes of carbon dioxide per year. Tax will be payable on 40% of this, which comes to R885 000 per year.

Will there be any relief measures for the transport industry?

The carbon tax is designed to penalise or reward businesses for their emissions, or for reducing their carbon emissions. In some industries, relief measures are available and in others they are not.

For example, the cement industry is only able to produce cement by burning limestone. There is no alternative to burning limestone. This falls under the category of process emissions. The cement industry will receive relief and will be able to claim up to an additional 10% tax relief on its emissions.

The transport industry is classified in the carbon tax policy paper as “other”, which has access to 10% relief for companies that are exposed to international trade. The transportation of goods inside the boundaries of South Africa can, however, not be trade exposed, and therefore there are no relief measures. But it would be advisable for the industry to seek relief from government based on the fact that fuel, the industry’s main carbon emission contributing factor, cannot be substituted or replaced, and should therefore be treated in the same way as process emissions.

If a transport company is delivering goods on behalf of a customer, who is responsible for the emissions?

This will depend very much on the accounting standard that will be used to calculate the direct, Scope 1, emissions of the transport company. The operational boundaries of the transport company must be set in terms of the standard that is used. The Greenhouse Gas (GHG) Protocol, for example, allows companies to set their operation boundaries using the equity, financial control or operational control principles. The quantification of the carbon tax liability will then depend on whether or not the consumption of diesel is counted inside or outside of the operational boundaries – and it can be either. The Carbon Tax Policy Paper is unfortunately silent about the accounting standards that will be used.

Will companies transporting goods outside South Africa, into Africa, pay carbon tax?

No. There is no African country currently imposing carbon tax. This means that once a truck crosses the South African border into Zimbabwe, no tax will be payable.

The plan seems to be a tax on fuel inputs based on various emissions factors. How difficult is this going to be to calculate this for each sector? Is it likely to lead to disputes over the emissions factor levels?

The policy paper states that emission factors will be set by the Department of Environmental Affairs. As part of the on-going Greenhouse Gas inventory of South Africa, the Department of Environmental Affairs is addressing this issue.

What about the worries that carbon tax will be unpopular in South Africa? More tax when there is so much red tape in business and costs like electricity and fuel? Will companies feel their budgets are being stretched even further?

If the carbon tax is used to increase the revenue collected by the state, then the worries are well-founded. National Treasury should aim at having the carbon tax as revenue-neutral as possible. The carbon tax will, however, have some distributional effects and these need to be managed properly through relief measures provided in the Carbon Tax Policy Paper. Some adjustments of the relief measures are required to achieve this.

The Carbon Tax Policy Paper is currently under discussion, and Promethium Carbon submitted its proposals for the government to consider when drafting the carbon tax legislation. These are available on the Promethium Carbon website. Promethium Carbon has introduced a carbon tax tool, available for free by going to www.carbontax.co.za. It takes into account the current tax legislation and will incorporate changes as they occur.