How Carbon Tax Legislation (CTL) Champions a Greener Future

The journey towards a greener future has just begun with the Carbon Tax Act of 2019, but the question remains – will it be enough? Will businesses and individuals take the necessary steps to reduce their carbon footprint, or will they continue to prioritise their bottom line at the expense of the environment?

South Africa is a top 15 contributor to global greenhouse gas emissions. Carbon Tax legislation is part of the government’s efforts to encourage businesses to shift towards more sustainable practices. Adopting carbon-reducing projects not only benefits the environment, it also creates globally competitive and sustainable operations.

In this article, we’ll share:

• The power of carbon tax legislation (CTL)

• A simple guide to how CTL works

• Implementing carbon reduction projects

• Maximising carbon credits

What Is CTL?

Carbon tax is a policy that makes businesses and individuals pay for the pollution they create. It is meant to encourage people to use less energy and reduce their carbon footprint. The money collected from carbon taxes can be used to help fight climate change, encourage the development of new, clean technologies and create new jobs. Countries like Sweden, Norway, and Canada have successfully implemented CTL as a tool that can help transition them into a greener, more resilient future.

How does CTL affect impact fund managers?

CTL can have both positive and negative effects on impact fund managers.

• The negative impact: It can increase costs for businesses and negatively impact financial performance.

• The positive impact: It can provide opportunities to invest in companies that are reducing their carbon footprint and generating revenue through carbon credits.

This presents both challenges and risks, as well as new opportunities to invest in companies that are working towards a more sustainable future while also providing financial returns.

CTL rates

A progressive prediction of CTL rates is shown below. The extended timeframe is to give sufficient time for major greenhouse gas emitters to transition to energy-efficient, renewable, and low-carbon operations.

• The tax rate will increase yearly by at least USD1 until it reaches USD20 from 1 January 2022 to 31 December 2025.

• From 2026, the rate will increase until it reaches at least USD30 by 2030.

• After 2050, the rate will be USD120.

A simple guide to how CTL works.

According to section 4 of the Carbon Tax Act (CTA), the tax considers greenhouse gas emissions from fuel combustion, industrial processes, and fugitive emissions. Businesses using emissions-generating facilities with a combined installed capacity that meets or exceeds the carbon threshold are subject to the tax.

Operations that produce emissions are restricted to an installed thermal capacity input of 10 Megawatt, which means that if a business can combust 10MW, it is subject to a carbon tax. The emissions subject to CBT are determined based on an approved reporting methodology of the Department of Environment, Forestry and Fisheries or formulas outlined in the Carbon Tax Act, 2019.

Carbon reduction projects

Carbon reduction projects are efforts and initiatives in mitigating climate change by reducing greenhouse gas emissions, particularly carbon dioxide. Carbon reduction projects can include (but are not limited to) the following:

• Forestry and Land-use
  Projects that protect and restore forest areas to capture and store carbon.

• Renewable Energy
  Wind and solar power that replace fossil fuels.

• Water Management
  Providing clean water to rural areas reduces the need for boiling and GHG emissions.

• Blue Carbon
  Projects that protect and restore coastal and marine ecosystems.

• Agriculture
  Practices that store carbon in soils, restore biodiversity and create new income sources for small farmers.

• Sustainable Transportation
  Projects that promote public transportation, cycling, walking, and EVs.

The potential of Carbon Credits

Carbon Credits are certificates that companies can use to reduce their greenhouse gas (GHG) emissions. They work by providing financial incentives for companies to invest in carbon reduction projects and lower their carbon footprint. Each credit corresponds to one ton of carbon dioxide emission. Companies can also trade these credits to balance worldwide emissions. These are crucial elements in many carbon reduction projects.

To conclude

The Carbon Tax Act is a step in the right direction, but there is still much work to be done if we hope to secure a sustainable future for generations to come. Only time will tell, but one thing is for sure – the future of our planet depends on the actions we take today.