Carbon tax explained (Video)

Watch this video to find out what a carbon tax is and how it can help to combat climate change.

A carbon tax is a fee paid to the government by carbon dioxide (or carbon dioxide equivalent) emitters for every tonne of carbon emitted. Governments use the tax to encourage these polluters to reduce their carbon footprint. They also use it to discourage consumers from using heavy polluters’ products.

A carbon tax is levied on companies based on their quantity of carbon emissions. For example, the government collects the tax from petrol producers or suppliers, or electricity-generating companies. In turn, these companies pass the tax on to consumers in the form of higher prices for fossil fuel-related products, like petrol or electricity. In theory, the tax incentivises consumers to use fewer products from carbon-intensive industries. For example, consumers might reduce their electricity usage or switch to lower-carbon fuels.

South Africa’s carbon tax

South Africa has a carbon tax, which was legislated in the form of the Carbon Tax Act in 2019 in terms of the polluter pays principle. Entities emitting carbon dioxide above a particular threshold must pay it, according to the South African Revenue Service.

The Carbon Tax Act

According to the Carbon Tax Act, South Africa saw its need because “the causality of the increasing of anthropogenic greenhouse gas emissions in the atmosphere and global climate change has been scientifically confirmed”. In other words, it is a scientific fact that human activity is the main cause of global warming.

The Act also states that South Africa wants to contribute to the “global effort” to stabilise greenhouse gases in the atmosphere. The government also wants to use a “package of measures” to combat climate change. One of these would be a carbon tax. The government wants to use the tax to reward the “efficient use of energy”. It will help to “nudge the economy towards a more sustainable growth path”, the Act says. The Act also provides tax incentives to entities that adopt cleaner technologies.

A law to tax carbon emitters was first mooted in 2010. However, heavy emitters, like the mining industry, lobbying against it delayed the tax several times. Heavy emitters argued that the tax would make their operations unprofitable.

South Africa's carbon tax aims to reduce its carbon footprint.

Eskom’s power stations are a huge contributor to South Africa’s carbon footprint

The carbon tax phases

The carbon tax is being implemented in South Africa in phases. Currently, we are within the first phase (June 2019 to December 2022). The next phase will run from 2023 to 2030. In the first phase, it started at approximately R120 per tonne of carbon dioxide equivalent. Taxed entities could reduce the amount they have to pay by up to 95 per cent with various tax breaks on offer. The government will assess the tax’s effectiveness at the end of the first phase. The terms could change after that.

Taking into account all the tax breaks on offer, most companies could end up paying as little as between R6 and R48 during the first phase. The tax increased to about R134 per tonne of carbon dioxide equivalent in 2021.

The first phase of the tax only applies to direct emitters or the companies that own the fossil-fuel burning assets.

The Carbon Tax Act and greenhouse gas emissions

South Africa’s biggest carbon dioxide emitters are in its energy and manufacturing sectors. The government targets these emitters with the carbon tax. “Fuel combustions activities”, like electricity and the manufacture of liquid fuels, make up 83 per cent of South Africa’s total greenhouse gas emissions. This is according to South Africa’s most recent greenhouse gas emissions calculations.

The country’s top ten biggest emitters of greenhouse gases collectively emit more greenhouse gases than the whole of Spain. Eskom, South Africa’s state-owned electricity producer, emits 39 per cent of South Africa’s total greenhouse gases. Sasol, the chemicals manufacturer, emits more greenhouse gases than every mode of transport in South Africa combined. Sasol makes synthetic fuels and specialises in coal-to-fuel conversion technology.

South Africa’s carbon tax could reduce carbon emissions by up to 33 per cent by 2035, according to modelling by the University of Pretoria.

An estimated R2.5 billion was raised through the tax in the 2020/2021 financial year. But, the carbon tax is too cheap, some experts say. That is because South Africa needs a carbon tax of USD $35.6 per tonne of carbon dioxide equivalent to meet the emissions targets it pledged as part of the 2015 Paris Agreement. This is according to the International Monetary Fund. In other words, South Africa’s carbon tax should be around the R510 mark (per tonne of carbon dioxide equivalent). This is based on the exchange rate terms in October 2021.

South Africa is a signatory to the Paris Agreement which aims to limit global warming to 1.5 degrees Celsius.

The Eiffel Tower in Paris, France, is illuminated in green to celebrate the entry into force of the Paris Agreement, the most ambitious climate change agreement in history, on November 4, 2016. (Photo by Jean-Baptiste Gurliat/ Mairie de Paris, U.S. Department of State, Public domain, via Wikimedia Commons)

The carbon tax in South Africa: For vs against


South Africa is the most carbon-intensive economy in the Group of Twenty countries. It has a carbon intensity of 599 tonnes of carbon dioxide equivalent per million USD of gross domestic product. That is more than double the global average, according to Price Waterhouse Coopers.

South Africa will have to cut its emissions by 60 to 70 per cent by 2050. This is if it is to meet the global goal of limiting global warming to below 2°C.

South Africa’s National Determined Contribution (NDC) target, its contribution to the global effort to reduce global warming, was updated in September 2021. The target is now between 398 million tonnes of carbon dioxide equivalent to 510 million tonnes of carbon dioxide equivalent for 2025.

South Africa has reduced its 2030 target, making it more ambitious. Previously, the target was 398 million tonnes of carbon dioxide equivalent to 614 million tonnes of carbon dioxide equivalent. It is now 350 million tonnes of carbon dioxide equivalent to 420 million tonnes of carbon dioxide equivalent. At the lower range, South Africa’s target would be close to being compatible with the Paris Agreement. The Paris Agreement aims to keep global warming below 1.5°C. This is according to an independent scientific analytics tool, Climate Action Tracker.

Besides its global commitments, South Africa also has domestic imperatives to limit global warming. South Africa will not escape the effects of climate change. On the contrary, it will feel the effects acutely, with extreme droughts in some provinces and rainfall pattern changes, which will heavily impact agriculture.


The carbon tax was opposed by big energy users like mining company Sibanye-Stillwater and manufacturing giant Arcelor Mittal. Both argued that the tax would create policy uncertainty and scare off investors. ArcelorMittal also argued that the tax would hurt the firm’s bottom line.

In 2019, eighteen mining companies said that the carbon tax would collectively cost them between R500 million and R5.5 billion a year in phases one and two, respectively. This is without the tax breaks on offer. This was according to a survey conducted by the Minerals Council of South Africa.

The country’s official opposition, the Democratic Alliance, also opposed the carbon tax. The party argued that it was merely another tax on South Africans that would have little effect on cutting emissions. It also argued that the tax would slow economic growth, increase unemployment and put more pressure on financially-pressed South Africans.

Some experts also argued that South Africa should not impose a carbon tax on its biggest polluters until developed nations do the same. They argued that all countries’ change mitigation efforts should be equitable.

Effectiveness of carbon taxes

Globally, just 27 countries have implemented a carbon tax, according to the World Bank. This has decreased since 2009 when there were 45 countries with carbon taxes in place. 32 countries have other kinds of carbon pricing mechanisms in place.

The Australian government introduced a carbon tax in 2012, but it was done away with two years later by the newly-elected, conservative Tony Abbott government. However, despite the short-lived nature of the tax, it was highly effective. Immediately after the Australian government instituted the tax, carbon emissions dropped. Once the government revoked the tax, carbon emissions rose again. In the United Kingdom, the carbon tax has helped to significantly reduce emissions.

Other carbon pricing mechanisms used around the world frequently involve a cap-and-trade system, where polluters earn credits for keeping emissions below a certain “cap”. Polluters can sell and trade these credits. Several states in the US have similar systems. But, cap-and-trade mechanisms are notoriously difficult to implement due to the high levels of bureaucracy involved. The difficulty in setting price caps accurately and price volatility also make implementation difficult.

White House officials are said to be mulling federal cap-and-trade programmes, but President Joe Biden’s climate legislative agenda is still being thrashed out on the Senate floor. In late October 2021, Democrats considered proposing a carbon tax. They did so because progressive elements of Biden’s climate agenda appeared unlikely to succeed in the Senate. These elements would see Americans using electricity from cleaner energy sources. On 19 October 2021, a lawmaker, key to having Biden’s agenda passed in the Senate, said a carbon tax was “not on the board at all right now”.