Mid-size companies could pay more carbon tax than big polluters

David Mercer, technical director for ERM

David Mercer, Durban-based technical director for ERM, notes: “The initial phase of the proposed carbon tax only covers fossil fuel combustion emissions, fugitive emissions and industrial process emissions. Sectors that will be most affected include electricity, mining and manufacturing.

“Proposed allowances create the theoretical potential for well-prepared companies with major exposure to reduce their tax bill to a level below that of somewhat smaller entities that fail to take advantage of government proposals."

Impacts could be severe

Mercer believes some businesses seem to think there is no hurry as the law is only at draft stage.

He adds: “They fail to realise that monitoring and reporting systems around pollution prevention plans and carbon abatement programmes are complex to initiate and need time to bed in. Do nothing now and you will feel the tax impacts later. Those impacts could be severe.”

Mercer says all businesses – not just those with major CO2 footprints – should start to position themselves for future carbon-related legislation as government is determined to honour international commitments to cut greenhouse gases.

For the proposed carbon tax, the marginal rate is R120 per ton of CO2 emitted. However, various thresholds mean effective rates might vary from 5% (R6 a ton) to 40% (R48).

Government proposals permit:

• An initial 60% tax-free allowance to 2020 – with carbon tax levied only on 40% of emissions,
• A further 10% allowance relating to process emissions,
• Another 10% allowance for so-called ‘trade-exposed’ sectors,
• A 5% allowance for those who prove their mitigation efforts keep CO2 emissions lower than their industry average,
• Carbon offset allowances (another 5% to 10%) for those who green the environment by investing in South Africa-based approved carbon mitigating projects, and
• Another 5% tax-break for companies that participate in the initial phase of carbon budgeting. 

Says Mercer: “Taking a structured approach to carbon management and leveraging sound mitigation projects could net a bonus 15% allowance for a proactive industry. In addition to this, there are often further savings to be had by using process-specific data in calculating emissions, as opposed to making standardised emissions calculations.

“The combined benefits are undoubtedly significant, but specialist input is necessary to determine what businesses and processes are covered and how best to capture the incentives.”

Potential opportunities are not restricted to carbon tax. The ERM technical director says many major corporates take a holistic approach and also opt for soft loans and income tax incentives linked to energy efficiency and continuous improvement.

He points out: “Again, big players are wide awake while many of their business peers seem oblivious to the cash they leave lying on the floor.”