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The Carbon Tax Act explained

What It Is and How It Will Help Us Sustain the Future

“Global warming”, “greenhouse effect”, “carbon emissions” – since Al Gore’s 2006 Nobel Peace Prize-winning documentary, An Inconvenient Truth, some have found these words popping up around every corner. For others, these concepts have been a part of dialogue years before Leonardo DiCaprio’s voice started informing viewers of the melting ice caps. South Africa’s Carbon Tax Act, which came into effect on 1 June 2019, is proof that people from this latter group have been working for more than a decade to help put South Africa onto the list of countries that are committed to lowering their greenhouse gas emissions and in so doing, saving the world.

The Carbon Tax Act, in a nutshell, is the “polluter pays” principle, where companies who have high-volume carbon- and greenhouse gas emissions pay a special tax on these emissions. Although new to South Africa, carbon tax has been around since the 1990s, when Denmark, Finland, Norway and Sweden started taxing high-emission companies. Countries such as Switzerland and Japan, along with Canada’s British Columbia province, have all moved into their second stage of Carbon Tax since the 2000s as well.

Now while it may seem that South Africa is somewhat late to the party, extensive sustainable development processes preceded this Act. In 2011, the National Climate Change Response Policy was drawn up, followed by the National Development Plan of 2012. These policies paved the way for South Africa’s joining the rest of the members on the United Nations Framework Convention on Climate Change in signing the Paris Agreement – the joint commitment to take immediate action in battling the rising climate change. The 2019 Carbon Tax Act is our next step.

The Act will be introduced in two phases. Phase one, which began in June 2019, will run until the end of 2022, after which the second phase will run until the end of 2030. The purpose of splitting this venture in two is to lessen the initial blow on the affected parties. This lower initial tax rate is put in place to make companies aware of the change that needs to be made in their infrastructures, giving them time to lessen their emissions before the second phase commences. The rates for the second phase will be finalised after a review of phase one, promising to be much higher than the initial rates.

Although many may feel this Act is “too little, too late”, the benefits are long-term and are aiming not to improve or drastically change the country in a few years, but to gradually create a sustainable, lower-emission economy which will improve the lives of all South Africans daily. European countries who introduced a carbon tax as early as the 1990s are showing visible decreases in their carbon emissions compared to their neighbours who have not initiated similar taxing endeavours. Taking this into consideration, the visible results of this Act will most likely only become apparent after 2030.

While this act is a bold statement on the government’s behalf – hoping to turn the country towards sustainable development along with taxes on products such as fuel and plastic bags – it is by no means enough to ensure a more sustainable future. Directors of the affected organisations are encouraged to align their businesses with the larger environmental goals and remedying their shortfall areas (which will be helped along by the first phase of the Carbon Tax Act), while also embarking on their own endeavours to improve the sustainability of their organisations.

As the decision-makers of the industry, the board of directors will be expected to lead by example, ensuring their decisions are driven by effectivity and ethical motivations. In all decision-making, the greater long-term implications and sustainability of the company have to be considered, regarding not only the environment, but also third-party stakeholders and, most importantly, its employers. Change comes from within, and so the board has to secure an ethical, transparent, workplace while changing the way the company sees itself in relation to the larger sustainable movement.

Ensuring the development of environmental policies, the implementation of an Effective Environmental Management system, and the inclusion of environmental issues in the company’s risk management are key steps towards the board’s aim to create responsible corporate citizenship.

Along with almost 200 other countries who have joined in the commitment to lower carbon emissions and battle climate change, South Africa is helping to change the world. By taking the initiative your company can help change it, and in so doing save the future as well.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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