Reversing climate change starts at home: the South African carbon tax and the Paris Agreement

21st April 2016

Reversing climate change starts at home: the South African carbon tax and the Paris Agreement

The Paris Agreement (the “Agreement”) will be signed on Friday, 22 April 2016 in New York. This adds further impetus to the international response to climate change and, for the local economy, it re-emphasises the importance of South Africa’s national greenhouse gas mitigation actions, including the carbon tax.

Paris Agreement – entry in force

If 12 December 2015, the day on which negotiations on the Agreement were concluded, will go down in history as the date on which humanity finally took the threat of climate change seriously enough to warrant a comprehensive (if still flawed) global response, then 22 April 2016 will likely run a close second in terms of significance. On Friday (22 April 2016), the United Nations Secretary-General, Ban Ki-Moon, will convene a high-level signing ceremony of the Agreement in New York to mark the official commencement of the steps required to implement the future climate change legal regime. At the last count, some 156 countries, including all of the world’s largest emitters (save the Russian Federation) have indicated an intention to sign.

After 22 April 2016, the Agreement will be open for signature in New York until 17 April 2017 and will enter into force when at least 55 country Parties to the United Nations Framework Convention on Climate Change (“UNFCCC”), together representing at least 55% of global emissions, have ratified, accepted or approved the Agreement or acceded thereto. The timing of the Agreement’s coming into operation is important because the operation of the Kyoto Protocol (the Agreement’s predecessor and part of the suite of international climate change law, including the UNFCCC), was subject to the same pre-conditions (ratification, acceptance, approval or accession of 55 countries, together representing at least 55% of global emissions). Given the state of international economics and geopolitics of the time (1997 to 2005) it took eight years for Kyoto to be brought into operation. The period was marked by waxing developing country greenhouse gas emissions and a concomitant waning in the political will of developed countries to comply with their Kyoto-enshrined obligations to curtail industrial greenhouse gas emissions. These geo-political and economic factors ultimately led to a breakdown in the Protocol’s approach to greenhouse gas mitigation and spurred concern over weakening international climate response and ultimately, to the revival of ambition that drove the successful negotiations on the Agreement.

Global climate change response

In a clear indication of the momentous shift in international climate change ambition, the number and combined emissions on the list of currently anticipated signatories implies the strong likelihood that the Agreement will come into operation in the near future. While this willingness to work on the global climate response is heartening, there are indications that the planet is not waiting for humanity to get its collective act together. The World Resources Institute (“WRI”) recently reported on six climate change milestones that have been achieved since COP21 was held in Paris in November and December 2015, namely:

South Africa’s climate change response and the carbon tax

The WRI’s last mentioned milestone speaks directly to the continuing evolution of the measures being marshalled to curtail industrial greenhouse gas emissions,  including economic measures such as carbon pricing. With a view to deepening our understanding of the role that carbon pricing can play in the climate response, the International Emissions Trading Association (“IETA”) has analysed the 188 Intended Nationally Determined Contributions (“INDCs”) that were submitted by UNFCCC country Parties to the UNFCCC Secretariat (including South Africa) in anticipation of the COP21 negotiations. Among IETA’s findings are that:

IETA’s findings provide a convenient reason to consider the latest developments in South Africa’s most prominent process to price greenhouse gas emissions in this economy, namely the National Treasury’s proposed carbon tax on direct industrial greenhouse gas emissions. It is worth reiterating some of the reasons underpinning Treasury’s actions, including:

During the week of 11 April 2016, Treasury held a series of stakeholder engagements to provide feedback on the round of consultation that followed the release for comment of the Draft Carbon Tax Bill, in November 2015 (the “Bill”).

The following clarifications emerged from the recent consultations:

Business needs to take the promise of the carbon tax seriously

For those who might still be of the view that the carbon tax will not materialise, Treasury’s message is very clear: the carbon tax is coming and the timeframe for commencement, including progressing through the Parliamentary process, remains January 2017. Notwithstanding this determination, a recent article in the Business Day5 has indicated that there might still be some delay in taking the Bill through the Parliamentary process in 2016 due to the time limitation resulting from Parliament’s going into recess from May, ahead of the local government elections in August. Business is advised to caution against reading the article to mean that the carbon tax will not materialise. On the contrary, the messaging is clearly no longer “whether” the carbon tax will be implemented but rather “when”.

Opportunities currently exist for emitters of greenhouse gas to take strategic steps to ameliorate the impact of the carbon tax on their business, alternatively for entities that have the potential to generate carbon offsets for use under the tax scheme to take the strategic steps that will permit them to capitalise on this opportunity. A slight further delay in implementing the carbon tax occasioned by Parliament’s limited time in 2016 will simply be a short breathing-space which will afford proactive business the chance to consider the risks and opportunities that will arise when the tax is implemented.

Treasury expects to release draft offsets regulations by the end of May 2016, and a second draft Bill thereafter, both of which will be subject to further stakeholder consultation.

 

Submitted by Andrew Gilder, Mansoor Parker and Olivia Rumble, ENSafrica