South Africa has ratified the Paris Agreement and is a non-annex I country. The INDC is that South Africa’s emissions by 2025 and 2030 will range between 398 and 614 MtCo2-eq in line with the peak, plateau and decline trajectory. South Africa’s draft updated NDC was approved by Cabinet on 24 March 2021¹  and commits South Africa to an NDC target range of 398 – 440 MtCo2-eq by 2030, this is however still subject to public participation.

In September 2020 the Cabinet approved the establishment of the Presidential Climate Change Coordination Commission ("PCCCC"). The PCCCC will coordinate the transition to a low carbon climate and sets out to align the country’s commitment in its NDC to the global goals on emissions reduction, adaptation and finance as outlined in the Paris Agreement on Climate Change. The PCCCC will be established through the Climate Change Bill which was published two years ago for comment and which we understand is in the process of being revised for republication.

[1] https://www.environment.gov.za/mediarelease/creecy_indc2021draftlaunch_climatechangecop26#:~:text=The%20updated%20draft%20NDC%2C%20the,be%20released%20for%20public%20comment.&text=South%20Africa%20remains%20committed%20to,science%2C%20equity%20and%20sustainable%20development.

In the first instance, GHG reduction is a policy matter. To this end, South Africa has a few policy instruments aimed at the reduction of GHG emissions. These include the reporting of GHG emissions under the National Environmental Management: Air Quality Act 39 of 2004 ("Air Quality Act"), the National Climate Change Adaptation Strategy, South Africa’s First National Climate Change Report, and a number of draft climate change sector plans for various government departments.

From a regulatory point of view, the Air Quality Act is the primary regulatory instrument relating to the reduction of GHG emissions. The Air Quality Act provides for listing of certain atmospheric pollution activities which may not be carried out without the requisite license. The Air Quality Act also empowers the making of various regulations. The relevant regulations made under the Air Quality Act include the GHG Reporting Regulations, which require data providers to register and report the GHG emissions for all facilities where activities resulting in GHG emissions meet or exceed the applicable thresholds. Previously, data providers were only required to register and report the GHG emissions where the applicable thresholds were exceeded. The activities in respect of which carbon tax must be paid and the activities in the GHG Reporting Regulations in respect of which reporting is required, are now aligned. The GHG Reporting Regulations were amended in September 2020 and now require reporting at a facility level as opposed to at a data provider level and require data providers to register in cases in which the emissions meet or exceed the thresholds at a data provider level.

More recently, South Africa has enacted the Carbon Tax Act 15 of 2019 (the "Carbon Tax Act"), which is one of the fiscal measures intended to reduce GHG emissions in South Africa, through the levying of a carbon tax on GHG emissions, as an incentive to reduce their GHG emissions. The Carbon Tax Act should be read with a number of regulatory instruments made thereunder which include the Carbon Offset Regulations and Trade Exposure Regulations.

In terms of the Carbon Offset Regulations, a taxpayer may use credits from an “approved project” to offset the carbon tax liability.

There are no national policies or legislation limiting or prohibiting the use of fossil fuels. However, the Integrated Resource Plan of 2019 ("IRP") which is South African policy that provides a general understanding of South Africa's current energy demand and supply balance, recognizes that South Africa has ratified the Paris Agreement and incorporates the need and development of renewable energy into the energy mix as a means of reducing GHG emissions.

Climate change considerations are also a key consideration in the environmental impact assessment or environmental authorizations of power plants or energy infrastructure.

In addition, South Africa has strict minimum emission standards to which power stations, smelters, factories and refineries must adhere.

The Carbon Tax Act, which from 1 June 2019 imposes a tax of ZAR 120 per tonne of CO2 (increased by 2% plus the consumer price index until 31 December 2022), and which is currently imposed at a rate of ZAR 127 per ton of CO2, on taxpayers who “conduct an activity in the Republic resulting in greenhouse gas emissions above the threshold determined by matching the ‘Activity Sector’ in Schedule 2 with the number in the corresponding line of the column ‘Threshold’ of that table”. Following the amendments introduced in terms of the Draft Taxation Law Amendment Bill, persons (entities or individuals) are liable for a carbon tax if they conduct activities resulting in emissions “equal to or above the threshold”. This ensures alignment between the GHG Reporting Regulations and the Carbon Tax Act.

Entities/persons may reduce their tax liability through the use of various allowances, including for example a carbon offset allowance. There are regulations governing carbon offset allowances.

Various draft regulations were published for comment under the Carbon Tax Act, including Draft Benchmark Regulations (relating to performance allowances under section 11 of the Carbon Tax Act) and Draft Trade Exposure Allowances (relating to trade exposure allowances under section 10 of the Carbon Tax Act), have been promulgated.

On 19 June 2020, the final regulations in respect of the Trade Exposure Allowances were published with retrospective effect from 1 June 2019¹. These regulations provide for the trade exposure allowance to be determined in terms of Annexure A (for example mining of coal, lignite, gold and uranium provides for a 10% allowance), or if the taxpayer believes the allowance should be more, the allowance may be determined according to the calculation set out in the regulations. However, if the calculation results in:

1. a number less than 10%, no allowance is received
2. a number equal to or greater than 10% but less than 30%, an allowance equal to the percentage calculated multiplied by 0.33 is received
3. a number equal to or greater than 30%, an allowance of 10% is received.

Similar to the trade exposure allowance, the Performance Allowance Regulations were published on 19 June 2020, with retrospective effect from 1 June 2019². The performance allowance applies to entities that have proactively taken measures to reduce greenhouse gas emissions. This allowance is determined in accordance with the sector emissions intensity benchmark and entities below the benchmark will be granted the allowance.

Minister of Finance further gazetted the renewable energy premium for purposes of symbol “B” in section 6(2) of the Carbon Tax Act.[3] The premium is specified per kilowatt-hour and is required in order to calculate the amount of tax payable by a taxpayer for the generation of electricity from fossil fuels, which calculation provides for the reduction of the carbon tax by the amount of the premium per kilowatt-hour.

As previously mentioned, the Air Quality Act includes:

• certain activities that require an atmospheric emission license and there is associated monitoring and reporting as well as minimum emission standards which must be met – this assists in limiting harmful emissions; and
• certain GHGs have been declared as priority air pollutants and where persons emit more than 0.1 mega-tons of GHGs/carbon dioxide equivalent, they are required to prepare and submit pollution prevention plans for approval.

South Africa is anticipating the promulgation of the Climate Change Bill (which will make it an Act once finalized). The Climate Change Bill is expected to impose mandatory carbon budgets on companies and requires GHG mitigation plans (which are anticipated to be similar to pollution prevention plans) to be developed and put in place. In addition, the Bill provides for a ministerial committee to be established in order to develop integrated approaches to resolve the issues surrounding climate change (i.e. the PCCCC which has been established).

[1]       Carbon Tax Act Regulations, published under Government Notice 690 in Government Gazette 43451 on 19 June 2020.

[2]      Regulations under section 19(A) of the Carbon Tax Act for Greenhouse Gas Emissions Intensity Benchmarks for purposes of section 11 for the performance allowance published under Government Notice 691 in Government Gazette 43452 on 19 June 2020. 

[3]      Notice in respect of renewable energy premium in respect of tax period for purposes of symbol "B" in section 6(2) published under Government Notice 692 in Government Gazette 43453 on 19 June 2020. 

As a policy matter, South Africa ratified and acceded to the Kyoto Protocol in recognition of the necessity for South Africa to develop climate change-related policy in order to ensure sustainable development as a result of the threats faced by GHG emissions. The accession to the Kyoto Protocol also resulted in the development of incentive-based mechanisms – such as the clean development mechanism (CDM) and Certified Emission Reductions (CER) trading. However, the CDM and CER mechanisms were not utilized extensively under the Kyoto Protocol but some aspects of the development of these mechanisms have been retained and are recognized in the Carbon Offset Regulations¹ under the Carbon Tax Act.

In terms of the Carbon Offset Regulations, a taxpayer may use credits from an “approved project” to offset the carbon tax liability. The credits may be transferred and can arise from third-party projects. This in effect amounts to a carbon trading platform².

Obtaining project approval for such projects is generally a costly and onerous process. The Carbon Offset Regulations recognize a South African CDM-approved project³ as well as various voluntary standards for project certification.

Until the carbon tax system starts operating, the registry and trading platform offered by the Carbon Offset Regulations may take some time to become functional. However, the system allows for “banking” of offset credits in advance of facing a tax liability. Where a taxpayer in terms of the Carbon Tax Act, undertakes an approved project, on or after 1 June 2019, in South Africa, in respect of an activity that is not subject to the carbon tax, that person must be given an offset allowance in terms of section 13 of the Carbon Tax Act⁴. These offsets may only be utilized for specified periods.

Recently (22 July 2020), the Department of Mineral Resources and Energy's, previously the Department of Energy (DOE) acting in its capacity as the administrator for the purposes of the Regulations on Carbon Offsets issued a media statement advising that the Carbon Offset Administration System (COAS) would be live from 23 July 2020. Practically, this means that now that the COAS is functioning as designed, all applications to register, retire or change ownership of offsets may be made through the COAS. The COAS provides for the Project development under International Standards, an application for an extended letter of approval (i.e. verification), the listing of credits in South Africa, credit ownership transfer from project owner to the taxpayer (if not the same person), and the retirement of credits to gain an offset certificate to submit to SARS.

[1]      Published under Government Notice 1556 in Government Gazette 42873 on 29 November 2019.

[2]      https://www.engineeringnews.co.za/article/consultancy-says-carbon-offsets-provide-whole-new-market-for-trade-2021-03-16/rep_id:4136

[3]      Regulation 1 of the Carbon Offset Regulations.

[4]      Regulation 2 of the Carbon Offset Regulations. 

Yes – see answers to questions "What are the key national policy instruments regarding climate change and what are the national long term greenhouse gas emissions (GHG) reduction targets?" and "What specific national climate change legislation has been adopted?" above. 

There is currently no legislation that regulates CCS in South Africa. However, the DOE’s Environmental Management Plan (the Plan), compiled in terms of section 11(2) of the National Environmental Management Act 107 of 1998, states that the DOE will be responsible for building capacity and implementing CCS. The Plan notes that the IRP identified CCS technologies as needing further research and investigation. In particular, the Plan makes provision for the South African Centre for Carbon Capture and Storage in order to develop CCS capacity and country readiness.

Although not technically falling within the ambit of a subsidy, the newly issued Carbon Offset Regulations state in section 4(1)(f) that a taxpayer conducting activity in respect of geological carbon dioxide capture and sequestration may not receive the allowance in respect of an offset for that activity. Further incentives and subsidies around CCS technologies are expected to be developed.

Since around 2010, the DOE (as it then was) and National Treasury have been running successful independent power producer (IPP) bid processes for renewable energy, among other things. The Renewables Program has already achieved Financial Close for four bid windows and a fifth bid window has just been launched with a bid response date in August 2021. Further bid submission phases are expected in future. The Renewable Energy IPP Program has won several awards, including the Global Leadership Infrastructure Program and the Infrastructure Regulator of the Year and the Power Deal of the Year (2012).

More recently, the DOE has established a Renewable Energy Finance and Subsidy Office¹ whose mandate includes: (i) the management of renewable energy subsidies; and (ii) offering advice to developers and other stakeholders on renewable energy finance and subsidies, including amongst other things, the size of awards, eligibility and the procedural requirements. There are various renewable energy subsidies that may be utilised in terms of this.

[1] http://www.energy.gov.za/files/esources/renewables/r_refso.html#:~:text=The%20Department%20of%20Minerals%20and,of%20renewable%20energy%20subsidies%3B%20and%20.&text=Three%20of%20these%20projects%20are,and%20landfill%20gas%20to%20electricity.

The South African National Building Regulations and Building Standards Act 103 of 1977 has a number of provisions relating to energy efficiency in building new buildings or modifying, altering or improving existing buildings.

In addition, many activities/processes resulting in GHG emissions related to the built environment (such as cement manufacture) are subject to the Carbon Tax Act and the GHG Reporting Regulations. Many private companies and citizens are taking steps to reduce GHG emissions as a result of societal pressure and to account for the future increase in carbon tax rates.

Most South African municipalities have municipal-level legislation (by-laws) and demand side policies aimed at encouraging or incentivizing energy efficiency.  

The South African Electricity Regulation Act 4 of 2006 (Electricity Regulation Act) requires every licensee to comply with energy efficiency standards and demand side management. There are also various government energy efficiency and demand side management programs and incentives for the electricity sector.

See the question above. In respect of the transport sector, the thresholds at 1A3 of both Schedule 2 of the Carbon Tax Act and the GHG Reporting Regulations apply and the taxation of transport-related emissions incentivizes the reduction of the GHG emissions. In addition, EU2 standards are imposed in respect of vehicle emissions.

The Mitigation Potential Analysis (MPA) published by the Department of Environmental Affairs in 2014 further identifies a range of potential mitigation measures that could be applied to the transport sector to deliver emission reductions by 2050 which includes inter alia, a shift from private to public transport as well as the use of diesel cars which are said to be less CO2 intensive than petrol vehicles¹.

[1]      South Africa’s greenhouse gas mitigation potential analysis at page 68.

The introduction of the carbon tax and carbon budgets require the energy industry to reduce its GHG emissions. The reduction of GHG emissions is also incentivized by section 12L of the Income Tax Act, which allows a deduction of 95 cents per kilowatt-hour, or kilowatt-hour equivalent of energy efficiency saving from the income of a person carrying on a trade, where they have made energy efficiency savings, thereby reducing their tax liability.

A basic tax-free allowance scheme described above is one of the key measures taken to reduce GHG emissions / improve energy efficiency in agriculture and land use. The allowance percentage is set out in  Schedule 2 to the Carbon Tax Act. Persons who undertake agricultural activities such as Activity 3B2 relating to “Cropland” (which includes arable and tillage land)¹ are currently not liable for payment of carbon tax, as these activities (along with cattle and sheep farming, etc) are subject to a basic tax-free allowance of 100%.

In respect of other activities related to agriculture “Other Sectors (including heat and electricity recovery from Waste)” and activity 1A4c, “Agriculture, Forestry/Fishing and Fish Farms”, the threshold is 10MW and only a 60% basic allowance is provided for in respect of fossil fuel combustion activities.

In addition, according to the National Climate Change Response White Paper, 2011 which is currently the overarching policy response to South Africa’s climate change response, agriculture is one of the priority adaptation sectors².

[1]      2006 IPCC Guidelines for National Greenhouse Gas Inventories, Chapter 8.

[2]      National Climate Change Response White Paper, 2011 published under General Notice 757 in Government Gazette 34695 on 19 October 2011 at page 13.

As mentioned previously, the Electricity Regulation Act requires every licensee to comply with energy efficiency standards and demand side management. The development of renewable energy projects under the Renewable Energy Independent Power Producer Program mentioned above, is a further national initiative aimed at reducing GHG emissions, coupled with the requirement to comply with the minimum emission standards prescribed under the Air Quality Act.

As a result of sustainable development requirements, equator principle provisions, and the increasing drive towards sustainable investing, most major financial institutions have passed resolutions or adopted policies relating to banks’ exposure to climate-related risks in their lending, investing and other financial intermediary activities. The policies also relate to financing of onshore and offshore oil and gas exploration and production; oil and gas pipeline projects; liquefied natural gas terminals; and coal-to-liquid projects. Most financial institutions require borrowers to submit a climate change impact assessment and to disclose climate change risks in accordance with the guidelines from the Task Force for Climate-Related Financial Disclosures. Financial institutions are also facing increased pressure from shareholders who want financial institutions to:

1. report to shareholders on the assessment of greenhouse gas emissions from its financing portfolio and exposure to climate risk in its lending, investing and financing activities; and
2. adopt and publicly disclose a policy on lending to coal-fired power projects and coal mining operations.

In South Africa, pension funds are required under Regulation 28 of the Pension Funds Act to seek “adequate” risk-adjusted returns suitable for the fund’s specific member profile, liquidity needs, and liabilities and they have a fiduciary duty to the fund to ensure that the fund is “financially sound."

Earthlife Africa v Minister of Environmental Affairs and Others (Thabametsi I)

Sought relief that an environmental authorization issued for a coal-fired power station be set aside because the climate change impacts had not adequately been taken into account. The court ordered that a climate change impact assessment be conducted.

Earthlife Africa v Minister of Environmental Affairs & Others (Thabametsi II) 

Following the completion of the climate change impact assessment, which was directed by the court in Thabametsi I, the Department of Environmental Affairs considered the contents of the climate change impact assessment and nevertheless decided to grant the project the requisite environmental authorization. Earthlife lodged an internal appeal with the relevant Minister who upheld the Department’s decision to grant the environmental authorization. This resulted in Earthlife launching this application seeking to review and set aside the Minister’s appeal decision to uphold the Department’s decision. Earthlife argues inter alia, that the Minister’s decision should be reviewed and set aside because it failed to give due regard to the findings of the climate change impact assessment report, which found the magnitude of the coal-fired project to be large and the mitigation measures in the climate change report itself inadequate. In other words, the applicant argues that the Minister ignored material defects in the climate impact assessment report and, therefore, the decision to grant the environmental authorization is unlawful and irrational. The litigation seeks to compel competent authorities who are considering an application for environmental authorization to consider site-specific climate change impacts associated with a proposed project. This application was lodged in March 2018 and a court order was granted on 19 November 2020, setting aside granting of the environmental authorization for the coal-fired power station. In addition, the decision by the Minister of Environmental Affairs to dismiss the appeal by Earthlife Africa was reviewed and set aside, and the application for the environmental authorization was remitted back to the original decision-maker for reconsideration.

There are a number of other air pollution and climate change cases seeking the government to take action that is pending before our courts. This includes the below two cases challenging the decisions of the relevant Minister to grant environmental authorizations for two 600MW coal-fired power stations as climate change impacts have not been taken into account:

• the Khanyisa case [the Trustees for the Time Being of the Groundwork Trust v the Minister of Environmental Affairs, Chief Director: Integrated Environmental Authorisations, Department of Environmental Affairs, the Director: Appeals and Legal Review Department of Environmental Affairs, and ACWA Power Khanyisa Thermal Power RF (Pty) Limited (the project company)]. The Government Respondents failed to file the record of decision and a court order has been obtained to rectify this but has not as yet been complied with. In this case, the court relied on the judgment in Earthlife Africa.
• the KiPower case [the Trustees for the Time Being of the Groundwork Trust v the Minister of Environmental Affairs, the Chief Director: Integrated Environmental Authorisations, Department of Environmental Affairs, the Director: Appeals and Legal Review Department of Environmental Affairs, Kuyasa Mining (Pty) Limited and KiPower (Pty) Limited (the project company), instituted in 2017].

The White Paper on the National Climate Change Response of 2011 remains the overarching framework that will guide future policy decisions until the Climate Change Bill becomes an Act.

In 2020 the country further submitted its first Low Emissions Development Strategy (LEDS) to the UNFCCC which outlines the country’s pathway to net zero emissions by 2050 and includes references to the energy efficiency of buildings, tax incentives for green project development and the carbon tax (and carbon budget design under the proposed Climate Change Bill which was published two years ago for comment)¹.

[1]  https://www.environment.gov.za/sites/default/files/docs/2020lowemission_developmentstrategy.pdf