C A R B O N TA X – I M PA C T O N S A C A R M A N U F A C T U R I N G I N D U S T R Y

Silvana Claassen, Senior Carbon AdvisorPort Elizabeth, 19 September 2018

Climate Neutral Group: Local knowledge & Global reach

Introduction

• Rationale

• Carbon Tax in a nutshell

• History of Carbon Tax Bill

• Carbon Tax design

• Impact on car manufacturers

• How to respond

• FAQs

Paris Agreement

Vulnerability of Southern Africa

• Faster warming

• High dependence on agriculture

• Increase mosquitos – malaria

• Africa cannot follow the carbon intensive industrialisation path

Global contributions: two perspectives

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China US India Russia South Africa

Global contributions: two perspectives

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China US India Russia South Africa

SA GHG profile

energy84%

agriculture7%

industrial processes5%

waste4%

electricity & heatmanufacturing &

construction

transportation

other

Carbon Tax in a Nutshell

History of Carbon Tax in South Africa

November 2015 –first draft Carbon

Tax BIll

2011 – National Climate Change Response White

Paper

2009 –Copenhagen –

commitment to reduce GHG by

34% by 2020 and 42% by 2025 - BAU

2006 – draft environmental

fiscal reform policy paper

History of Carbon Tax in South Africa

February/March 2018 – draft

carbon tax bill enters

parliamentary process

December 2017 – second draft Carbon Tax Bill

April 2017 –promulgation of

National GHG Emission Reporting

Regulations

November 2016 – SA ratifies

Paris Agreement

Carbon Tax – Design/Phased ApproachPhase 1 Phase 2

Period 2019 – 31 Dec 2022 1 Jan 2023 - ...

Rate R120/tCO2eAnnual increase = CPI + 2%

Revision of R120/tCO2e

Greenhouse Gases Covered

CO2, CH4, N2O, HFCs, PFCs, SF6 Unknown

Emissions included Scope 1 emissions Unknown but possibility to include scope 2

Excluded sectors - Some waste categories- Agricultural activities- Livestock- Other Land Use- Some industrial processes including: electronics, refrigeration

Likely inclusion of AFOLU and all waste activities

Tax-free thresholds Percentage based thresholds from 60% tax-free allowance

The tax-free thresholds willbe decreased progressively – replacement with absolute thresholds is considered

Carbon Tax – Design

Direct/Scope 1 emissions only

• Fuel combustion

• Process emissions

• Fugitive emissions

Annexure 1 of NGHGERR

• Listed activities only

• Closely linked to the 2017 National Greenhouse Gas Emission

Reporting Regulations

Intermezzo – Reporting Regulations

Intermezzo – Reporting Regulations

• OFFENCES 16. A person commits an offence if that person─ (a) provides false or misleading information to the competent authority; or (b) fails to comply with regulations 5(1), 5(2), 6(1), 6(3), 7(1), 7(3), 9, or 13.

• PENALTIES 17. A person convicted of an offence in terms of regulation 16 of these Regulations is liable in the case of a first conviction to a fine not exceeding R5 million or to imprisonment for a period not exceeding five years and in the case of a second or subsequent conviction to a fine not exceeding R10 million or imprisonment for a period not exceeding 10 years and in respect of both instances to both such fine and such imprisonment.

Carbon Tax – Impact on SA Vehicle Sector

Carbon Tax – Impact on SA Vehicle Sector

Steel, Aluminium, Glass, Rubber, Plastic

Recovery of ore, petroleum, limestone, rubber, etc.

Casting, Stamping, Plating, Paintshop

Carbon Tax – Impact on SA Vehicle Sector

Process emissionsFuel combustion emissions

Fuel combustion emissions

Fuel combustion emissions

Steel, Aluminium, Glass, Rubber, Plastic

Recovery of ore, petroleum, limestone, rubber, etc.

Casting, Stamping, Plating, Paintshop

Carbon Tax – When are you liable?

IPCC Code Activity/Sector Threshold

1 ENERGY

1A Fuel Combustion Activities

1A2 Manufacturing Industries and Construction

1A2a Iron and Steel 10 MW(th)

1A2b Non-Ferrous Metals 10 MW(th)

1A2f Non-Metallic Minerals 10 MW(th)

1A2g Transport Equipment 10 MW(th)

1A2h Machinery

1A2i Mining and Quarrying 10 MW(th)

1A3d Water-borne Navigation 100 000 litres/year

Carbon Tax – When are you liable?

IPCC Code Activity/Sector Threshold

2 INDUSTRIAL PROCESSES AND PRODUCT USE

2A Mineral Industry

2A3 Glass Production None

2C Metal Industry

2C1 Iron and Steel Production None

2C2 Ferroalloys Production None

2C3 Aluminium Production None

2C ... ... None

Features of SA car industry

• Many western (European and US) car – brands (including Mercedes,

Volkswagen, Toyota, Nissan, etc. Manufacture their vehicles in SA

• Nearly 60% of vehicles exported to overseas EU, Asia and America

• 7 % of SA GDP

• Around 600 000 vehicles per annum

• Over 100 000 Employment

• Local components manufacturing

Risks / How to respond

• Additional costs

• Start capturing emissions data

• Calculate your footprint

• Set target to reduce

• Educate suppliers and request disclosure

• Assess applicability of additional allowances

Allowances

• Basic tax-free allowance (60-70%)

• Trade-exposure allowance (10%)

• Performance allowance (5%)

• Carbon budget allowance (5%)

• Offset allowance (10%)

Allowances

• Waterfall graph

How does carbon tax impact SA automotive industry

• The purpose of the carbon tax is to change greenhouse gas emitting

behavior

• South Africa’s vehicle industry will be affected during each “schakel” of

the supply chain

• The processing of raw materials, including glass and iron will be impacted

as carbon emissions are generated both as a result of fuel combustion

and industrial processing

• Both at assembly-stage but also upstream, interventions must be done to

reduce emissions

• Unavoidable emissions can be offset by a maximum of 10% of the total

carbon footprint

→ Climate Neutral Group is here to help!

The Carbon Tax – In Conclusion

“SINCE the causality of the increasing of anthropogenic greenhouse gas emissions in the atmosphere and the global climate change has been scientifically confirmed;

AND SINCE it has consequently become necessary to manage the inevitable climate change impact through interventions that build and sustain South Africa's social, economic and environmental resilience and emergency response capacity;

AND SINCE it has also become necessary to make a contribution to the global effort to stabilise greenhouse gas concentrations in the atmosphere at a level that avoids dangerous anthropogenic interference with the climate system within a timeframe that enables economic, social and environmental development to proceed in a sustainable manner;

AND SINCE the costs of remedying pollution, environmental degradation and consequent adverse health effects and of preventing, controlling or minimising …”

T H A N K Y O U A N D Q & A

Silvana Claassen, Senior Carbon AdvisorPort Elizabeth, 19 September 2018