Xero Accounting Gold Champion Partner
We hope you enjoy reading the blog post.
If you want our team to do your accounting or tax for you click here.

South Africa’s Carbon Tax Rates Set to Soar in Coming Years

carbon tax rates

South Africa is getting serious about reducing its carbon footprint and accelerating the transition to renewable energy sources. The government recently announced major increases to carbon tax rates over the next six years that will significantly impact fuel and electricity prices for consumers.

The Carbon Tax Act’s Phase 1 Has Been Extended

  • In the 2022 Budget, the first phase of South Africa’s Carbon Tax Act was prolonged by three years from its original end date of December 31, 2022.
  • Phase 1 will now run until December 31, 2025 to allow more time for the country to transition to lower-carbon energy sources.
  • During this extended Phase 1 period, companies will continue benefiting from significant tax-free allowances that reduce their carbon tax liability.
  • The tax-free allowances range from 60% to 95% for different sectors like energy combustion, industrial processes, and fugitive emissions.
  • Some sectors like agriculture, forestry, waste management, and land use have a 100% tax-free allowance during Phase 1.
  • However, to drive further emissions reductions, the carbon tax rate itself will increase annually at a rate higher than inflation, as shown in this table:
Year Carbon Tax Rate (R/ton) Annual Increase
2022 144 CPI + 2%
2023 159 CPI + 2%
2024 190 CPI + 2%
2025 236 CPI + 2%
  • After 2025, when Phase 2 begins, the carbon tax rate will increase annually just by the rate of inflation.

The extension allows South African companies more time to adjust to the carbon tax system and make investments in low-carbon technologies before losing emissions allowances in Phase 2. But it also signals that tax rates will keep climbing to incentivise faster decarbonisation.

Carbon Tax Rates to More Than Triple by 2030

The increases in South Africa’s carbon tax rates over the next several years are truly staggering. What started as a relatively modest tax is quickly becoming a major cost burden aimed at driving down emissions.

  • In 2019 when it was first implemented, the carbon tax rate was set at R120 per ton of CO2 equivalent emissions.
  • It increased gradually by inflation plus 2% each year during the initial phase up until the end of 2022.
  • For the 2023 calendar year, the rate jumped up to R159/ton.

However, this is just the beginning. The projected carbon tax rates from 2024-2030 are as follows:

Year Carbon Tax Rate (R/ton)
2024 190
2025 236
2026 308
2027 347
2028 385
2029 424
2030 462
  • By 2030, the rate will have soared to R462 per ton of emissions, a staggering 285% increase over 2023 levels.
  • This equates to nearly a quadrupling of the tax rate in just 7 years’ time.
  • Such drastic tax hikes on carbon emissions demonstrate South Africa’s aggressive strategy to penalise polluters and incentivise a shift to renewable energy.

The escalating carbon tax rates will undoubtedly get passed through to consumers in the form of higher prices for fuel, electricity, and products/services from energy-intensive industries. Households and businesses should prepare for the financial impacts in the years ahead.

Fuel Prices Could Double from Carbon Tax Alone

The proposed carbon tax increases will have a major impact on fuel prices for South African consumers. Currently, the carbon tax adds around 10 cents per liter for diesel and 9 cents for gasoline. However, by 2030 these figures could skyrocket:

Diesel Carbon Tax Impact

    • 2023: 10 cents per liter
    • 2030: R1.07 per liter

Gasoline Carbon Tax Impact

    • 2023: 9 cents per liter
    • 2030: 97 cents per liter

Here’s a yearly breakdown of the potential carbon tax costs per liter of fuel:

Year Diesel Carbon Tax (R/liter) Gasoline Carbon Tax (R/liter)
2023 0.10 0.09
2024 0.19 0.17
2025 0.24 0.21
2026 0.31 0.28
2027 0.35 0.32
2028 0.39 0.35
2029 0.43 0.39
2030 1.07 0.97

These figures represent just the carbon tax component. They don’t include other fuel taxes, levies and general price increases. So the total impact on pump prices could be even higher for gasoline and diesel by the end of the decade.

South African motorists and businesses relying on transportation should brace for continually rising fuel costs in the coming years as the carbon tax escalates. Adopting more fuel-efficient vehicles and looking at alternative energy sources may be crucial for managing expenses.

Electricity Prices to Surge After 2025

For the first phase of the carbon tax through 2025, the Carbon Tax Act includes provisions to help shield consumers from higher electricity prices. This is accomplished through:

  • A renewable energy premium tax deduction for electricity generators
  • A levy on electricity generation

Together, these provisions create a “neutrality” that prevents the carbon tax from immediately impacting electricity rates. This temporary buffer was designed to:

  • Cushion energy-intensive businesses and consumers from high electricity price hikes
  • Allow time for increasing the share of renewable energy in South Africa’s electricity generation mix

However, this electricity price neutrality expires at the end of 2025. Starting in 2026, carbon tax costs will be directly passed through to electricity rates from suppliers like Eskom.

Eskom’s Carbon Tax Burden

As a predominant coal-fired electricity generator, Eskom will face a substantial carbon tax liability in the post-2025 carbon tax phase. Here are the projected carbon tax costs for Eskom based on the scheduled tax rate increases:

Year Carbon Tax Rate (R/ton) Eskom’s Estimated Carbon Tax (R billions)*
2026 308 6.9
2027 347 7.8
2028 385 8.7
2029 424 9.6
2030 462 10.4

*Estimated carbon tax figures assume Eskom emissions of 225 million tons per year

With carbon tax costs escalating into the billions of rands annually, Eskom will have no choice but to pass these expenses along to consumers through higher electricity tariffs after 2025. Households and businesses should prepare for a significant surge in electricity bills as the next phase of the carbon tax kicks in.

South Africa is taking an aggressive approach to curbing emissions through escalating taxation on carbon-intensive energy sources. Consumers should prepare for the financial impacts in the years ahead as the country transitions to greener sources of power and transportation.

Ready to take your financial success to new heights?
How would it feel to have peace of mind knowing that your finances are in the hands of experienced professionals who are passionate about helping you maximise your financial potential?
Ready to experience the difference? Contact us today for a complimentary consultation and discover how our tailored accounting solutions can empower your financial future.
What our clients say?
Thrive CFO
Based on 10 reviews
powered by Google
Martin Mulder
Martin Mulder
12:36 17 Aug 23
I have only the greatest appreciation for this company. I was going through a difficult time and they were understanding and accommodating. My tax was handled speedily and efficiently.
Kevin Rademeyer
Kevin Rademeyer
07:20 17 Aug 23
We have been using Melissa, Marche and the rest of the crew at ThriveCFO for over 10 years, in order to compile our annual audit for Law Society. They have been exceptional, efficient and pro-active every year. I would not take the business anywhere else.
Jan de Wit
Jan de Wit
13:13 13 Jun 23
Our firm has been making use of the services of Thrive CFO for more than 10 years. Thrive CFO has amazing staff that is not only extremely helpful, but also very capable. We are extremely happy with their services and will continue to support them. They make accounting easy. Thanks Melissa, Marche and the rest of the Team - You Rock!!
LM Keyser
LM Keyser
07:13 13 Jun 23
The ThriveCFO team has been our trusted accounting and tax partner since 2010. They are competent, honest, approachable, quick to respond, and they really do care. I highly recommend them.
Andre Claassen
Andre Claassen
10:24 08 Jun 23
Prompt, professional and personal service!!
Palabadi Ramaphoko
Palabadi Ramaphoko
19:38 15 May 23
I'm impressed with the work you do. You are extremely professional and polite. I hope we will grow big together!
Deidre Oosthuysen
Deidre Oosthuysen
12:20 04 May 23
I feel as though Thrive CFO is a natural part of our business. 100% professional. Very knowledgeable. Incredibly organised. And with a work ethic and proactive communication practices, I know I am in the very best hands possible.
Sean Fabian
Sean Fabian
07:45 04 May 23
As someone who has had the pleasure of working with Thrive CFO, I can confidently say that they are an exceptional company with an unwavering dedication to their clients. From beginning to end, their commitment to providing top-tier financial services is evident in every interaction.One of the things that sets Thrive CFO apart is their focus on education. They take the time to educate their clients on financial best practices and help them understand the reasoning behind their recommendations. This approach ensures that clients are empowered to make informed decisions about their finances.Thrive CFO also uses the latest technology to streamline their services and make the financial management process as efficient as possible. They utilize cloud-based software to provide real-time financial data and make it easy for clients to access their financial information at any time.Overall, Thrive CFO is an exceptional company that is dedicated to providing personalised financial solutions that help their clients succeed. If you're looking for a financial firm that truly cares about your success, I highly recommend Thrive CFO.
Michael Dawson
Michael Dawson
15:48 02 May 23
Great experience with the team! Always willing to assist with questions and able to help guide my small business to ensure that I am compliant.
Riaan Schlebusch ITMC
Riaan Schlebusch ITMC
12:15 21 Apr 23
Professional, smart and friendly people.You only deal with the best of the best, and they know how to answer your questions, and they ensure that they understand you, and make they make sure to take the time to know your business.
See All Reviews

Ready To Take Your Financial Success To New Heights?

Scroll to Top