South Africa's carbon tax is under renewed threat as the government considers whether to temporarily suspend the tax, delay the implementation of its stricter second phase, or modify its structure. This led academics and civil society to warn that weakening the tax could cost billions of rands in lost economic competitiveness, environmental protection and future growth.
The debate has intensified following reports that Power and Energy Minister Kgosiantsho Ramokgopa is considering suspending the tax following pressure from fossil fuel interests. The debate comes as the National Treasury prepares for the second phase of carbon tax implementation, which is due to increase this year.
Shareholder advocacy organisation, Just Share, and the University of Cape Town (UCT) argue that such a move would be “short-sighted” and driven by narrow industrial interests rather than economic priorities.
The Department of Power and Energy has argued that any changes to carbon tax policy would aim to balance decarbonisation with economic sustainability, particularly in energy-intensive sectors critical to growth and employment.
At its core, the carbon tax is based on the “polluter pays” principle, which raises the costs of carbon-intensive activities to incentivize emissions reductions and shift investment toward clean technologies.
When it was introduced in June 2019, companies were charged R120 per tonne of carbon dioxide emissions, although the tax allowance reduced effective rates to between R6 and R48 per tonne for many emitters.
Despite the relatively low effective rate, the tax generates approximately R1.5 billion annually. The government aims to recycle this tax revenue to help address the unequal impacts of climate change.
Hlumelo Bikweni, executive director of Just Share, warned that suspending the carbon tax would shift the burden of climate damage onto ordinary citizens. “The carbon tax is not a punishment. It is a mechanism to ensure that companies account for the true costs of pollution. Removing it effectively uses public resources to subsidize pollution,” he said.
Sustained lobbying by major emitters such as Sasol and Eskom, which account for the majority of South Africa's emissions, has successfully secured concessions and exemptions. In the case of Eskom, its carbon tax liability is largely offset by existing electricity tariffs and renewable energy mechanisms, meaning electricity tariffs do not yet reflect the cost of the tax.
Major carbon emitters have argued that increasing the carbon tax could increase costs and threaten investment in energy-intensive sectors such as mining, chemicals and manufacturing, which are at the heart of South Africa's economy and employment.
Meanwhile, senior climate and energy researchers at UCT, including Britta Rennkamp, Andrew Marquardt, Mark New and many others, have warned that failing to reduce emissions could cut GDP by up to 3.6% annually compared to a no-warming scenario. Over the next 35 years, the country could lose Rs 259 billion from climate-related economic damage without mitigation policies.
UCT also warned that South African exporters could face rising costs under international carbon pricing regimes, particularly the EU's carbon border adjustment mechanism, which taxes imported goods based on their carbon intensity.
South Africa exported more than R200 billion worth of goods to the EU in 2024, including steel, aluminium, cement and chemicals, all of which are subject to the EU carbon border tax. Without a domestic carbon tax, these exporters risk paying billions of rands in carbon tariffs to Europe instead of investing those funds in South Africa's Just Energy Transition.
More than R220 billion in concessional climate finance, including funding under the Just Energy Transition Partnership, is contingent on the country maintaining credible emissions reduction policies. – ESG Now