Budget: save energy or pay up

Posted by Laura Grant on February 12, 2009
Posted in Business

Despite the challenges posed by the global economic crisis, energy efficiency and climate change feature prominently in this year’s national budget, presented by Trevor Manuel, the finance minister, in Cape Town on Wednesday.

South Africa is playing a key role in the post-Kyoto climate negotiations and there is increased government policy focus on “environmental initiatives that mitigate the impact of climate change and promote sustainable development, energy efficiency and investment in new technologies”, the National Treasury says in its Budget Review.

Among the main tax proposals outlined in the budget were a number that addressed environmental concerns, namely:

  • incentives for companies to invest in energy-efficient technologies and cleaner production;
  • implementation of the electricity levy announced in Budget 2008;
  • reforms on motor vehicle excise duties to include carbon emissions;
  • introducing a new tax on energy-intensive lightbulbs;
  • making certified emission reduction credits tax exempt or subject to capital gains tax, instead of normal income tax; and
  • increasing the levy on plastic shopping bags

Incentives for investments in energy-efficiency
A number of environmental statutes and regulations require the private sector to eliminate inefficiencies in the use of energy, water and raw materials. Incentives for energy efficient investments are seen as market-based measures to complement these regulations, states the Budget Review. Existing legislation allows for a three-year 50:30:20 percent accelerated depreciation allowance for investments in renewable energy and biofuels production. A supplementary depreciation allowance of up to 15 percent is proposed. This means that companies can write off 115 percent of the value of the equipment, says one report. To qualify for the additional allowance companies would need to provide documentary proof of the energy efficiencies (after a two- or three-year period), certified by the Energy Efficiency Agency. There will be a consultation process to establish which equipment will qualify for the tax perk, says the report.

Tax on incandescent lightbulbs
To encourage consumers to use energy-efficient compact fluorescent lightbulbs (CFLs) – thus reducing energy demand and lowering greenhouse gas emissions from power stations – an environmental levy of about R3 is proposed for old-fashioned incandescent bulbs to be implemented from October 1 2009. The levy is expected to generate an about R20-million.

Tax proposals for Clean Development Projects
Under the Kyoto Protocol’s Clean Development Mechanism (CDM), projects in developing countries that significantly reduce greenhouse gas emissions can be issued carbon emission reductions (CERs). But South Africa is lagging behind other countries, such as India and China, in taking up CDM projects.

“South Africa’s greenhouse gas emissions rank in the top 20 in the world, contribute 1.8 percent to global emissions and are responsible for 42 percent of Africa’s emissions”

To encourage South African companies to take up these projects it is proposed that income gained from the disposal of primary CERs be tax–exempt or subject to capital gains tax instead of normal income tax. Secondary CERs are to be classified as trading stock and taxed accordingly, says the Budget Review.

Excise duties on vehicles
To encourage improvements in fuel efficiency and curb the growth of greenhouse gas emissions, the Budget proposes that excise duties on motor vehicles be adjusted to take into account carbon emissions as of March 1 2010.

“Policy measures to address the environmental and social costs associated with the transport sector, such as reforms to vehicle and fuel taxation [an increase in the levy on both petrol and diesel has also been proposed], seek to promote fuel efficiency, limit the rapid growth of the number of vehicles on the roads and encourage the use of public transport,” says the Budget Review.

International air passenger departure tax
This tax proposal is also listed under the environmental fiscal reforms in the budget reviews, presumably because of the carbon emissions associated with air transport. International air passenger departure tax currently stands at R120 per passenger on international flights and R60 per passenger on flights to the Southern African countries, the proposal is to increase the taxes to R150 and R80 respectively from October 1.

Increased levy on plastic bags
The budget proposes increasing the levy on plastic shopping bags from 3 cents to 4 cents a bag. This levy was introduced in 2004/05 and it has reportedly helped to reduce waste. The plastic bag levy is expected to generate R15-million in revenue.

Electricity levy
A levy of 2c per kw/h for electricity generated from non-renewable sources was proposed in last year’s budget and this is expected to be implemented in July this year. The electricity tax is expected to generate R2,78-billion, according to this year’s Budget Review.

The National Treasury notes that South Africa’s natural resources need to be “adequately managed” or economic growth will worsen environmental problems such as “excessive greenhouse gas emissions, the large-scale release of pollutants that result in poor air quality, inappropriate land use that leads to land degradation and biodiversity loss, deteriorating water quality and increasing levels of solid waste generation”.

The Treasury is showing that it is trying to practice what it preaches. Last year it started to measure the Budget’s environmental impact. This year it reports that it has managed to reduce the carbon dioxide emissions from transport (flights and vehicle use) by more than 3,000kg; it reduced the amount of paper it used and in the process saved 119.5 trees; and it used 200MW less electricity than during last year’s budget period.

All we can say is, keep up the good work, and what about aiming for carbon neutral next year?

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