WHAT’S planned by the South African government is a delicate eggs en cocotte, but it’s more likely the country’s mining sector will be served a regular scrambled.
That’s the gastronomic equivalent of the proposed Carbon Tax which was put before the National Council of Provinces last week, and effective June 1. The premise is a tax of R120 per ton of carbon dioxide (CO2) in its first phase.
Some offsets are allowed by up to 70% of the total tax but even considering this, the Minerals Council South Africa considers the tax onerous and is not lending its support to the legislation, officially known as the Carbon Tax Act.
“Carbon taxes are part of toolbox in dealing with climate change so we accept it,” said Roger Baxter, CEO of the council. “But it needs to be part of a toolbox that works. South Africa shouldn’t be thinking about this yet. Yes, it should be getting its policies in line, but there needs to be breathing room. We just seem to be jumping into something that will detract from industry competitiveness,” he added.
The council’s objections are legion. But for mining sector investors, what do they need to know about the legislation’s effects?
- Is it actually needed?
Certainly. But based on the mining sector’s current efforts, and those of others in society and industry, South Africa is already on course for a reduction in greenhouse gas emissions (GHG) of up to 14% by 2025 and between 26% to 33% by 2035. This is above the benchmark trajectory set by none other than the government.
- Alignment with companion legislation?
This is a well-worn path for the government. There has been a long-standing lack of coherence in policy before. One thinks of the Mining Charter’s empowerment targets which didn’t match those set down by the Department of Industry. Similarly, the Carbon Tax doesn’t appear to marry with the carbon budget system being developed by the Department of Environmental Affairs via its draft Climate Change Bill.
- What about Stage 2?
The blueprint makes for a second phase of taxation for carbon excess but there has been no agreement on where this will settle. As an industry that needs to assure the long-lead nature of mining capital, this is obviously bad news. It’s like saying new empowerment regulations are coming in five years but not saying how or what.
The list goes on but the bottom line is that the country’s mining sector could do with less straight-jacketing and more encouragement, according to the council. With the Carbon Tax, however, the gold sector – two-thirds of which was loss-making in 2017 – will be hastened to its already inevitable end.
According to Baxter, the impact of poorly conceived tax will be felt on jobs. Had the Carbon Tax been applied in 2017 gross job losses in the mining sector would have been about 10,441, less the 3,605 jobs that would have been saved in terms of the diesel fuel refund. Nonetheless, the impact on a net basis would be 6,836 jobs lost.
The Minerals Council knows how to lobby. The way it conducts its campaigns is light years better than in previous years. Still, the Carbon Tax comes at a time when the National Energy Regulator of South Africa (Nersa) approved a 13.5% electricity tariff this year for Eskom, including recoveries allowed for previous above budget expenditure known as its Regulatory Clearing Account.
“This is a disaster,” said Baxter of the Eskom tariffs. The industry has spoken of the risk of losing a quarter of its total employment numbers equal to about 90,000.
“We’re not in denial. We know we need to response to climate change,” said Baxter, but even considering just the Eskom tariff increase, South African will have only two mines producing a mere 20 tonnes a year of gold profitably.