Analysis of future carbon tax scenarios for South African gold mines

Abstract

The South African Carbon Tax Act came into effect in 2019, and it places a price on the emissions of greenhouse gases (GHG). The second phase of the carbon tax will be implemented in 2023. Presently, there is uncertainty regarding the changes that will be made to tax policy during this review. This is especially problematic since GHG emissions mitigation strategies are dependent on the existing tax policy design. Subsequently, carbon taxpayers, like gold mining companies, cannot plan for future carbon tax-related scenarios. The uncertainty regarding carbon tax policy changes needs to be reduced to assist South African gold mines with future carbon tax planning. This study investigated a variety of scenarios associated with Phase 2 tax policy designs and GHG mitigation strategies. The uncertainty was reduced through the assessment of the impact of tax policy design, and emissions mitigation strategies, on a gold mining company's future carbon tax exposure. This study developed possible carbon tax policy scenarios and emissions mitigation scenarios. An appropriate baseline scenario was identified for 2021 to 2027. The carbon tax exposure was calculated and forecasted for each scenario for the same period as the baseline. A sensitivity analysis was performed on these scenarios with reference to the baseline scenario. This was done to ascertain the sensitivity of carbon tax exposure to the scenarios themselves. The analysis of the carbon tax policy scenarios resulted in various findings. First, phasing out the basic tax-free allowance for fossil fuel combustion emissions would expose a gold mining company to more carbon tax annually compared to the baseline. However, the extent to which this is true could not be verified. Secondly, selecting a carbon budget based on national emissions reductions requirements, rather than a gold mining company's mitigation potential, would lead to higher annual carbon tax exposure if said budget is exceeded. Furthermore, the option for carbon budget penalty imposition by the National Treasury would result in higher annual carbon tax exposure for a gold mining company, compared to penalty imposition by the Department of Forestry, Fisheries and the Environment (DFFE). Lastly, carbon offsetting can reduce a company's emissions in terms of carbon accounting. This may be useful in achieving net-zero carbon emissions status. However, the resulting carbon tax exposure is only reduced if the percentage of emissions offset is within the constraint presented by the offset allowance in the Carbon Tax Act.

In terms of emissions mitigation, it was found that the implementation of a renewable energy plant to substitute coal-fired electricity purchases exposes a gold mining company to less carbon tax in future, when compared to sourcing power from the renewable energy sector.