Carbon Tax Policy Updates
South Africa’s Carbon Tax Policy, introduced in 2019 is proposed to undergo substantial changes. While steep tax rates increases from R120/tCO2e at its introduction in 2019 to R462/tCO2e by 2030 are already adopted into law, the National Treasury now proposes the reduction of various tax-free allowances during Phase 2 of the tax (1st of January 2026).
The basic tax-free allowances are proposed to decrease by 10 percentage points in 2026 and 2.5 points annually thereafter, while carbon offset allowances are envisaged to increase by 15 points to 20-25%. The Carbon Budget Allowance will be phased out from January 2026 and emissions exceeding carbon budgets will be taxed at R640/tCO2e. The related legislative amendments to the Carbon Tax Act are expected to be included in the 2025 or 2026 Taxation Laws Amendment Bill.
| Year | Rand/tCO₂e |
|---|---|
| 2023 | 159 |
| 2024 | 190 |
| 2025 | 236 |
| 2026 | 308 |
| 2027 | 347 |
| 2028 | 385 |
| 2029 | 424 |
| 2030 | 462 |
|
190% The carbon tax headline rate will surge 190% from R159/tCO₂e in 2023 to R462/tCO₂e by 2030 |
R640 per tCO₂e Is the envisaged tax rate for emissions exceeding the allocated carbon budget starting in 2026 |
20–25% Is the proposed new maximum offset allowance from 2026 to support hard-to-abate sectors |
Tables 1 & 2 below illustrate the National Treasury’s proposed adjustments to tax-free allowances for combustion, industrial process, and fugitive emissions under the revised carbon tax framework, subject to revision.
Table 1: Proposed changes to the tax-free allowances for combustion emissions
| Proposal for Combustion Emissions (Tax Free Allowance Adjustments) | 10 Percentage Points Reduction in Basic in 2026 & 2.5 Percentage Points Reduction Per Year From 2027 + 15 Percentage Points Increase in Carbon Offsets + 5 Percentage Points Increase in Performance – Trade Exposure – Carbon Budget Allowance | ||||||||||
| NDC 3 | NDC 4 | ||||||||||
| Year | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2035 |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Basic | 60 | 50 | 47.5 | 45 | 42.5 | 40 | 37.5 | 35 | 32.5 | 30 | 27.5 |
| Carbon Offset | 10 | 25 | 25 | 25 | 25 | 25 | 25 | 25 | 25 | 25 | 25 |
| Performance | 5 | 10 | 10 | 10 | 10 | 10 | 10 | 10 | 10 | 10 | 10 |
| Trade Exposure | 5 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Carbon Budget | 5 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Max Allowance | 85 | 85 | 82.5 | 80 | 77.5 | 75 | 72.5 | 70 | 67.5 | 65 | 62.5 |
Table 2: Proposed changes to the tax-free allowances for industrial process and fugitive emissions
| Proposal for Industrial Process and Fugitive Emissions (Tax-Free Allowance Adjustments) | 10 Percentage Points Reduction in Basic in 2026 & 2.5 Percentage Points Reduction Per Year From 2027 + 15 Percentage Points Increase in Carbon Offsets + 5 Percentage Points Increase in Performance – Trade Exposure – Carbon Budget Allowance | ||||||||||
| NDC 3 | NDC 4 | ||||||||||
| Year | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2035 |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Basic | 60 | 50 | 47.5 | 45 | 42.5 | 40 | 37.5 | 35 | 32.5 | 30 | 27.5 |
| Process and Fugitive | 10 | 10 | 10 | 10 | 10 | 10 | 10 | 10 | 10 | 10 | 10 |
| Carbon Offset | 5 | 20 | 20 | 20 | 20 | 20 | 20 | 20 | 20 | 20 | 20 |
| Performance | 5 | 5 | 5 | 5 | 5 | 5 | 5 | 5 | 5 | 5 | 5 |
| Trade Exposure | 10 | 10 | 10 | 10 | 10 | 10 | 10 | 10 | 10 | 10 | 10 |
| Carbon Budget | 5 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Max Allowance | 95 | 95 | 92.5 | 90 | 87.5 | 85 | 82.5 | 80 | 77.5 | 75 | 72.5 |