Weak regulation of corporate carbon budgets means that polluters won’t pay

Just Share’s latest briefing summarises the relevant background to new carbon budget regulations currently being drafted by the Department of Forestry, Fisheries and the Environment (DFFE), and explains why it is crucial that the failure to comply with carbon budgets and greenhouse gas (GHG) mitigation plans should attract meaningful penalties.

Once the Climate Change Act comes into force (it is currently before the National Council of Provinces), South Africa will, for the first time, have a law that is specifically aimed at developing an effective response to climate change. This legislation is very overdue and, like a meaningful carbon tax on GHG emissions, has been significantly delayed and weakened by anti-climate corporate lobbying by fossil fuel companies and their industry associations.

The Act introduces the crucial tool of carbon budgets: companies emitting a certain quantity of GHGs will be allocated a carbon budget. The budget must have a duration of at least three successive five-year periods; and must specify the maximum amount of GHG emissions that company may emit during the first five-year budget period. Companies are required to prepare and annually report to the Minister of Forestry, Fisheries and the Environment on their plans to remain within their budgets.

However, the current version of the Climate Change Bill does not prescribe any penalty – administrative or otherwise – if a company emits more than its carbon budget authorises it to. Nor does it appear likely that the draft regulations will penalise such violations. Instead, DFFE and National Treasury plan to amend the Carbon Tax Act to make provision for companies to pay a higher rate of carbon tax on GHG emissions that exceed their budgets.

Just Share’s briefing explains why “outsourcing” the consequences of a failure to comply with a carbon budget – so that this is addressed only by carbon tax – is wholly inadequate and will subvert the crucial goals of the Climate Change Act.

Business submissions on the draft carbon budget regulations

On 13 February 2024, DFFE held a workshop to solicit input to inform the draft regulations. Just Share presented at this workshop, as did EY South Africa; Project 90 by 2030, WWF South Africa, Climate Legal, Eskom, Business Unity South Africa (BUSA), the Minerals Council of South Africa, the South African National Accreditation System; and the Agricultural Research Council.

Just Share argued at the workshop that, to avoid the Climate Change Act being toothless, meaningful penalties for the failure to comply with a carbon budget and/or GHG mitigation plan must be included in the draft regulations (especially as these are unlikely to be included in the Climate Change Act at this stage). Just Share has also consistently called out the lack of adequate compliance and enforcement provisions in the Climate Change Bill.

In comments at the workshop, industry called for “flexibility” in the carbon budget process, and sought more incentives for compliance, as well as increased government support in the transition. It argued that it is unfair “double penalisation” for it to have to pay carbon tax on emissions within a carbon budget and for exceedances of the budget; lobbied for special treatment for “critical” and “hard to abate” sectors; and called for the payment of carbon tax only at the end of every five-year carbon budget period. As always, industry threatened that serious socio-economic consequences could result if it were required to reduce emissions at a rate it regards as not economically feasible.

This is the type of anti-climate corporate lobbying that has been so successful in delaying consequential, timeous climate regulation and the urgent emission reductions essential to limit the worst impacts of the climate crisis.

The false “double jeopardy” argument

The payment of tax is not a penalty. It is not correct, as organised business claims, that penalising the exceedance of carbon budgets and/or failing to implement GHG mitigation plans through administrative and/or criminal penalties, as well as taxing excess emissions, constitutes “double penalisation”.

There is no legal impediment to administrative penalties, criminal penalties and taxation operating in tandem. Legislation which combines criminal and administrative penalties is common. A single act may give rise to more than one consequence. This is not tantamount to “double jeopardy” – as argued in some of the industry comments on the Climate Change Bill.

The carbon budget and mitigation plans regulations must include meaningful penalties and other compliance and enforcement provisions to ensure that the Climate Change Act is effective and that Paris-aligned emission reductions are achieved. The draft regulations cannot simply defer all enforcement and compliance of carbon budgets and mitigation plans to be addressed through the Carbon Tax Act.

Failing to take more significant steps to reduce emissions in the short and medium term, will require steeper and deeper emission reduction cuts in future, with more severe consequences for our economy and the majority of people in South Africa. The carbon budget regulations must limit these prospects.

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