Carbon Taxes, Tariffs and Tension

One of the biggest challenges our government faces over the next two years is how to advance the Just Energy Transition while ensuring energy remains affordable. They’ll need to sort out the regulatory landscape to fully liberalise the energy market and keep us on track to meet our global climate commitments. Achieving these goals is proving to be a delicate balancing act, with recent signs of tension.

For example, Electricity and Energy Minister Kgosientsho Ramokgopa has suggested delaying the implementation of the carbon taxes for Eskom to avoid pushing up electricity prices. Eskom is currently scheduled to pay carbon tax from 2026 – already six years later than for other sectors. The carbon tax is expected to account for roughly 1.6% of the utility’s proposed 36% tariff increase.

While Eskom’s proposed 36% tariff hike is clearly untenable – it would devastate households, cripple businesses, and kill any chance of 2% economic growth in the near term – trying to fix tariff issues by tweaking carbon taxes might do more harm than good.

With the EU advancing its Carbon Border Adjustment Mechanism (CBAM), which places tariffs on carbon-intensive imports, higher carbon taxes locally could actually help South Africa retain revenue domestically rather than sending money abroad. Treasury’s phased carbon tax plan, however, risks leaving some of our exports exposed to higher tariffs when exported to the EU.

Instead, South Africa should capitalise on this by using local carbon pricing to keep the funds here, where they can be directed toward our own decarbonisation initiatives. The government must avoid seeing carbon taxes as just a cost to polluters like Eskom. Climate change is already having costly impacts, and society at large is bearing the brunt. It’s time for the companies driving emissions to take responsibility for the consequences.

We are already halfway through the five-year timeline tied to the landmark Just Energy Transition Partnership, but progress remains slow. The pressure is mounting to launch visible projects that reassure our international partners, who are financing this effort, and local communities that the transition will benefit the country.

For too long, the government has emphasized that while South Africa is committed to meeting its climate goals, including net zero by 2050, it will do so at a pace and scale that it can afford. However, this ‘affordable’ pace has never been clearly defined or quantified. Without clarity on what this actually means, we risk moving too slowly when what we really need is a challenging but achievable pathway forward.