Carbon Credits & Tax Compliance in '25: What South African Companies Must Know

corpfin1
Jan 10
2 min read

South Africa’s commitment to carbon reduction under the Paris Agreement continues to take effect through the implementation of the Carbon Tax Act, 15 of 2019 (“the Act”), now entering the final stretch of its extended Phase 1.

The tax applies to companies whose operations generate greenhouse gas emissions above the prescribed thresholds in Schedule 2 of the Act. These include industries such as energy, mining, cement and brick manufacturing, transport, and petrochemicals, with measurable carbon output tied directly to tax obligations.

Where Are We in 2025?

The Phase 1 extension, originally set to conclude in 2022, now runs through to 31 December 2025. During this period:

The carbon tax remains fixed at R144 per tonne of CO₂-equivalent emissions
Annual increases are limited to CPI + 2%

Phase 2 is expected to commence in 2026, gradually increasing the rate to USD 30/tonne by 2030

Understanding Carbon Credits (Offsets)

Section 13 of the Act allows companies to offset a portion of their tax liability by investing in approved emission reduction projects.

These offsets, commonly known as carbon credits offer a mechanism for:

Reducing tax exposure
Contributing to verified environmental or social mitigation
Supporting clean energy, reforestation, or community-based climate resilience projects

Legal Framework for Carbon Offsets

Carbon credits are governed by:

The Carbon Offset Regulations, 2019
The Draft Domestic Carbon Offset Standard Framework (2022)

Approved offsets include projects under:

Clean Development Mechanism (CDM)
Verified Carbon Standard (VCS)
Gold Standard (where aligned with South African criteria)

Ineligible projects include:

Renewable projects under large-scale Power Purchase Agreements
Nuclear energy-based offsets
Projects exceeding installed capacity thresholds defined in the regulations

How Much Can Companies Save?

Carbon offsets can reduce a company’s carbon tax liability by up to 10% of total emissions. This translates to a saving of:

R7.20 to R14.40 per tonne, depending on the emission source and offset structure
Higher savings typically apply to combustion emissions over fugitive emissions

However, offsets must be assessed in context, not all emitters benefit equally. Companies must weigh:

Project approval timelines
Offset purchase or project development costs
Annual tax liability projections under CPI+2% increases

What Lies Ahead for 2026 and Beyond?

With the second phase around the corner and international carbon pricing alignment on the rise, Treasury has cautioned large emitters: Failing to act now may result in significant future tax exposure.