The National Energy Regulator of South Africa’s (Nersa’s) recent decision to disallow Eskom from raising revenue through the tariff for carbon taxes may indicate that the National Treasury has opted to extend the electricity price neutrality approach used during the first phase of the tax by a further five years to 2030.

In its sixth multiyear price determination application (MYPD6), Eskom applied for carbon tax revenue of R5.5-billion in 2025/26, R21.3-billion in 2026/27 and 18.9-billion in 2026/27 in anticipation of the implementation of the second phase of the carbon tax on January 1, 2026.

When asked by Engineering News whether the disallowance meant that Eskom had received an exemption from the National Treasury, CFO Calib Cassim responded by saying: “[As with] the environmental levy, in terms of the [MYPD6] methodology, Eskom is allowed to recover that as a pass-through. We’ve applied and obviously we anticipate that there have been engagements between Nersa and the National Treasury, so that question should be referred to Nersa.”

Nersa continued to allow Eskom to collect revenue at a rate of 3.5c/kWh for the environmental levy, with the determination including allocations of R6.5-billion, R6.3-billion and R5.3-billion for the three financial years covered by the MYPD6.

Electricity and Energy Minister Dr Kgosientsho Ramokgopa also refused to comment, saying that tax and fiscal matters were in the domain of Finance Minister Enoch Godongwana, “so I will not encroach on that space”.

However, EY tax partner Duane Newman believes the decision to disallow Eskom’s carbon tax request suggests that Godongwana will use his February 19 Budget to announce an extension of the electricity price neutrality approach adopted during the first phase of the carbon tax into the second phase.

During the first phase, the carbon tax did not impact the price of electricity as electricity generators were allowed to offset the electricity generation levy and renewable energy premium payments against their carbon tax liability.

Ahead of the second phase, two options were canvassed, with the first being the retention and extension of the electricity generation levy to 2030.

The second option was for the electricity generation levy to be removed and for a carbon tax to be imposed on combustion emissions from 2026, offset against a portion of the renewable-energy premium.

The second option had been recommended, as it was seen as a clearer incentive for Eskom to lower its carbon emissions to reduce its carbon tax liability.

However, Newman believes the Nersa decision points to an extension.

In addition, he says the environmental levy could be refashioned as a carbon tax, which would also help offset the negative consequences for South African imports that will arise when carbon border adjustment mechanisms are introduced in Europe and elsewhere.

Besides an announcement regarding the approach to revenue neutrality for electricity generation, Newman anticipates that Godongwana will also make announcements relating the approach to be taken with regards to allowances during the second phase, as well as whether the revenue collected will be allocated to incentives.