It is critical that the failure to comply with carbon budgets and greenhouse-gas (GHG) mitigation plans by companies emitting GHGs attracts meaningful penalties to ensure that polluters make progress in addressing GHG emissions, says shareholder activism organisation Just Share.

The Climate Change Act will, once in force, for the first time provide South Africa with a law that is specifically aimed at developing an effective response to climate change.

"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,” says Just Share climate change engagement director Robyn Hugo.

“The Department of Forestry, Fisheries and the Environment and the 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,” she adds.

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, Hugo says.

“Just Share has also consistently highlighted the lack of adequate compliance and enforcement provisions in the Climate Change Bill,” she adds.

Carbon budgets are a crucial tool to be introduced by the Climate Change Act. 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, she explains.

“Outsourcing the consequence of a failure to comply with a carbon budget, such as by addressing it only through the carbon tax, is wholly inadequate and will subvert the crucial goals of the Climate Change Act.”

Meanwhile, industry has called for flexibility in the carbon budget process, and has sought more incentives for compliance, as well as increased government support in the transition.

Industry believes that it is unfair, or a double penalisation, for it to have to pay carbon tax on emissions within a carbon budget and for exceeding the budgets. Industry has also lobbied for special treatment for critical and hard-to-abate sectors.

Further, industry has called for the payment of carbon tax only at the end of every five-year carbon budget period.

“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,” Hugo says.

The payment of tax is not a penalty. Penalising those exceeding carbon budgets and/or failing to implement GHG mitigation plans through administrative and/or criminal penalties, as well as taxing excess emissions, does not constitute double penalisation, she avers.

“There is no legal impediment to administrative penalties, criminal penalties and taxation operating in tandem. Legislation that combines criminal and administrative penalties is common. A single act may give rise to more than one consequence,” she notes.

The carbon budget and mitigation plan 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, Hugo states.

“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,” she says.