The South African Carbon Tax Act came into effect on 01 June 2019 and is based on the ‘polluter pays principle’. The tax will be implemented in phases, with the first phase being June 2019 to December 2022. This is to give companies time to transition to cleaner, energy efficient processes and technologies.Companies and public entities will be liable to pay the carbon tax if conducting an activity that results in the emission of greenhouse gases above the prescribed emission thresholds. The greenhouse gases covered include: carbon dioxide, methane, nitrous oxide, perfluorocarbons, hydrofluorocarbons and sulphur hexafluoride.Activities such as: emissions from stationary combustion of fossil fuels (e.g. diesel generators, boilers); fugitive emissions (e.g. emissions from venting and/or flaring of mine methane); and, emissions from industrial processes and product use (e.g. cement-, lime-, or glass-production) will be covered in the carbon tax.The emissions thresholds for these categories are sector specific.The tax is measured per ton of CO2, or CO2 equivalent.The headline tax rate is R120 per ton of CO2 equivalent, and is subject to inflation plus 2% until the end of phase 1, and will then increase in line with inflation.

In the first phase, only Scope 1 emissions will be taxed. Scope 1 emissions originate from companies who own fuel-burning sources.It is important for all businesses to assess whether they will be liable for carbon tax and, if so, what the extent of their liability will be. Should they be liable, it is advisable that they start planning to reduce their carbon emissions.The tax will also have implications for companies’ supply chains. Organisations may have suppliers who are direct emitters, who will have to pay the tax. This may have a knock-on effect of a rise in the prices of goods and services.

There are three key steps that companies can take to understand, and then reduce, the carbon costs in their supply chains:

First, they need to understand the carbon footprints of each product or service. The entire lifecycle of product generation must be examined to determine how much energy is used to manufacture, deliver, and dispose of that product or service.

Second, they need to identify opportunities for reductions in energy use.

Third, they can switch to alternative energy sources (e.g. a switch from fossil fuel to renewable energy).A review of your own and/or suppliers’ carbon footprints not only has the benefit of reducing the tax liability, there can be clear business benefits as well. Reducing your carbon footprint can generate opportunities to build influence, create knowledge, reduce carbon emissions and generate financial returns. Reducing emissions can be achieved through improvements in more efficient product distribution and delivery, the use of more energy efficient technology, or environmentally friendly packaging.Keeping the carbon emissions of your supply chains in mind when deciding who to do business with will allow companies to choose more-efficient business partners, which could have the added benefit of cost reductions.Partnering with organisations who value energy efficiency in your supply chain could have a positive impact on the overall efficiency your company, and save money

.There are also reputational benefits to being a sustainable entity with a green supply chain. A demonstrated concern for the environment will enhance a company’s reputation among consumers, who are increasingly looking to support sustainable companies.In a carbon-constrained future, businesses will have to meet customer needs in a way that generates lower carbon dioxide emissions.Managing the carbon footprint of products across the supply chain and minimising carbon dioxide emissions are already being adopted by leading companies like Apple and BMW.Forward-thinking companies have an opportunity to develop and market low-carbon products, and the carbon tax may be the impetus that drives this.