- Meridian Economics has published analysis on the implications of the Phase Two design of South Africa’s carbon tax for the electricity sector contained in the draft Taxation Laws Amendment Bill (TLAB) of 2025.
Meridian finds that the Phase Two tax does not incentivise mitigation in the sector beyond that of the Environmental Levy already in place since 2009, despite the introduction of the South African Wholesale Electricity Market. The reasons for the lack of mitigation incentives are found deep in the numbers, the continued regulation of the Eskom’s plant via transitionary measures, and Treasury’s objective of keeping the tax electricity price neutral.
The tax is critical to drive the transition to a low emissions power system in line with SA’s climate commitments. In a forthcoming Briefing Note Meridian will propose that the transitionary measures provide options for increasing its effectiveness which must be exploited. The resulting electricity price increase will be small, and on balance necessary for the country to maintain economic competitiveness in a decarbonising world.
The Briefing Note provided the foundation for Meridian’s comments on the TLAB in which we argue that decarbonisation has been traded off against electricity price neutrality at a time when the sector is in an investment phase and a long term mitigation signal is needed. We recommend that Treasury consider alternative design options to ensure that the fundamentals of carbon pricing are established in the sector, even if at a low rate.
Resources
Briefing Note: Exploring the impact of Phase Two of the carbon tax in a transforming power sector
Meridian’s Comments on the Taxation Laws Amendment Bill 2025
Author: Bryan Groenendaal
