- Proposed suspension could reduce Eskom’s 2026 cost burden by an estimated R5.5 billion and ease tariff pressures.
- Climate finance and Just Energy Transition Partnership commitments may face heightened scrutiny.
- Export sectors risk full exposure to EU carbon border charges from January 2026.
South Africa’s Electricity and Energy Minister Kgosientsho Ramokgopa is reportedly developing a proposal to suspend South Africa’s carbon tax, a move that could materially alter the country’s energy pricing framework, fiscal position and international climate commitments.
The proposal has not yet been finalised or formally tabled before Cabinet. However, the Presidency has requested that National Treasury provide a detailed rationale for maintaining the tax, signalling that the debate has escalated to the highest level of government.
The proposal stems from internal Cabinet concerns that the carbon tax is not meeting its original objectives and is placing disproportionate pressure on industrial sectors.
Ramokgopa has previously linked the tax to rising electricity costs, arguing that delaying its implementation for Eskom could help mitigate proposed tariff increases of up to 36%. The carbon tax, introduced in June 2019, currently applies to major emitters including Eskom and Sasol through charges on greenhouse gas emissions.
If implemented, the suspension would have direct implications for Eskom’s financial and regulatory outlook in the 2026 financial year.
The carbon tax is estimated to account for roughly 1.6% of Eskom’s 2026 tariff increase application. While this represents a relatively small portion of the total requested adjustment, its removal would reduce the revenue requirement that Eskom must recover from consumers.
More significantly, Eskom’s Scope 1 carbon tax liability, driven by direct coal emissions, is expected to exceed the revenue it collects through the existing environmental levy from January 2026. Analysts estimate that this pass-through cost could otherwise add between 5 cents and 11 cents per kilowatt hour to electricity prices. Suspending the tax would prevent this additional burden.
Eskom has projected a carbon tax liability of approximately R5.5 billion for the 2026 financial year. A suspension would remove this immediate obligation from its balance sheet.
The National Energy Regulator of South Africa has recently updated Eskom’s allowable revenue determination, granting an 8.76% tariff increase from April 2026. Ramokgopa is reportedly seeking to use the proposed suspension as leverage in ongoing regulatory deliberations to keep future adjustments below 20%.
However, Treasury has proposed replacing the current electricity generation levy with the carbon tax in 2026. Should the tax be suspended, government may be compelled to retain the existing levy, which generates about R8 billion annually, potentially offsetting some of the anticipated consumer relief.
JETP funding and policy alignment risks
Suspending the carbon tax would introduce significant uncertainty into South Africa’s Just Energy Transition Partnership, a multi-billion-dollar climate finance arrangement with the International Partners Group, including Germany, the United Kingdom and the European Union.
The JETP operates as a policy-based lending framework, with funding linked to South Africa maintaining a credible decarbonisation pathway. The carbon tax is a central instrument referenced in the Just Energy Transition Investment Plan.
International partners have pledged more than US$13 billion to support the transition. Germany has committed approximately US$2.8 billion in loans, some at concessional rates. The United Kingdom has provided a US$1 billion debt guarantee through the African Development Bank, while the European Union announced a US$5.1 billion package in 2025 tied to decarbonisation of the power sector and social justice outcomes.
Although Germany and the United Kingdom have recently reaffirmed their support, there is growing sensitivity around policy consistency. Germany and the United Kingdom are reportedly in discussions to extend close to US$1 billion in additional loans. Suspending the carbon tax could complicate further approvals and weaken investor confidence.
Analysts also warn that without a clear carbon price signal, South Africa risks missing its revised Nationally Determined Contribution target of 320 to 380 megatons of carbon dioxide equivalent by 2035. The broader investment ambition of mobilising 98 billion dollars in private capital under the Just Energy Transition Investment Plan could also be undermined.
EU carbon border mechanism and export exposure
Beyond climate finance, a suspension carries direct trade implications under the European Union Carbon Border Adjustment Mechanism, which became fully operational from 1 January 2026.
Under EU regulations, importers can deduct carbon costs already paid in the country of origin. If South Africa suspends its domestic carbon tax, exporters like Sasol would lose the ability to offset local carbon payments against EU border charges.
As a result, South African exports would face the full EU carbon price, projected at between 80 and 100 euros per tonne in 2026. Instead of collecting carbon revenue domestically to fund industrial decarbonisation, South Africa would effectively transfer that revenue to the European Union.
Approximately US$1.5 billion dollars, or about R28 billion, in exports are considered immediately exposed under the current scope of the mechanism.
Sectors most at risk include:
- Iron and steel, with an estimated potential export decline of 8.2 percent
- Aluminium, where exports could fall by 13.9 percent due to high emissions intensity linked to coal-based electricity
- Fertilisers, with a projected 3.9 percent decline
- Emerging hydrogen exports, which may face certification challenges if the domestic regulatory framework weakens.
Even under the current regime, a price gap exists between the EU carbon price, estimated at around R1,630 per tonne, and South Africa’s effective rate of roughly R105 per tonne after allowances. Suspending the tax would widen this disparity entirely.
The proposed suspension of the carbon tax presents government with a complex policy trade off. While it could provide short term relief to Eskom and energy intensive industries amid tariff pressures, it also risks undermining fiscal revenues, investor confidence and South Africa’s international climate commitments.
As Cabinet deliberations continue, the outcome will shape not only the 2026 tariff trajectory, but also the credibility of South Africa’s long term energy transition pathway.
Author: Bryan Groenendaal
1 Comment
Whilst this article is spot on about the risks of abolishing the carbon tax in terms of retaining CBAM revenue and competitiveness, it – together with Ramokgopa – are wrong about the tax’s impact on electricity pricing. As we argue in http://www.meridianeconomics.co.za/publications/exploring-the-impact-of-phase-two-of-the-carbon-tax-in-a-transforming-power-sector, as currently designed, the tax will have no impact on electricity prices until at least 2030.
Rather retain the tax and reform the design as it pertains to the power sector to enable it to manage the transition and send the long term investment signals necessary for the competitiveness of our economy in a decarbonising world.