10 June 2019

On 26 May
2019, President Cyril Ramaphosa signed off South Africa’s Carbon Tax Act, which
came into effect on 1 June. The financial impact on South Africa’s cement
sector should intensify carbon emission reduction programmes and accelerate the
trend towards the production of eco-blended cements, but it could also have a
negative effect of encouraging cheaper imports.

In this first phase, a tax of ZAR120/t (US$8/t) of CO2 emitted
will be in place. However, polluters receive 60-95% of carbon allowances free,
bringing the effective penalty down to ZAR6-48/t. Following a review of these
rates, phase two of the country’s carbon tax programme will run between
2023-30. Further greenhouse gases (GHG) being taxed include methane (CH4),
nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons
(PFCs) and sulphur hexafluoride (SF6).

South Africa’s carbon tax is directed at some 1000-1500 companies and 75% of
national emissions. The cement sector is a small part of this target reach, as
it accounts for just 1% of the country’s GHG, according to the Association of
Cementitious Material Producers.

South Africa’s Treasury estimates that the tax will produce revenue of ZAR1.8bn
(US$120m) in FY19-20, which is minimised by the offsets in the first period.
More importantly, the initiative ties South Africa to the Paris Agreement by
committing to cut emissions by almost 50% by 2030 (to between 398-614Mt of CO2)
in line with targets to limit global temperature rises to below 1.5˚C.

Cement industry response
With such a measure having a direct effect on the county’s cement industry, it
could be expected that the response would be negative. But for AfriSam, this is
not the case. The cement company has been proactively participating in the
legislation and has interacted with the Department of Environmental Affairs and
Treasury on the design of the Act.

The medium-term objectives for AfriSam are positive in that there will be a
drive towards implementing carbon reduction projects and blended cements. The cement producer also forsees a change in the way cement is viewed
by customers, now that a tax has been put in place, and a need to be
transparent on pricing to help customers make more informed and ‘greener’

“We are taking a transparent and responsible approach to the new tax,” says Richard Tomes, AfriSam’s sales and marketing executive. “By showing the amount of carbon tax payable on each specific bag of cement, our customers will still see the base price that we are charging. This avoids any confusion about how much of the final price is going toward the tax.

“We believe that a tax should not just be a punitive tool, but it should also affect behaviour in society. Just as cement producers are working hard to reduce carbon emissions, so the end-user can also play their part by choosing an environmentally-friendly brand.”  

It is not yet clear how other domestic players such as PPC, Sephaku Cement (Dangote), Natal Portland Cement (Intercement), Mamba Cement and LafargeHolcim will respond to the carbon tax, but it is likely that they will also be looking to pass some costs on to the end-user and do more to promote eco-blend cements, such as fly ash and slag cements.

This could be the start of a significant change. The Industrial Policy Action Plan (IPAP) estimates that the Presidential Infrastructure Coordinating Committee (PICC) and Department of Trade and Industry (DTI) are planning about ZAR469bn in construction programmes between 2013-23. These should offer plenty of opportunity to switch to eco-blend cements when implementing these initiatives, which could serve as flagship projects for these ‘greener’ cements. In meeting this demand, the cement industry could supply eco-blend cements and lower the sector’s carbon emissions. With lower liabilities for carbon emissions of eco-cements would also enable space for producers to trade carbon credits and create another revenue scheme, suggest industry analysts Baker McKenzie.

The lines are still being drawn
Despite the positive outlook that environmental benefits might bring with the new tax, South Africa’s cement manufacturers will need to know if funds from the tax will be ring-fenced to assist them to implement further GHG emission reduction programmes. The industry is also aware that importers are not subject to the carbon tax. This could have a detrimental impact on the domestic cement producers, says Hannes Meyer, AfriSam’s cementitious executive. But environmentalists are expected to make further demands to limit emissions. South Africa’s Carbon Tax has taken almost a decade to implement and now that some progress has been made environmentalists will push for more.

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