New tax prods business into new green era

Paris agreement has ushered in a new era, and companies that fail to move with the times will pay a high price, write Duane Newman and Joslin Lydall

THE jury is still out on last year’s climate change agreement in Paris. Some believe COP21 was a breakthrough in combating climate change; others worry that the lofty commitments will not now translate into real action.

However, we are in no doubt that SA has taken a significant step forward, with the South African delegation firmly agreeing to tougher environmental measures, which now need to be put into action.

New measures and stricter and more comprehensive monitoring will be required. Even if some of the detail is not yet clear, what is clear is that this will need focus and attention by our companies.

It will be necessary to take a holistic view of carbon and energy issues at a company level.

It is important to look at all the policy instruments that will be used to control and assess the carbon footprint of a business.

The major challenge will be the new carbon tax, whose complexity should not be underestimated. It fits in a tax regime that already has a number of environmental elements, such as levies on plastic bags and electricity, an electric filament lamp tax, and the vehicle emissions tax.

The carbon tax will undoubtedly become the most burdensome environment tax for many firms, particularly manufacturers.

Companies will need to understand their carbon tax liability when the new instrument is implemented, and should be even more concerned about its effect in the following five to 10 years, during which it will be scaled up steadily.

The global trend for new projects has been to put an internal price on carbon into all business case assessments, and SA must follow.

Generally, our experience is that energy and environmental issues are looked after by a sustainability manager, while financial issues are the responsibility of the financial director. In future, the responsibility must shift to the finance department.

It should now be apparent that the consequences of not waking up to the green agenda, and of not acting on it, will be that investment decisions may be incorrect, and a company may be selecting the wrong technology, or technology that is too carbon-intensive. You must move your thinking from the dark ages to the new green age.

We expect there to be mandatory reporting implemented this year on a company’s energy use and greenhouse gas emissions, and ultimately, on its full carbon footprint.

In addition, companies that have an energy usage above a certain threshold will need to develop and submit an energy management plan to the Department of Energy.

This means any company with a large energy footprint on one or more sites needs to understand its current energy footprint, and the consequences of planned changes in the next five years.

This needs significant thought and interaction with the company’s strategic planning processes.

As part of the carbon budgeting process, companies should have submitted details to the Department of Environmental Affairs on their current carbon footprint — and expected carbon budget over the next five years. The challenge we have encountered to date is that many companies are just starting on this journey, which may mean the accuracy of the data they have collected is suspect.

As a lack of precision and accuracy could potentially have a financial consequence, a lot more care has to be taken to ensure all required data are collected, and that this is done with rigour.

A lot of work still needs to be done by many companies, and they must not underestimate the task.

The Paris agreement has ushered in a new era, and companies that fail to move with the times will soon be paying a very high price.

• Newman is a founding partner, and Lydall a carbon and energy specialist, at Cova Advisory and Associates, which advises firms on green issues and government incentives