Carbon reporting need not be a taxing affair
A company-wide, informed approach will help iron out inaccuracies and confusion
The budget rarely contains pleasant surprises. The 2019 edition had the usual sin-bashing, bracket-creeping, Eskom-succouring stuff. However, for some one of the biggest shocks from finance minister Tito Mboweni was the news that we would soon have yet another tax on fuel: the carbon tax.
This filling-station aspect of the carbon tax works out at 9c/l on petrol and 10c/l on diesel. And, of course, it comes on top of the fuel levy and all the other add-ons that are snatched out of the motorists’ pockets while their fuel tank is getting a top-up.
Those of us whose day-to-day business involves advising companies on the carbon tax and a cluster of other government sticks and carrots were not surprised by the announcement. The Treasury had briefed MPs and others that there would be a direct impact on the cost of fuel, as well as all the broader effects of this anti-emission fiscal instrument.
It is perhaps unfortunate that the rest of the looming carbon tax tsunami did not attract quite the same attention. Mboweni confirmed in the budget that, after several postponements, the carbon tax will be implemented from June 1, even though the first payment is only due on June 30 2020.
The aim of the carbon tax is to help SA meet its climate-change commitments to reduce emissions. A noble aim. However, there are complexities and contradictions that should not be ignored. When a large energy firm produces or refines petrol and diesel, it pollutes. When it pollutes, it is liable for carbon tax. But what if a large chunk of this tax is paid not at the refinery, but at the filling station? Then it is the motorist, and not the industrialist, who is hit. What does this do to incentivise the company to adopt cleaner production methods? Maybe not a lot?
The raison d’être for the carbon tax is to reduce pollution and clean up the planet to save us from a rise in sea levels and all the other nasties. But how does it incentivise behaviour change if behaviour cannot be changed? In a mining company, for instance, it is almost impossible to cut back on fuel consumption. It is the nature of the business. You need power for ventilation, temperature control, to get people and things safely up and down to and from the depths. More mechanisation improves safety, but it also likely to boost your fuel bill.
For the motorist, the carbon tax administration is simple. You just pay your carbon tax as you swipe your credit card, with the blessed bonus of receiving a few drops of fuel. However, in the corporate context it is a very different kind of tax and needs a very different scale of attention. The finance division will have to deal with things its finance people have never dealt with before.
The tax is based on carbon emissions, and on precise measurement and calculation. It is almost a science of its own. You need an engineer and a sustainability expert to report on it, to compile the data. Because the emissions were never taxed before, you did not previously need to be too rigorous. Most of the time it was voluntary disclosure. Beware, though. Industry is having to be more accurate with the mandatory reporting of greenhouse gases, which came into force from April 2017, and the data from this will form a central element in assessing carbon tax liability.
Companies had to report for the first time in March 2018. Not all were ready, and not all did so. March 2019 was the second time companies were obliged to do so. Many firms are still on the back foot as they are still trying to understand and catch up with this legislation. They need to register and report annually to the department of environmental affairs. All this means different divisions inside a firm need to start talking to each other, in an unprecedented manner. They have to get into the same room and communicate effectively.
It is not just a task for the accountants and the environmental-sustainability people, but also for those involved in the energy side of the business. Previously, based on our experience, the reporting of emissions was not 100% accurate. Some people used default emissions factors, which could often be based on a scientific study conducted elsewhere in the world. It was a Band-Aid approach that sacrificed accuracy for expediency.
If firms want to fully comply with the legislation, and they are well advised to do so, they must be encouraged to do site-specific reporting so they don’t end up overstating their emissions.
It is surely in the interests of companies and their shareholders, that they ensure they do not overpay their carbon tax, however noble a sacrifice this might be. These are taxing times.
• Burchell is a carbon tax specialist at Cova Advisory