This project analyses the implications of the Phase Two design of the carbon tax for the electricity sector contained in the draft Taxation Laws Amendment Bill (TLAB) of 2025. The Briefing Note provides an analysis of the Phase Two tax in the electricity sector and finds that the 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 coal plant via transitionary measures, and Treasury’s objective of keeping the tax electricity price neutral. 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