South Africa’s Carbon Tax Act (Act 15 of 2019) puts a direct price on greenhouse gas emissions from industrial activity, with the headline rate reaching R308 per tonne of carbon dioxide equivalent (CO₂e) on 1 January 2026. Companies that emit above the thresholds in Schedule 2 of the Act must register with SARS, calculate their emissions, apply the tax-free allowances they qualify for, and pay the balance. Most of the compliance work sits in the allowance calculation, and those allowances are shrinking as the tax moves into Phase 2.
Who Is Liable
Section 3 of the Act makes any “person” carrying on an activity in South Africa that produces emissions above the Schedule 2 threshold a taxpayer.1South African Government. Carbon Tax Act 15 of 2019 “Person” is read broadly: corporations, partnerships, trusts, municipal entities, and public entities listed under the Public Finance Management Act all fall within it.
Taxable emissions come from three sources: fuel combustion (coal, gas, liquid fuels), industrial processes (for example cement clinker production or chemical manufacturing), and fugitive emissions that leak from oil, gas, or coal mining operations. If a facility does any of these above the Schedule 2 threshold, it is in scope. Power plants, refineries, steel mills, and petrochemical producers are the obvious taxpayers, but smaller operations can trigger liability depending on the activity.
The tax is an environmental levy under Chapter VA of the Customs and Excise Act of 1964, which means SARS runs it through its customs and excise division rather than the income tax system.2South African Revenue Service. Carbon Tax Every entity that meets the threshold must register with SARS as a licensed customs and excise client.
The Rate and How It Rises
The tax launched in June 2019 at R120 per tonne CO₂e.3National Treasury of South Africa. Carbon Tax Discussion Paper – Phase Two of the Carbon Tax The statutory escalation formula was CPI plus two percentage points during Phase 1 (2019–2022), then CPI only from 2023.1South African Government. Carbon Tax Act 15 of 2019 In practice Phase 2 rates have been set through the annual budget process well above CPI.
The scheduled rates through 2030 are:3National Treasury of South Africa. Carbon Tax Discussion Paper – Phase Two of the Carbon Tax
- 2024: R190 per tonne CO₂e
- 2025: R236 per tonne CO₂e
- 2026: R308 per tonne CO₂e
- 2027: R347 per tonne CO₂e
- 2028: R385 per tonne CO₂e
- 2029: R424 per tonne CO₂e
- 2030: R462 per tonne CO₂e
The jump from R236 to R308 in 2026 is roughly 31 percent, the largest single-year increase since the tax began. Above this sits a penalty rate of R640 per tonne CO₂e that applies to emissions exceeding a company’s mandatory carbon budget.3National Treasury of South Africa. Carbon Tax Discussion Paper – Phase Two of the Carbon Tax With the Climate Change Act promulgated in July 2024, mandatory carbon budgets take effect from 2026, so the penalty rate is now live rather than theoretical.
How the Tax Is Calculated
Start with total greenhouse gas emissions for the tax period, expressed in tonnes of CO₂ equivalent. Methane, nitrous oxide, and other gases are converted to CO₂e using global warming potential factors that reflect their warming effect relative to carbon dioxide. The emission factors and reporting methodology must be approved by the Department of Forestry, Fisheries and the Environment.1South African Government. Carbon Tax Act 15 of 2019
From the total emissions, subtract every tax-free allowance you qualify for. Multiply what remains by the applicable rate. That is the gross carbon tax liability for the period.
Tax-Free Allowances in Phase 2
The allowance system does most of the work in setting what a taxpayer actually owes. During Phase 1, a company could stack allowances covering up to 95 percent of its total emissions, meaning it paid on as little as 5 percent.3National Treasury of South Africa. Carbon Tax Discussion Paper – Phase Two of the Carbon Tax That cushion is now smaller.
From 2026, the basic tax-free allowance drops from 60 percent to 50 percent, and it will continue to fall by 2.5 percentage points a year through 2030. The separate carbon budget allowance disappears entirely, because carbon budgets are mandatory rather than voluntary. The carbon offset allowance expands to partly compensate.3National Treasury of South Africa. Carbon Tax Discussion Paper – Phase Two of the Carbon Tax
For combustion emissions in 2026:
- Basic allowance: 50 percent
- Carbon offset allowance: up to 25 percent
- Performance allowance: up to 10 percent
- Trade exposure allowance: 0 percent
- Maximum total: 85 percent
For process and fugitive emissions in 2026:
- Basic allowance: 50 percent
- Process and fugitive allowance: 10 percent
- Carbon offset allowance: up to 20 percent
- Performance allowance: up to 5 percent
- Trade exposure allowance: up to 10 percent
- Maximum total: 95 percent
The practical effect is sharp. At the R308 headline rate with the 85 percent combustion cap, the effective rate on those emissions is around R46 per tonne, roughly triple what many companies paid during Phase 1. Process and fugitive emissions stay lighter under the 95 percent cap, reflecting that they are harder to eliminate.
Carbon Offsets
Offsets let a taxpayer reduce its liability by buying credits from approved projects that remove or prevent greenhouse gas emissions elsewhere. Eligible credits during Phase 1 had to be registered under the Clean Development Mechanism, the Verified Carbon Standard, or the Gold Standard. Projects must be located in South Africa and outside the scope of activities already subject to the carbon tax; you cannot offset emissions from one taxed facility using reductions at another taxed facility.
From 2026, the offset allowance rises to as much as 25 percent for combustion emissions and 20 percent for process and fugitive emissions.3National Treasury of South Africa. Carbon Tax Discussion Paper – Phase Two of the Carbon Tax As the basic allowance shrinks, offsets become the main remaining lever, and demand for quality South African credits will rise with it.
Filing and Payment
The tax period runs from 1 January to 31 December each year.1South African Government. Carbon Tax Act 15 of 2019 After the period closes, taxpayers submit their environmental levy accounts and pay any liability through SARS. Section 17 requires yearly submissions as prescribed under the Customs and Excise Act.
The core filing document is the DA 180 Environmental Levy Account for Carbon Tax, which captures total emissions, calculation methodology, and the resulting liability.4South African Revenue Service. DA 180 – Environmental Levy Account for Carbon Tax Supporting schedules break the numbers down by category: stationary and non-stationary fuel combustion, fugitive emissions from oil and gas, fugitive emissions from coal, industrial process emissions, and the allowances claimed. Everything is submitted through SARS eFiling under the “Excise Levies & Duties” option, certified with an electronic signature.5South African Revenue Service. Frequently Asked Questions – Carbon Tax
Preparing a DA 180 pulls in detailed operational records: fuel consumption by type and facility, thermal efficiency data for boilers and furnaces, emission factors for each fuel source, and calibration records for any continuous emission monitoring equipment. The signed hard copy and supporting documents must be kept at the facility for inspection.4South African Revenue Service. DA 180 – Environmental Levy Account for Carbon Tax Discrepancies between fuel purchase invoices and production logs are among the most common causes of filing errors.
Who Falls Outside the Tax
Agriculture, forestry, and other land use (AFOLU), together with the waste sector, retain a 100 percent basic tax-free allowance because reliable emission quantification methods for these activities are still underdeveloped. Their effective tax rate is zero.3National Treasury of South Africa. Carbon Tax Discussion Paper – Phase Two of the Carbon Tax National Treasury has said this will be revisited once better methodologies exist, but no timeline is set.
Facilities with installed thermal capacity below 10 megawatts generally fall below the Schedule 2 thresholds and do not trigger a liability, which keeps small businesses and light commercial operations out of the compliance system. If a facility stays below the prescribed emission threshold for a full calendar year, no filing is required.
What Changes in 2026
For anyone who has been a carbon taxpayer since 2019, the shift from Phase 1 to Phase 2 is the biggest change in the compliance landscape so far. A higher headline rate, a lower basic allowance, and the removal of the carbon budget allowance together roughly triple the effective cost per tonne of taxable emissions for many combustion-heavy operations compared to 2025.
Three items catch companies out. The trade exposure allowance for combustion emissions drops to zero in 2026; anyone who relied on it needs a different plan. The expanded offset allowance creates a larger incentive to invest in verified offset projects, but supply of quality South African credits may not keep pace. And the mandatory carbon budget system means exceeding an allocated budget now triggers the R640 penalty rate rather than a reporting obligation alone.3National Treasury of South Africa. Carbon Tax Discussion Paper – Phase Two of the Carbon Tax
By 2030, the basic allowance will have declined to 40 percent for combustion emissions and the headline rate will reach R462 per tonne. Capital planning with long investment horizons should model the full trajectory rather than treat each year’s rate as a fresh surprise.