The introduction of a carbon tax in South Africa will have a significant impact on mining operations, particularly as operational costs are rising every year.

“Companies are dealing with three significant factors in energy policies, namely the cost of electricity, sufficient electricity supply and carbon emission management,” says audit, tax, and advisory firm KPMG resources economist Rohitesh Dhawan, discussing the impact of carbon legislation on the mining sector.

Electricity consumption accounted for about 5% of a company’s total operating cost five years ago. With an increase of 25% a year since, this cost increased to about 12% and, in the future, this is expected to rise to between 15% and 20% of the operational costs.

This affects the bottom line of a company and is becoming a significant challenge in the industry. The addition of a carbon tax will place more strain on a company’s finances.

“South African companies need to examine the impact a carbon tax will have on the industry,” he adds. Industry needs to reduce its emissions and impact on the environment, but it should be done in a way that does not compromise development.

Meanwhile, many countries are developing their own policies on climate change and carbon emission reductions.

South Africa aims to reduce its carbon emissions by 34% over the next decade. Released in October, the Cabinet-backed climate change plans requiure that limits be placed on carbon emissions for top polluters, who could face penal- ties if they do not conform to the new regulations, Engineering News reported in November.

Planned emissions limits and ‘carbon budgets’ will be set within the next two years, with a focus on key sectors such as electricity, fuels, mining and transport. The targeted companies and sectors will need to submit plans on how they plan to reduce emissions, he says.

Dhawan points out that, if South Africa does not implement a carbon tax, there is a possibility that the countries exported to may place a border tax adjustment on products landing on their shores. This will result in South African products becoming less competitive.

The mining sectors should examine the options of driving production efficiency and performance, pricing and quality through a ‘carbon lens’, while analysing international trends and how these would affect South Africa’s industry, he concludes.

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