(Virtual Showroom) For the past decade, climate compliance in South African industry has been seen as a box-ticking exercise with only the Tier 1 companies going above and beyond what is required by law. The likes of Anglo, Sasol, Sappi, and other listed companies, are the only ones who have both the capacity and motive to set up specialised[RA1]  sustainability functions, develop transition strategies, and set decarbonisation targets - they are the ones typically in the global spotlight. The lower tier industrial players, rather justifiably, treat it as a compliance exercise and leave it at that. Their reports get filed, returns submitted and carbon tax (if any) gets paid, and the operation moves on. This approach has been adequate given the regulations have been rather permissive and the financial implications modest. It no longer is. Three recent changes have moved climate action from a documentation exercise to an integral part of strategic decision-making for businesses.

The first change is legal. The Climate Change Act, Act 22 of 2024, commenced in Q1 2025 and establishes a framework for two major instruments – Sector Emissions Targets (SETs), carbon budgets [RA2] and mandatory greenhouse gas (GHG) mitigation plans. The draft Carbon Budget and Mitigation Plan Regulations and accompanying Technical Guidelines point to a proposed reporting threshold of 30 000 tCO₂e per[RA3]  year for listed activities. If finalised in this form, this threshold will catch many mid-tier industrial operators who previously did not need to report off guard. The Act also brings about punitive measures for non-compliance, making it a criminal offence to fail to submit these mitigation plans. Most importantly, these punitive measures can include a fine or imprisonment meaning they could be attached to a natural person, not just the company[RA4] . While it’s unlikely that CEOs will be thrown in jail for this, it is evidence of how serious the DFFE is on ensuring adherence to the new regulations.

The second change is financial. The Taxation Laws Amendment Act 5 of 2026, which was signed into law in April this year, introduces a penalty of R640 per tCO2e for emissions which exceed the carbon budget assigned – more than double the Phase 2 standard Carbon Tax rate rate of R308. The same Act removes the standard tax-free allowances on any above-budget emissions, meaning a company that exceeds its budget pays the full R640 with no basic allowance, no trade exposure allowance, no offset allowance. The compounding is deliberate – the polluter pays.

The third change is trade related. The EU’s Carbon Border Adjustment Mechanism, CBAM, has entered its definitive period this year. Importers of cement, steel, aluminium, fertilisers, and ferroalloys are now required to report on and account for the embedded emissions of products sold into the EU, leaving South African exporters commercially exposed[RA5] . While exporters aren’t directly affected, CBAM works by effectively imposing a carbon tax on importers of materials into the EU – so high footprint materials will lose their international competitiveness. While there are, in principle, provisions to account for South Africa’s Carbon Tax in CBAM liability, these are product specific and must be verifiable and auditable – and the systems required to prove this are beyond the current systems of mid-tier producers in South Africa.

There is a compounding aspect to the implementation of these regulations: it is not just a higher tax rate applied on the same allowances; it is a higher rate with no allowances, with a penalty applied tonne-by-tonne to the overshoot over carbon budgets. A modest carbon budget overshoot translates into material exposure.

The consequences of not moving quickly to get ahead of these changes in regulations can be significant, both from a financial and an operational standpoint. It may be tempting to see compliance as purely a governance issue, but implementation is an operational reality - compliance, that is developing an emissions mitigation plan, is a 6 to 9-month process and requires an in-depth understanding of your operation’s emissions profile and hotspots. That is assuming there is already a baseline measurement in place and access to resources to conduct these assessments. For smaller producers, ones that previously flew beneath the compliance radar, these systems and protocols are limited or simply non-existent. It is important to understand that there is a difference between simply having a number and having a defensible number in terms of compliance. The window to get ahead of the already impending regulations is closing fast.

This is not all doom and gloom as many of the technical provisions and regulations required to give full effect on this new regime have not yet been gazetted. In other words, the window of opportunity is still open. You may be thinking that this is yet another tax revenue collection avenue or bureaucratic burden. I would push back on that view. These measures are a regulatory expression of the global move towards a low-carbon future – to avoid catastrophic climate change and mitigate future impacts from extreme weather events.

Operators that take decisive action and implement tried and tested approaches to their decarbonisation plans will not only limit their exposure to the changes in regulations described above, but they will also convert these risks into an opportunity for business growth by increasing the international attractiveness and competitiveness of their products. Take stock of your operations. Make changes to your plans to avoid where you can. Reduce the emissions you cannot through efficiency measures. Substitute lower-carbon fuels and feedstocks where the economics make sense. Use high-quality offsets for the residual emissions you cannot address by other means. Follow these steps and the rest is paperwork. The world is moving towards a low-carbon future, and the time is now to leverage this and convert it from a business risk to a growth opportunity.

 [RA1]Watchout for the auto correct to US spelling