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Are we prepared for a carbon tax?

By Quinton de Villiers

 

South Africa will soon be taking its first tentative steps towards honouring international commitments to reducing green-house gasses (GHG). This will be done by taxing businesses that emit carbon from industrial processes and through the combustion of fossil fuels.

While an important and commendable move by government that is in line with similar initiatives in other countries of the world, the premature introduction of such a tax will have a far-reaching negative impact on South Africa’s logistics and supply-chains.

This is despite the stellar effort already made by many of the country’s reputable road-transport logistics providers to drive more sustainable and “green” practices.

For example, reputable companies have invested into state-of-the-art information technology to significantly improve the monitoring of and efficient use of fuel, the single largest input and biggest contributor towards the release of carbon emissions by the industry.

Further efficiencies in fuel use have been achieved by the use of the latest generation truck technologies and the training of drivers to operate them at optimal levels.

Solid fleet maintenance and replacement strategies have also reduced the carbon footprint of reputable road transport logistics operations.

The Carbon Tax Bill was introduced by the Ministry of Finance in the National Assembly in mid-November 2018 and is expected to take effect from June 2019.

It is the culmination of an eight-year process that commenced with the publication of the carbon tax discussion paper, followed by the carbon tax policy paper in 2013; the carbon offset paper in 2014; the carbon tax bill in 2015; and the draft regulation on carbon offsets a year later.

During the first phase of its implementation, a number of tax-free allowances will be applicable and the tax will be capped at 95%.

The tax rate will vary between R6 and R48 per tonne, and this will be based on an initial headline rate of R120 per tonne of carbon-dioxide equivalent (CO2e), and various tax-free allowances.

Transport has been classified under the “other” section in the carbon tax policy paper as an industry that also emits GHGs, the lion’s share of which is CO2, followed by small traces of methane (CH4) and nitrous oxide (N2O) that are generated during the combustion of fuels.

This additional cost will only increase the already high price of moving goods throughout the country.

Bear in mind that South Africa’s logistics costs have increased as a percentage of transportable gross-domestic product – earned in the primary and secondary sectors of the economy – since 2010, and are already higher than the global average.

The largest contributor is the high price of mainly imported oil, which is an input that cannot be controlled by government and the road-freight industry, as is evidenced by the rampant diesel fuel hikes in 2018 due to a number of variables.

Eco driving; the use of environmentally-classified commercial vehicles, such as Euro 3, 4 and 5 truck engine technologies; deployment of optimised route planning; as well as the continued measurement of carbon emissions have all greatly assisted in using this finite resource more efficiently.

However, a more holistic approach that involves all stakeholders, including the public sector, is required to further reduce the carbon footprint of road transport to establish a truly “green” and environmentally-sustainable local freight logistics system.

An immediate priority is the deteriorating condition of many of the country’s provincial and local road networks, which leads to unnecessary stopping and starting of trucks, as well as the premature replacement of parts and componentry.

This has been exacerbated by highly-congested corridors due to delays in investment into large “brownfields” and “greenfield” road-infrastructure projects to improve the country’s logistics performance.

Long distances between nodes have also contributed towards high logistics costs and the release of large quantities of carbon and particulate matter into the environment.

This is a legacy of the past that used distances to separate communities and can only be addressed by investment into improved spatial planning and infrastructure that supports the development of “smarter” cities of the future.

Due attention must also be given to developing a truly multi-modal freight transport system as part of this plan.

It is also essential that the barriers to the deployment of the latest international truck engine technology in the country be removed.

This, in turn, requires a sizeable investment by both government and the private sector that spans the entire diesel fuel value chain that starts at the South African refineries and spans storage infrastructure and fuelling networks.

Bridgewater Logistics will continue to invest in environmentally-responsible ways of moving product, and play its part in reducing GHGs to help create a cleaner and sustainable environment.

 

Quinton de Villiers is the founder and managing director of Bridgewater Logistics with a long and impressive track-record in African logistics and security. Follow Quinton at #InTheFastLane for more insights and expert commentary on African transport and logistics.

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