South Africa

ZA-4:Energy Efficiency Tax Incentive Regulations

Policy Description

The proposed Energy Efficiency Tax Incentive Regulations includes a tax break that can be earned by companies who are able to provide evidence of energy efficiency savings. Evidence of energy efficiency savings must be provided to the Tax authorities by handing in energy efficiency saving certificates. These are issued by the National Energy Development Institute (SANEDI) after they have approved report holding evidence on achieved savings.

Description

The proposed Energy Efficiency Tax Incentive Regulations includes a tax break that can be earned by companies who are able to provide evidence of energy efficiency savings. Evidence of energy efficiency savings must be provided to the Tax authorities by handing in energy efficiency saving certificates. These are issued by the National Energy Development Institute (SANEDI) after they have approved report holding evidence on achieved savings.

 

The Department of Energy published draft regulations to operationalize this incentive under the income tax act on 16 September 2011 [1] [2] [3] [4]. The legislation is already in place and the Regulations to implement the incentive await publication [6].

The legislation has been introduced to assist the manufacturing industry through the current economic crisis and to stimulate the expansion of energy efficient manufacturing capabilities in South Africa. All projects need to be manufacturing-related and specifically include an energy efficiency component. Projects must result in a minimum 10% energy reduction in the year that the investment is realised (relative to a pre-determined base year) and the saving must be sustained for a period of 4 years thereafter [5].

 

To operationalize the tax incentive, the policy recognises two categories of projects: projects with investments > ZAR 200 million, and projects with investments < ZAR 200 million. A further distinction is made between Greenfield and Brownfield investments (*1). Projects are rated on specific indicators and depending on scoring categorised in either a “preferred” or “qualifying” status.

  • Qualifying status (5 points): Greenfield: 35% of cost allowed as a tax deduction, capped at ZAR 550 million allowance, i.e. project cost capped at ZAR 1.571 billion. Maximum tax deduction is therefore: ZAR 154 million. Brownfield: 35% of cost allowed as a tax deduction, capped at ZAR 350 million allowance, i.e. project cost capped at ZAR 1 billion. Maximum tax deduction is therefore: ZAR 98 million.
  • Preferred status (8 points): Greenfield: 55% of cost allowed as a tax deduction, capped at ZAR 550 million allowance, i.e. project cost capped at ZAR 1 billion. Maximum tax deduction is therefore: ZAR 252 million. Brownfield: 55% of cost allowed as a tax deduction, capped at ZAR 900 million allowance, i.e. project cost capped at ZAR 1.626 billion. Maximum tax deduction is therefore: ZAR 154 million.

 

The government has allocated ZAR 20 billion available until 2015.

 

This is a complementary mechanism being implemented by the Government in anticipation of the implementation of the proposed carbon tax (see ZA-5). Some of the carbon tax revenue is expected to be recycled through this incentive [6].

 

Policy Information Expand this section for information on the key features of the policy, such as its date of introduction, categorization, main objective(s) and linkages with other policies.

Policy Categorisation

Policy Instrument Type: Economic, Incentives & Subsidies

Position in the Pyramid

About Us

Participation: Voluntary

Period

Start Date: 2012

Policy Linkages

Supports National Energy Efficiency Leadership Network (EELN) (previously called Energy Efficiency Accord) Effort Defining
Supports Eskom’s Energy Efficiency and Demand-side Management (EEDSM) incentive program Supporting Measure
Supports Eskom Energy Conservation Scheme (ESC) Supporting Measure

Agencies Responsible

Department of Minerals and Energy

Primary Objective: Energy

Objective

­To contribute to savings of electricity with the aim to secure short term electricity supply.

Target Group

Manufacturing industry.

Driver of energy consumption or emissions affected by policy: Total energy use / Total emissions / Specific energy consumption / Relative efficiency / Technology implementation rate / Other: reduce electricity consumption during peak hours

Implementation Information Expand this section for information on targets, monitoring, verification and enforcement regimes, and implementation requirements and tools.

Coverage

 Focus is on major manufacturing industries (production of alcohol, tobacco, arms, ammunition and certain biofuels are excluded).  Proposed minimum qualifying criteria 1 GWh savings over 5 years.

Quantitative Target? no

Target: N.A.

Progress Monitored? no

Verification Required? yes

Enforced? no

Sanctions: N.A.

Requirements on the Target Group

Draw up a report on achieved savings, have this report verified by an accredited verifier, have the verified report evaluated SANEDI and finally hand in the certificates with the South African Revenue Services in order to receive the tax break.

Support by Government

The government has allocated ZAR 20 billion available until 2015

Implementation Toolbox

Unknown

Complexity of Implementation

Government

Government organisations need to verify the energy savings claimed by the sectors and companies, and verify the exemption for the climate change tax break.

Target Group

Target group need to set up a monitoring system and have their savings verified.

Impacts, Costs & Benefits Expand this section to find information on policy effectiveness and efficiency.

Impact Quantitative Estimate Qualitative Estimate
Estimated effect on energy consumption or emissions Unknown at this stage Unknown at this stage
Estimated costs/benefits for industry N.A.
Estimated cost for government ZAR 20 billion has been allocated (effective from July 2010 and available for 5 years.

References & Footnotes

References

[1] National Energy Act 2008 Regulation on the Allowance for Energy Efficiency Savings. Regulation Gazette No. 9587 Regulasiekoerant, Vol. 555 Pretoria, 16 September 2011 No. 34596, http://www.energy.gov.za/EER/docs/1-Alg R 34596 16-9.pdf

[2] Press release by Department of Energy 16 Sept 2011, http://www.energy.gov.za/files/media/pr/2011/Media Release - Tax Allowance on Energy Efficiency.pdf

[3] Energy Efficiency Leadership Network Inaugural Workshop on 6 March 2012; presentation Mr. Xolile Mabusela, Director Energy Efficiency & Environment, Department of Energy, Government of South Africa

[4] Eskom; an overview of energy efficiency and demand side management in South Africa; presentation 30 January 2012, Tom Skinner, Eskom.

[5] Energy Efficiency Leadership Network Inaugural Workshop on 6 March 2012; presentation Barry Bredenkamp, SANEDI.

[6] Partnership for Market Readiness (2013). South Africa’s Policy Interaction Experience, presentation by Mpho Legate on 14 March 2013. Available at http://www.thepmr.org/system/files/documents/Policy%20Mapping%20II_South%20Africa_0.pdf