Note: This article has been written on the basis of documents provided to the media during the 2025 Budget lock-up prior to the cancellation of the Budget Speech on February 19. The National Treasury has lifted the embargo imposed on the information, but a new Budget is now due to be tabled on March 12.

As anticipated, the 2025 Budget offered fresh guidance on South Africa’s approach to carbon taxes, including confirmation of government’s decision to extend the commitment to electricity price neutrality to December 31, 2030.

The tax rate increased from R190/t to R236/t of carbon dioxide equivalent (tCO2e) from January 1, but the Budget Review confirmed that a five-year extension had been granted for electricity price neutrality “to protect consumers from higher electricity prices”.

“This will be achieved by removing the electricity generation levy from 1 January 2026 and applying the carbon tax on electricity emissions.

“Electricity generators can continue to deduct a portion of the renewable energy premium from their carbon tax liability to the extent that there would have been a difference between the carbon tax and electricity levy,” the Budget Review states.

The announcement appears to align with the decision by the National Energy Regulator of South Africa to disallow Eskom from raising revenue through the tariff for carbon taxes.

Eskom applied for carbon tax revenue of R5.5-billion in 2025/26, R21.3-billion in 2026/27 and 18.9-billion in 2026/27 in anticipation of the implementation of the second phase of the carbon tax on January 1, 2026.

The other carbon tax proposals outlined in the Budget Review include:

• An extension of the Section 12L energy-efficiency tax incentive for five years to December 31, 2030;
• An increase in the carbon offset allowance by five percentage points from January 1, 2026. The allowance will increase to 10% for fugitive and process emissions, and to 15% for combustion emissions and future allowance increases may be considered;
• The retention of the 30% trade-intensity threshold used to determine the trade exposure allowance for which a sector or company will qualify;
• The maintenance of the basic tax-free allowance until December 31, 2030, rather than reducing it from 2027;
• An extension of the carbon budget allowance for the voluntary carbon budget system until December 31, 2025;
• The introduction of a greenhouse gas emission intensity benchmark of 0.94 tCO2e/MWh for the electricity sector from January 1, 2026; and
• An extension to the utilisation period for carbon offsets generated from projects approved before the introduction of the carbon tax until December 31, 2028.

It was also confirmed that, from April 2, the carbon fuel levy will increase by 3c/litre to 14c/litre for petrol and 17c/litre for diesel.