SOUTH Africa’s big industrial greenhouse gas emitters won a reprieve on Thursday from revised carbon tax proposals issued by the Treasury.

The new plan raises the thresholds beyond which the tax is payable; allows offsets; and suggests "recycling" revenue into incentives and subsidies to invest in low-carbon technologies.

However, business warned that despite the lower rate, the proposed tax would raise the costs of doing business in South Africa.

Despite the softly-softly start, the Treasury warned that in the initial five-year phase the tax rate would be raised 10% a year, and a revised carbon tax with lower tax-free thresholds and a revised rate would start on January 1 2020.

The Treasury has proposed a tax of R120/ton of carbon dioxide equivalent above the tax-free threshold — generally 60%, but 70% for Eskom — and the ability to offset emissions, for example through carbon trade. Carbon dioxide, the most ubiquitous of the greenhouse gases linked to climate change, has become a proxy for them all. The ability to offset emissions would be phased out over time.

It is estimated between R8bn and R30bn will be collected each year, depending on final allowances and exemptions, Treasury chief director of economic tax analysis Cecil Morden said.

South Africa is in the invidious position of being an emerging economy that is also notorious for its high emissions, mostly because it relies on coal for most of its energy, Mr Morden said.

Climate change posed a major threat to humankind, and one of the most significant ways to mitigate risk was to reduce greenhouse gas emissions, the Treasury said. Also, there was "growing concern" climate change could "slow or possibly even reverse progress on poverty reduction".

The tax would be implemented from January 1 2015. South Africans already pay unofficial carbon taxes, and spent R11bn last year, according to Treasury records. Mr Morden said economic modelling suggested a broad-based carbon tax would make a "significant" contribution to emissions reduction, and would have "limited" negative macroeconomic effects.

However, Business Unity South Africa disputed his assertion, "as the extent to which the proposed revenue recycling measures will be successful remains uncertain pending further investigation".

Democratic Alliance (DA) finance spokesman Tim Harris said South Africa should not consider any new tax, "no matter how well intentioned", until economic growth recovered.

"The DA will oppose any tax increases over the next three-year budget cycle and until our economy improves its growth performance. The (International Monetary Fund) has revised our growth forecast down to 2.8% for 2013. This is half the rate of growth forecast for the rest of sub-Saharan Africa, indicating that our economic performance is a drag on African growth. The introduction of any new tax in the medium term will further dampen our growth performance," he said.

World Wide Fund for Nature-SA energy economist Manisha Gulati said a carbon tax was "a very, very good idea". But it would have a limited effect because the government set the mix of energy sources and neither industry nor households had much choice regarding where, or from whom, they bought energy.

Energy Intensive Users Group chairman Mike Rossouw said while it could be argued that heavy emitters had been given a large reprieve "as against facing a full tax", it would still raise the cost of doing business.

South Africa was one of a very few developing countries to plan for carbon taxation, and only the second from Brics. This could place South Africa at a competitive disadvantage against countries not imposing it, he said.

Mr Morden said carbon taxation would protect South African exports from border tariff adjustments imposed on products produced in places where carbon emission was not taxed or priced in some way.

Treasury deputy director-general Ismail Momoniat said trade-exposed sectors would be given graduated relief; also, early adoption of a carbon tax would give access to export markets for low carbon products.

The comment period on the second discussion document — available on the Treasury’s website — closes on August 2.