EHS regulatory developments in South Africa may have far-reaching effects
South Africa has developed into something of a bellwether for environmental health and safety (EHS) regulation on the African continent.
South Africa has developed into something of a bellwether for environmental health and safety (EHS) regulation on the African continent. For that reason, the recent adoptions of a “carbon tax” and a ban on Persistent Organic Pollutants should serve as notice to companies with operations in Africa of a possible regulatory ripple across the continent.
The EHS landscape of the African content is changing and South Africa appears to be leading the way.
Background
Participants in a March 2011 webinar hosted by Enhesa identified a lack of clear and consistent EHS regulations as a challenge to their operations in African countries. In response, Enhesa generated an EHS regulatory and enforcement matrix based on our regulatory database. The matrix revealed South Africa to be on par with the United States and the United Kingdom in terms of the breadth and enforcement of EHS regulations. In fact, South Africa was a global frontrunner in at least one sense: it was one of only a few countries at the time that required compulsory sustainability reporting as a condition for a company’s listing on its stock exchange.
On the African continent, South Africa has led on several EHS regulatory issues—including the implementation of a regulatory framework for the safe management of industrial chemicals. South Africa was the first of the 16-member Southern African Development Community to take concrete action on the Globally Harmonized System of Classification and Labelling of Chemicals (“GHS”), converting aspects of the GHS into national standards (SANS 10234-2008) and proposing to finalize corresponding regulations by 2020. Mauritius, Kenya, the Democratic Republic of Congo and Botswana have subsequently taken similar steps.
It has been argued that South Africa’s position as the continent’s second largest economy is the basis for its more advanced EHS regime. South Africa’s significant trade relationships with Organisation for Economic Co-operation and Development member countries that have GHS implementation obligations, for instance, are cited as the reason for the country’s alignment with the GHS. According to a study conducted by Enhesa in 2011, other African countries feel the pressure to modernize their EHS regulatory frameworks in order to attract foreign investment. While this might be a good explanation for South Africa’s role as a bellwether, it must be noted that South Africa’s Constitution includes specific provisions for environmental protection and occupational safety which form the basis for several of the environmental health and safety requirements. In addition to promulgating comprehensive Acts, implementing regulations and codes of practice in areas such as waste treatment and disposal, water abstraction and occupational health in mining operations, South Africa has recently drafted innovative regulations on energy efficiency in building construction and management.
Although African countries have generally moved towards developing robust EHS regimes in the past five years (with some surpassing South Africa in areas such as plastic waste management), South Africa has largely remained the continent’s “first adopter.”
For the above-stated reasons, it would make sense for companies that operate within the territories of African state Parties to the Paris Agreement on Climate Change and the Stockholm Convention to take special note of the following two EHS regulatory steps taken by South Africa this year.
Two Significant EHS Regulatory Developments
In June 2019, South Africa introduced a carbon tax. Within three months, it also announced regulations to phase out five groups of persistent organic pollutants (POPs). Both regulations fulfill an international agreement: the Carbon Tax Act relates to the Paris Agreement on Climate Change (“Paris Agreement), and the ban on POPs relates to the Stockholm Convention on the elimination of POPs.
The carbon tax act
While the Carbon Tax Act will certainly serve to fulfill South Africa’s commitments under the Paris Agreement, South Africa did not necessarily need the prompting of the Accord to act. A draft Carbon Tax Act was circulated in 2008. With the June 1, 2019 passing of the Act, South Africa is now the first African country and one of only 57 countries globally to impose a tax on greenhouse gas emissions. A University of Pretoria study predicts a 33 percent emissions reduction by 2035 as a result of South Africa’s carbon tax.
As of June 1, 2019, if a company located in South Africa is involved in operations that generate greenhouse gases (“GHGs”), such as the use of a machine that combusts fuel of above 10 thermal megawatts annually for a manufacturing process, that company must now pay an initial marginal carbon tax of 120 South African Rand (approximately 8.00 USD) per tonne of carbon dioxide.
The Carbon Tax Act is being implemented in 2 phases: Phase 1 lasts from June 1, 2019 through 31 December 2022, with Phase 2 beginning on January 1, 2023. During Phase 1, the carbon tax applies only to emissions resulting directly from fuel combustion and gasification, and from non-energy industrial processes (“scope 1” emissions).
Remarkably, during Phase 1, the Carbon Tax act permits offsets and allowances of up to 95 percent for each company. The specific tax breaks applicable during Phase 1 are as follows:
- First, all facilities will receive a 60 percent tax-free allowance – no taxes will be payable for up to 60 percent of emissions. This is to allow taxpayers time to transition to low carbon alternatives.
- In addition, each taxable facility—based on its specific activities—could receive one or more of the following:
A 10 percent allowance for “process emissions and fugitive emissions” in order to provide relief for industries whose chemical processes are inherent and allow only a limited scope for GHG emissions reduction;
– A variable allowance capped at 10 percent for “trade exposed” sectors, i.e., industries where exports account for a significant portion of total revenue;
– A variable allowance capped at 10 percent for facilities that use carbon offsets to reduce their tax liability;
– A “performance allowance” of up to 5 percent for facilities that reduce the GHG emissions intensity of their activities; and
– A 5 percent “carbon budgeting allowance” for facilities that comply with reporting requirements.
Phase 2 of the implementation is slated to last from 2023 through 2030. Any changes applicable during Phase 2 (including changes to the scope of taxable activities) are to be determined after a review of Phase 1.
Despite the Act’s considerable number of offsets and allowances, South Africa’s introduction of a carbon tax in the first place is unprecedented across and, to some extent, beyond the African continent. For reasons previously stated, companies operating in African countries (especially African state Parties to the Paris Accord) may see some movement towards the promulgation of similar regulations.
Regulations to phase out the use of persistent organic pollutants
South Africa’s second major EHS regulatory move this year was on the management of chemicals.
On September 10, 2019, South Africa rolled out a ban on the use, distribution, sale, production, import and export of five groups of POPs.
According to South Africa’s Department of Trade and Industry, POPs are toxic chemical substances that bio-accumulate in the food chain. They persist in the environment for an extended period, thereby posing a health risk. POPs were widely used in the late 1940s as additives for paints and lubricants, as ingredients for pesticides and as hydraulic and heat exchange fluids in electrical transformers and large capacitors. Examples of POPs include hexabromobiphenyl CAS No: 36355-01-8 (found in fire retardants); and Pentachlorobenzene CAS No: 608-93-5 (commonly used as an intermediate in the manufacture of pesticides). Today, POPs have mostly been banned due to their harmful effects.
Because they can be transported by wind or water, and therefore move into areas from which they do not originate, POPs have a long-range impact that poses a global threat. The Stockholm Convention on Persistent Organic Pollutants of 2001 (“Convention”), which deals with the phasing out of the production, use and waste management of POPs, is intended as an international solution.
South Africa became a state Party to the Convention roughly 15 years ago and has introduced the Regulations to Phase Out the Use of Persistent Organic Pollutants (“Regulations”) to satisfy its obligations under the convention.
Under the Regulations, no person may use, produce, distribute, sell, import or export the following POPs after the corresponding dates below:
- Hexabromobiphenyl and Hexabromobiphenyl formulations and products (after 31 December 2020)
- Pentachlorobenzene and Pentachlorobenzene formulations and products (after 31 December 2020)
- Perfluorooctane Sulfonic Acids, their salts (PFOS) and Perfluorooctane Sulfonyl Fluoride; PFOS formulations and products (after 31 December 2021)
- Hexabromodiphenyl Ether (Hexa-BDEs) and Heptabromodiphenyl Ether (Hepta-BDEs); Hexa-BDEs and Hepta-BDEs formulations and products (after 31 December 2020)
- Tetrabromodiphenyl Ether (Tetra-BDEs) and Pentabromodiphenyl Ether (Penta-BDEs); Tetra-BDEs and Penta-BDEs formulations and products (after 31 December 2020)
Summary
On the African continent, South Africa is taking the lead in developing and implementing certain major EHS regulations as exemplified by the two significant developments discussed above. This is, in part, due to South Africa’s Constitution, which contains provisions for environmental and health and safety issues, the country’s participation in international conventions geared toward protecting the environment and South Africa’s position as one of Africa’s largest economies.
As was the case with the implementation of the Globally Harmonized System of Classification and Labelling of Chemicals, other African countries have tended to follow suit to attract foreign direct investment. As South Africa continues to be targeted by foreign governments and large multinationals for projects with large EHS footprints, the projection is for South Africa to continue to innovate in the EHS regulatory arena. With other African nations such Nigeria and Ghana (the world’s fastest growing economy in 2019, according to the International Monetary Fund) recently also being targeted for foreign investment by other foreign nation states such as China, Brazil and India, there is an even higher chance that those African nations will take similar steps to accelerate the modernization of their EHS regulatory frameworks.
Despite the allowances made for facilities to adapt to these new requirements, it is important for companies operating within Africa to regularly monitor EHS developments while anticipating business impacts that will inevitably result from this ramp up of compliance obligations.