This article first appeared in Business Day

Zack Fineberg, Head of ESG & Sustainability, PKF Octagon

South African businesses are entering a pivotal year. As 2026 approaches, the convergence of carbon regulation, taxation, and climate accountability will redefine the cost of doing business. The 2026 National Budget is expected to sharpen the focus on carbon emissions, while new regulations under the Climate Change Act 22 of 2024 will embed carbon budgeting and mitigation planning into corporate strategy.

Carbon accounting is no longer a compliance exercise — it’s the foundation of competitiveness and resilience.

The Next Phase of the Carbon Tax: A Structural Shift

Government has signalled that the second phase of South Africa’s carbon-tax regime will fundamentally reshape how companies measure, report, and manage their emissions.

Key proposals include:

• Shrinking tax-free allowances: The base tax-free allowance, currently around 60%, is set to fall by 10 percentage points in 2026, followed by annual 2.5-point reductions through 2030.
• End of the “carbon budget” allowance: Emissions exceeding approved budgets could attract a punitive rate of R640 per ton CO₂e from 2026 — a major cost driver for high-emitting sectors.
• Expanded use of offsets: To ease pressure on hard-to-abate industries, the offset allowance may rise from 5% to as high as 25%, allowing companies to meet part of their liability through verified carbon-credit projects.

These measures will be cemented through amendments to the Taxation Laws Amendment Bills, aligned with the forthcoming Draft National Greenhouse Gas Carbon Budget and Mitigation Plan Regulations and their technical guidelines, both released for public comment in August 2025.

What This Means for South African Business

For many companies, the carbon tax has been a line item on the balance sheet. In 2026, it becomes a strategic lever — affecting margins, export competitiveness, and even access to finance.

1. Planning for shrinking margins

As allowances contract and effective rates rise, carbon-intensive operations will face escalating costs. Carbon risk now directly impacts profitability.

2. Offset strategies as strategic assets

Securing access to credible, high-quality offsets — and ensuring they align with approved standards — will be critical for cost management and reputational integrity.

3. Carbon budgeting discipline

Businesses that align emissions within their allocated carbon budgets will avoid punitive rates and demonstrate leadership under the Climate Change Act.

4. Low-carbon investment acceleration

Energy efficiency, electrification, and renewable integration are no longer aspirational ESG goals — they are tax-reduction mechanisms and long-term resilience drivers.

5. Export and CBAM exposure

The EU’s Carbon Border Adjustment Mechanism and other trade-related climate measures will reward transparent, low-carbon producers. South African exporters must prepare now to remain globally competitive.

6. Policy participation

Active engagement in consultation processes will be essential to shape practical frameworks and prevent unintentional economic distortions in key industries.

The Road Ahead: From Compliance to Competitiveness

Carbon taxation, carbon budgeting, and sustainability disclosure are converging into a single governance and financial reality. For forward-looking businesses, the question is no longer whether to act, but how fast they can adapt.

At PKF in South Africa, we see this transition as a chance for South African businesses to lead — to integrate carbon data into financial decision-making, to invest in sustainable technology, and to build the transparency that investors, customers, and regulators increasingly demand.

In 2026, carbon literacy will separate the prepared from the exposed. Those who treat carbon accounting as the new currency of business will find themselves not burdened by compliance, but empowered by foresight.

Whether you’re preparing for Phase 2 of the carbon tax, aligning with carbon budgets, or strengthening your sustainability disclosures, early, informed action will define your resilience in 2026 and beyond.

Now is the moment to turn carbon risk into competitive advantage