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June Fuel Price Increase - Here Comes The Carbon Tax

Author: Jason Snyman
Date: 2019-05-16
We've known about the looming Carbon Tax for a while now, and 5 June will see it implemented at the fuel pumps. So, how much extra will we be paying next month, and will this madness ever end?

Well yes, it’s that time again. Tighten up the belts, plan your trips carefully and do all the freewheeling you can, folks, because it’s going to be an expensive winter.  

By October of last year, the price of 95-Octane petrol in South Africa, per litre, had smashed through the R17 mark. It was a record high, and an all new low.

Mercifully, the price subsided considerably over the festive season. But now, it looks as if we’ll almost certainly be entering the fifth consecutive month of price hikes, come June, and we’ll find ourselves too close to that R17 mark for comfort.   

It’s not all doom and gloom, at this very moment, and the price hike won’t be as substantial as it has been over the last couple of months. According to the latest data from the Central Energy Fund, we should actually be in for a little bit of relief, with a slight over-recovery in both 93 and 95 petrol. 

But of course, we have the Carbon Tax coming in, don’t we?

The Carbon Tax Bill – Paving The Way For Price Hikes

Early February saw the Standing Committee on Finance adopt the Carbon Tax Bill. Now, at face value, the Bill seems quite inoffensive – and may even be welcomed under different circumstances – but the problems become clearer the closer you look. 

The underlying purpose of the Carbon Tax Bill is to provide motivation for both consumers and carbon-heavy industries to adjust their behaviour and go a little greener – thereby resulting in a reduction of emissions. This is definitely a good thing. 

But then, it could also be seen as a blatant and heinous excuse for raising tax revenue, depending on how you look at it. 

While the Carbon Tax is clearly aimed at industry, there has, naturally, been a knock-on effect that will be felt by all South African consumers. Petroleum producers and refiners, after all, have to factor this tax into their value chain assessment – particularly on diesel, due to diesel’s higher carbon intensity. 

For liquid fuels, we now know that the Carbon Tax will run at 9c / litre for petrol and 10c / for diesel – expected to come into effect from 5 June. 

With the addition of the Carbon Tax, taxes now make up the highest proportion of fuel prices, ever. And if that isn’t quite enough – we may soon feel the full effect of the Carbon Tax in our electricity bill as well. 

Keep that in mind, as you stare into the abyss at the pumps next month and wonder where it all went so horribly, horribly wrong. 

The Fuel Prices Expected For June

So, what are the factors that contribute to our fuel price? 

Firstly, we’re far too reliant on the import of petroleum products, and therefore we have the fluctuating international oil prices to worry about, which are determined by a number of volatile elements. Such as Trump’s current trade war with China, or the US sanctions against Iran – a massive oil-producing country. 

And then we have the rand / US dollar exchange rate, which hasn’t looked too optimistic for a while, and which naturally affects how much we get for what we’re paying. 

The global price of oil had begun to enjoy a bit of a decline recently, when, naturally, a Saudi pipeline suffered a devastating drone attack, which severely threatened the international oil supply. 

So, we got an increase in the oil price, instead. 

Come June, best-case scenario, we’ll only be paying the extra Carbon Tax on every litre, minus the over-recovery. For petrol users, this will lead to an overall increase of just a couple of cents. For diesel users, which saw an under-recovery instead of an over-recovery, the increase will probably be a lot more substantial. 

Worst-case scenario, terrible things continue to happen around the world, and we pay a whole lot more. This seems entirely likely. 

The way things are going right now, and with current pricing predictions for global oil in place, we could be looking at three or four more months of consecutive price hikes.  

Before the end of 2019, motorists could easily be paying R20 per litre. Make peace with that now already, and it may soften the blow a little bit when the day comes. 

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