The Bottom Line
Cut your tax bill in half: How the 12L Incentive rewards energy-saving in businesses
The little-known government incentive has already saved manufacturers R20 billion in taxes and slashed 20 megatons of CO2 emissions.
By Larry Claasen
THE 12L Tax Incentive, designed to reward businesses for being energy efficient, can cut their tax bill in half, according to the South African National Energy Development Institute (SANEDI).
Speaking at the Manufacturing Indaba, SANEDI Senior Advisor for Measurement and Verification (M&V), Stalin Ndlovu, said the 12L Tax Incentive was a “carrot” meant to encourage cleaner production and energy efficiency within the industrial and manufacturing sectors.
“So the regulation itself incentivises good behaviour in terms of energy efficiency, whereby companies implement energy projects and demonstrate energy savings, and they are awarded 95c per kWh saved,” Ndlovu said.
First introduced in 2008 as a response to the first load-shedding crisis, the incentive is now designed to work alongside the carbon tax to influence corporate behaviour. The carbon tax was introduced in June 2019 and charged polluters R120 per ton for CO2 emissions.
The 12L Tax Incentive is administered by SANEDI, a state-owned government agency tasked with driving clean energy research, technology innovation, and energy efficiency.
In 2019, the incentive’s first sunset clause was extended from January 2020 to December 2022. The second sunset clause was extended to December 2025 in February 2022, and the benefit has since been extended to 31 December 2030.
“We are on our third extension, so we have this benefit up until December 2030… manufacturers and industry players need to optimise and leverage this benefit while it still exists,” Ndlovu said.
How the application process works
Businesses wanting to access the incentive must first register their project online. They must then appoint a South African National Accreditation System (SANAS)-accredited M&V consultant to assess the energy savings of their project.
SANEDI reviews the baseline submission and either rejects or approves the project. The business then implements the energy-saving project and, after 12 months, has the M&V consultant compile a Performance Assessment report, which is submitted to SANEDI.
Once the Performance Assessment report is approved, a tax certificate is issued.
There is no charge to the business for SANEDI’s administration, but it will have to pay the M&V consultant for its services.
“We don’t charge anything. We are an entity of government. We are administering this incentive on behalf of the National Treasury and the South African Revenue Service, so there is no charge directly to us.”
The financial impact can be significant
Ndlovu said a 1 million kWh saving could yield a tax deduction of about R950,000. This meant that a company which made a R2,000,000 profit would see its tax liability reduced by R256,500.
This, however, did not mean the company would receive a direct cash injection from the incentive.
“It is not money paid to your account, but it is money reduced from your taxable income.”
Making a tangible difference
Though the 12L Tax Incentive does not make many headlines, it has made a notable difference in making the manufacturing sector more energy efficient.
As at the end of June 2026, SANEDI had registered 183 projects, which collectively had generated 21 Terawatt-hours (TWh), accessed R20 billion in incentives, and avoided 20 megatons of CO2 emissions.
Ndlovu said the largest energy savings were seen in the paper and pulp, chemical, fertilisers, plastics and rubber, and refined petroleum sectors.
He gave the example of how Algoa Brick, the largest plaster brick (NFP) production facility in the Eastern Cape, benefited from the incentive when it replaced kiln burners, implemented Variable Speed Drive (VSD) technology, and installed waste heat recovery.
It saw a 10.33% reduction in energy consumption, saving 9,084,870 kWh, resulting in 1,506 tons of CO2 emissions being mitigated.
For its part, retail group Woolworths deployed multiple energy-saving technologies, including LED lighting, CO2 refrigeration, VSDs, and automated controls. Since 2015, it has saved 20,524,736 kWh, equating to approximately R35 million in electricity savings and reducing Scope 2 emissions by 19,293 tons of CO2.
Ndlovu pointed out that businesses accessing the incentive not only benefit financially, but they also improve their operating performance.
“You will have benefits which not only have an energy impact. You will be producing more with less energy, see a reduction in cost, improve product quality, and also improve working conditions.”
