CAPE TOWN, Feb 22 (Reuters) - South Africa is looking to introduce a carbon tax next year to reduce harmful greenhouse gas emissions, although nearly two-thirds of emissions will be tax-exempt until 2020 to lessen the impact on industry, the treasury said on Wednesday.
In its 2012/13 budget, the treasury proposed a 60 percent tax-free threshold on annual emissions for all sectors, including electricity, petroleum, iron, steel and aluminium.
All but electricity, where state-owned power utility Eskom dominates, would be able to claim additional relief of at least 10 percent.
Companies have said a carbon tax that places too heavy a burden on the key energy, mining and manufacturing sectors - already under pressure due to rising power and wage costs - will hit profits and wider economic growth.
"To minimize adverse impacts on industry competitiveness and effectively manage the transition to a low-carbon economy, temporary thresholds are proposed ... which an exemption from the carbon tax will be granted," the budget said.
It proposed a carbon tax of 120 rand per ton of CO2e (carbon dioxide equivalent) for emissions above the thresholds. The levy would come into effect in 2013/14, and increase by 10 percent a year until 2020.
The treasury said the draft policy would be published later this year.
Africa's largest economy is also the continent's biggest polluter and is one of the 20 biggest emitters of greenhouse gases worldwide.
Nearly all of South Africa's power is generated by state-utility Eskom's coal-fired plants, making it impossible for companies to choose less carbon-heavy electricity.
South Africa is investing heavily to diversify away from coal but it may take decades before a significant portion of its energy comes from clean sources. (Reporting by Wendell Roelf, editing by Agnieszka Flak and Ed Stoddard)