Carbon offset scheme unveiled

The National Treasury yesterday released draft regulations that will allow companies to reduce their carbon tax liability by as much as 10 percent of their actual emissions.

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The carbon offset scheme is part of measures South Africa is taking to reduce emissions since it voluntarily committed at the 2009 UN conference of parties on climate change in Copenhagen to reduce greenhouse gas (GHG) emissions from projected “business-as-usual scenarios” by 34 percent in 2020 and 42 percent in 2025, subject to certain conditions.

The draft regulations, which set out the procedure for the use of carbon offsets by taxpayers to reduce their carbon tax liability, follow the publication of the carbon offsets paper in 2014 and the draft Carbon Tax Bill in November last year.

“Carbon offsets can be generated through investments outside of a taxable entity’s activities that results in quantifiable and verifiable GHG emission reductions,” said the Treasury. “The carbon offset projects should generate sustainable development co-benefits and employment opportunities in South Africa by encouraging investments in energy efficiency, rural development projects, and initiatives aimed at restoring landscapes, reducing land degradation and biodiversity protection.”

The Treasury said investments in transport, agriculture, forestry and waste sectors were likely to qualify for carbon offsets.

Climate Neutral Group, which provides carbon management services, yesterday said the draft regulations were long overdue.

Ground rules

The company’s country director in South Africa, Franz Rentel, said: “To ensure that a credible, diverse and liquid supply of carbon offset credits is available to the entities that will have tax liabilities as of January 2017, the ground rules and infrastructure needed to support an offset program must be finalised and articulated as soon as possible so that companies can maximise their carbon tax savings.

“We hope these draft regulations will encourage companies to start securing eligible carbon offsets, as demand will far outstrip supply in phase 1 of the tax (2017 to 2020). Furthermore, companies will only have until December 31, 2017, to utilise the carbon offsets from existing offset projects (which make up the bulk of the offset supply in South Africa).”

Rentel said that including carbon offsets as an additional relief mechanism under the proposed carbon tax would allow companies to access least cost mitigation options.

This would enable companies to save up to 20 percent on carbon tax a year.

“We also agree that only South African-based project credits be eligible for use within the scheme as this will hopefully boost the development of locally based projects and contribute significantly to the country’s socioeconomic challenges. That being said, it is important that there is clarity post-2020 in order for new projects to get off the ground successfully,” Rentel said.

“We also have concerns how the future South African carbon registry would function as well as the additional administrative burden of the scheme within the Department of Energy as well as others.”
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