Last week, the National Treasury of South Africa released a set of draft carbon offset regulations for public comment, which could see firms reduce their carbon tax by a maximum of 10%.
The Treasury noted in a statement that this draft follows on the publication of the Carbon Offsets Paper in 2014 and the draft Carbon Tax Bill in November 2015.
The Carbon Offset Regulations was developed jointly by the National Treasury, the Department of Energy and the Department of Environmental Affairs in terms of Sections 13 and 20 (b) of the Draft Carbon Tax Bill and sets out the procedure for the use of carbon offsets by taxpayers to reduce their carbon tax liability.
The Draft Carbon Tax Bill makes provision for the carbon offset allowance in terms of Section 13, Treasury said in a statement.
“This provides for firms to reduce their carbon tax liability by using offset credits of up to a maximum of 5% or 10% of their total greenhouse gas (GHG) emissions, as specified in Schedule 2 of the draft Carbon Tax Bill.
“Carbon offsets can be generated through investments outside of a taxable entity’s activities that results in quantifiable and verifiable GHG emission reductions,” Treasury said.
They added: “The carbon offset mechanism is in line with the proposals contained in the National Climate Change Response White Paper of 2011 and efforts to transition to a low carbon, greener economy as pronounced in the National Development Plan.”
Design of carbon offsets
Treasury explained that the carbon offset system seeks to encourage GHG emission reductions in sectors or activities that are not directly covered by the tax. Investments in public transport, agriculture, forestry and other land use (AFOLU) and waste sectors are likely to qualify.
The carbon offset scheme will rely primarily on existing international carbon offset standards namely, the Clean Development Mechanism (CDM), Verified Carbon Standard (VCS) and the Gold Standard (GS) and their associated institutional and market infrastructure.
They added that the scope is also provided for the use of local standards/methodologies where appropriate and independently verifiable.
At a high level, the eligibility criteria include the following:
- Only projects located in South Africa will be eligible under the carbon offset scheme; and
- Projects should occur outside the scope of activities that are subject to the carbon tax to prevent double counting/relief. Examples would include, but are not limited to, investments in public transport, waste and AFOLU sector activities.
According to the draft, renewable energy projects have been excluded from the carbon offset scheme in order to eradicate the possibility of double counting benefits where such projects have already been incentivised, e.g. through the Renewable Energy Independent Power Producer Programme (REIPPPP).
Treasury noted that this rule could be reconsidered subject to further consultations and motivations.
Institutional arrangements and infrastructure
To facilitate the development and implementation of carbon offset projects; appropriate technical infrastructure is required, including a programme administrator; a registry; and verification by accredited third party verifiers.
The Designated National Authority (DNA), within the Department of Energy (DoE) will be responsible for administering the carbon offset scheme.
The administrator of the mechanism will oversee the programme, screen and evaluate projects based on the defined South African eligibility criteria and approve the issuance of offset certificates.
Due date for comments
The Draft Regulation on carbon offsets, is published for public comments and is available on the National Treasury website: http://www.treasury.gov.za/public%20comments/CarbonTaxBill2016/
Written comments should be submitted to firstname.lastname@example.org. Any clarification questions can be directed to Dr Memory Machingambi, email: Memory.Machingambi@treasury.gov.za by close of business on 29 July 2016.