National Treasury on Monday published the draft regulations on carbon offset in terms of the Draft Carbon Tax Bill for public comment and further consultation.
The Carbon Offset Regulations were developed jointly by 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 regulations follow on the publication of the Carbon Offsets Paper in 2014 and the Draft Carbon Tax Bill in November 2015.
Firms can offset up to 5 or 10% of total GHG emissions
The Draft Carbon Tax Bill makes provision for the carbon offset allowance in terms of Section 13. 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.
“In addition such 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,” said National Treasury.
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.
The proposal to use carbon offsets in conjunction with the carbon tax has been widely supported by stakeholders as a cost-effective measure to incentivise GHG emission reductions.
Offsets involve specifict projects that reduce, avoid or sequester emissions
Carbon offsets involve specific projects or activities that reduce, avoid, or sequester emissions, and are developed and evaluated under specific methodologies and standards, which enable the issuance of carbon credits.
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.
National Treasury said the scope is also provided for the use of local standards/ methodologies, where appropriate and independently verifiable.
Renewable energy projects have been excluded
Only projects located in South Africa will be eligible under the carbon offset scheme. As a rule, renewable energy projects have been excluded from the carbon offset scheme.
This is to avoid the possibility of double counting benefits where such projects have already been incentivised for example through the Renewable Energy Independent Power Producer Programme (REIPPPP).
However this blanket exclusion could be reconsidered subject to further consultations and motivations.
Now is the time to comment
Written comments should be submitted to firstname.lastname@example.org. Any clarification questions can be directed to Dr Memory Machingambi at email@example.com by close of business on 29 July 2016.
The draft regulation on carbon offsets can be downloaded here.