PRETORIA: The National Treasury has published a paper for public comment outlining proposals for a carbon offset scheme that will enable businesses to lower their carbon tax liability and make investments that will reduce greenhouse gas (GHG) emissions.
South Africa has committed to reduce greenhouse gas emissions by 34 percent in 2020 and 42 percent in 2025.
“To ensure a relatively smooth transition to a low-carbon economy, the carbon tax design incorporates a number of relief measures and a gradual phased-in approach to protect households and the international competiveness of local businesses,” said the Treasury on Tuesday.
The proposed carbon tax policy comprises a basic tax-free threshold of 60 percent below which the tax will initially not be payable; factor formula to adjust basic tax-free threshold to reward companies that have taken voluntary actions to reduce their GHG emissions before the introduction of the carbon tax and additional tax free allowances for sectors with limited potential for emissions reduction, i.e. industrial process emissions.
The draft policy also proposes an additional graduated relief for trade exposed and emissions intensive sectors and carbon offsets that businesses can use to reduce their carbon tax liability. The overall maximum tax-free threshold is limited to 90 percent.
“Carbon offsets will enable firms to cost-effectively lower their carbon tax liability. They will also incentivise investment in least-cost mitigation options in the country, driving investment in GHG-mitigation projects that deliver carbon emissions reduction at a cost lower than the carbon tax.
“Such projects can generate considerable sustainable development benefits in South Africa, including channelling capital to rural development projects, creating employment, restoring landscapes, reducing land degradation, protecting biodiversity, and encouraging energy efficiency and low carbon growth,” the department said.
According to the proposed policy, a number of principles must be fulfilled for a project to be awarded a tradable emissions reduction credit under a specific standard.
The principles of additionality, real and permanence will be used to ensure the credibility of carbon offset projects – additionality meaning GHG emissions reductions are additional if they would not have occurred under a ‘business- as- usual’ scenario; permanence meaning GHG emissions are permanent and unlikely to be reversed or real meaning GHG emission offsets originate within tangible physical projects with proof that they have occurred or will occur at a specific point in time.
To be deemed eligible, projects that generate carbon offset credits must occur outside the scope of activities of the entity subject to the carbon tax. Only South African based credits will be eligible for use within the carbon offset scheme and carbon offset projects registered and / or implemented before the introduction of the carbon tax regime will be accepted subject to certain conditions and within a specific timeframe.
However, specific carbon offset project types should be excluded from the scheme to avoid the potential for double counting of financial benefits from GHG mitigation. Projects benefiting from other government incentives should also be excluded.
Treasury said disallowed projects would include energy efficiency in companies owned or controlled operations that are covered by the carbon tax, energy efficiency for projects that benefit from the Energy Efficiency Tax Incentive and renewable energy projects developed under the Renewable Energy Independent Power Producer Programme (REIPPP), among others.
Projects under four different carbon offset standards have been developed in South Africa, including the Clean Development Mechanism (CDM), Verified Carbon Standard (VCS), Gold Standard (GS) and Climate, Community and Biodiversity Standard (CCBS).
In order to facilitate the introduction of the carbon offset scheme, it is proposed that carbon offsets developed under these standards will be considered for eligibility if they fulfil specific criteria.
According to Treasury, the initial focus is expected to be on projects approved along the lines of the Clean Development Mechanism (CDM).
Written comments should be submitted to Peter Janoska at peter.janoska@treasury.gov.zaby the close of business on 30 June 2014.