The Draft Regulations on the Carbon Offset have been published for public comment and further consultation. This follows on the publication of the Carbon Offsets Paper in 2014 and the draft Carbon Tax Bill in November 2015.

The carbon offset regulations were developed jointly by the National Treasury, the Department of Energy and the Department of Environmental Affairs and sets out the procedure for the use of carbon offsets by taxpayers to reduce their carbon tax liability.

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.

 

Carbon offsets in brief

The Draft Carbon Tax Bill makes provision for the carbon offset allowance. 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.

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.

 

Design of carbon offsets

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.

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 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, Verified Carbon Standard and the Gold Standard and their associated institutional and market infrastructure. However, scope is also provided for the use of local standards/ methodologies where appropriate and independently verifiable.

 

Opposition to the new tax

Meanwhile, the Organisation Undoing Tax Abuse (OUTA) has called the carbon tax an unnecessary burden to South Africa.

The organisation has called on businesses and South Africans to become more participative in scrutinising and interacting with Government on the new proposed Carbon Tax.

“South Africa has become an overtaxed society and we agree with other critics of the scheme who believe the economy will be negatively impacted by the introduction of a carbon tax. While Government’s stated and noble intention is that the tax will help to reduce GHG emissions in the medium to long term, OUTA believes this will not necessarily be the case,” says said Julius Kleynhans, Project Manager at OUTA.

“The carbon tax will not necessarily change business behaviour, who will in turn merely pass on the tax costs to the consumer.”