South Africa’s National Treasury has published its Carbon Tax Policy Paper for public comments, before they proceed with the publication of the draft legislation to give effect to carbon taxes later this year for implementation from 1 January 2015.
The upcoming carbon pricing scheme will levy 120 rand ($14) per ton of carbon dioxide and is subject to a 10 percent increase every year for the first five years. It is proposed that firms should be able to use domestic verified offsets under the internationally recognised carbon offset standards (or, alternatively, more streamlined domestic offset programmes) to reduce their carbon tax liability up to a certain limit.
It is envisaged that entities will initially be permitted to use verified carbon offsets developed in South Africa, under internationally recognised carbon offsetting standards (e.g. Clean Development Mechanism (CDM), Verified Carbon Standard (VCS) or Gold Standard (GS)). Development of a South Africa specific standard will be considered at a later stage. It is proposed that carbon offsets can be used by firms to reduce their carbon tax liability by up to 5 or 10 per cent of the actual emissions.
Eligible projects could include: Agriculture, forestry and other lad uses (AFOLU), waste, community based and municipal energy efficiency and renewable energy, electricity transmission and distribution efficiency, small scale renewable energy (up to 15 MW) and transport projects. Ineligible projects could include industrial gas destruction projects, e.g. HFC-23 and Nitrous Oxide destruction projects. In addition projects that could potentially result in a double incentive will not be allowed; energy efficiency in company owned or controlled operations that are covered by the carbon tax; embedded or cogeneration of renewable energy for company owned or controlled operations that are covered by the carbon tax.
The carbon policy paper provides a phased approach to the implementation of the carbon tax. The first phase (introductory) will be for five years, effective from 1 January 2015 to 31 December 2019 followed by Phase 2 of another five years, from 2020 to 2025. Follow up phases can be explored at a later stage. An across the board basic 60 per cent tax free threshold of actual emissions below which the tax will not be payable.
An additional 10 per cent relief for certain sectors to allow for technical or structural limitations to reduce emissions (process emissions) is also proposed. Further, up to an additional 10 per cent relief for emissions intensive and trade intensive sectors, e.g. iron and steel, cement, glass, etc. to take into account the risk of carbon leakage and competitiveness concerns is also proposed.
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