After the better part of 10 years the final pieces of the SA carbon tax system finally fell into place over the last week. The National Treasury first released the trade exposure and greenhouse gas (GHG) benchmark regulations as well as the renewable energy premium notice, and then the department of energy sealed the deal with the launch of the carbon offset administration system (COAS).
The protracted development time of the tax and its constituent components is largely due to the opposition emanating from various industries and political parties over the past decade. However, with more than 40 countries representing about 25% of global greenhouse gas emissions now instituting some form of national carbon barrier, including border taxes, waiting any longer to get the ball rolling is counterproductive to our export interests.
This is because Eskom has rendered SA the fifth highest carbon emitter per unit of GDP in the world, with some of our sectors (such as steel) being the world’s worst emitters relative to their sectors. Export businesses that choose to merely pay the tax and not decarbonise will find that they pay the domestic tax here and then again in the form of a border carbon tax in the receiving country.
While various concerns have been raised about the structure of the tax, including high levels of exemptions in the first two-year phase or the fact that income is not ring-fenced within the fiscus, companies would be ill-advised to misread the moment. The Treasury’s assurances that the tax will be revenue neutral through the provision of incentives and adjustments of other taxes and levies to ensure businesses do not pay more total tax could lull some companies into thinking they can simply pay the tax and avoid decarbonising. They would be taking quite a risk.
In 2023 the current exemptions and pricing fall away and it’s anyone’s guess as to how the Treasury will price carbon at that point. Their own research shows that somewhere between R162 and R433/tonne would be an effective price.
Enter the COAS facility, which is tasked with administering carbon offset credits for the carbon offset registry. Carbon offsets are measurable avoidances, reductions or sequestration of GHG emissions that are mostly derived from projects at least partially intended to deliver on these outcomes. These offsets would then be registered on the COAS system and could be traded with other companies, which may find it cheaper to buy these credits than to reduce the emissions in their own operations. An example of this would be a dairy farm (agriculture is now exempted from the tax) that installs a biogas digester to deal with manure and generate a reliable power backup. The GHG emission savings from this project could be assessed and traded via the platform with a high carbon emitter, potentially securing the financial viability of the project.
The trick here is that the assessment of the carbon offsets will only be recognised if conducted against one of three international standards — clean development mechanism (CDM), verified carbon standard (VCS) and the gold standard (GS) — that all provide official internationally tradable carbon offset certificates. Herein lies opportunity. Much has been written about SA’s intentions to pursue a green economic recovery path out of the Covid crises, with rapidly falling renewable energy costs and the quagmire at Eskom enabling own use of self-generated electricity by commercial and industrial users.
The potential market for SA carbon offset certificates could be as high as 40-million tonnes a year, while the current certified supply is only about half a million tonnes a year. Through the COAS, SA now has a mechanism to channel carbon revenue to developers of low-carbon projects, where all indications suggest demand for offsets will outstrip supply by orders of magnitude within two short years. The time is ripe to dust off those green economy project plans.
• Maguire holds a master’s degree in global change studies from Wits and has developed green economy solutions for the private sector, NGOs and the state for more than a decade.
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