Treasury unveils regulations on carbon offsets

The Treasury has published the long-awaited regulations that open the way for SA companies to offset their carbon emissions, as part of the government’s efforts to mitigate climate change.

In response to burgeoning concerns over rising global temperatures, the Treasury implemented the carbon tax in June but has dragged its feet in publishing supporting regulation. The carbon offsets regulations, published on Friday, outline the eligibility criteria for projects and set out the procedure for claiming an offset allowance.

It comes as decisionmakers gather in Madrid for the 2019 UN Framework Convention on Climate Change, known as COP25.

In SA, the carbon tax adds to the mounting pressure for companies to become more sustainable. At recent annual general meetings of both Sasol and FirstRand, the JSE-listed groups came under fire for not moving fast enough on climate change considerations.

According to Roelof van Huyssteen, senior climate change adviser at Promethium Carbon, the offsets provide taxpayers with a cheaper alternative to paying their full carbon tax liability and will help to establish a carbon market in SA.

The regulations provide clarity on which projects are eligible for offsets. “It is now possible to really start planning what your carbon tax liability will be,” Van Huyssteen said.

Carbon offsets will be generated from recognised projects that reduce greenhouse gases, such as renewable energy or reforestation. These offsets can be used to reduce that company’s own emissions or can be transferred to another emitter that wants to reduce its carbon tax liability, at which point they become carbon credits.

“The carbon tax was designed as a hybrid mechanism to be coupled with an emissions trading scheme,” Van Huyssteen said. “It can’t function on its own, this [offsets regulation] is the other part of it.”

In the first phase of the carbon tax, which ends in December 2022, firms will receive a basic tax-free allowance of 60% for direct emissions, while various other allowances can allow for a reduction of tax liabilities of up to 95%. The act allows for firms to use offsets for up to 10% of their emissions.

The regulations give clarity on which renewable power projects are eligible for offsets, including those that are part of the government’s renewable energy procurement programme. They deal with how credits generated before the implementation of the tax will work and tackle the eligibility of electrical efficiency projects.

The department of mineral resources & energy has developed a carbon offset administrative system, the registry of which will be outsourced to a credible third party. The regulations specify the duties of the administrator and the procedure to be followed by taxpayers for claiming the offset allowance.

The Treasury has published for public comment two sets of draft regulations relating to the allowances provided for in the Carbon Tax Act.

Van Huyssteen said companies now have about six months to figure out their tax liability.