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Carbon Offset Trading System: Easy to do for this Country

By: Stafford Thomas Financial Mail

A TAX on carbon dioxide (CO₂) and other greenhouse gas emissions will become a reality in 2015, bringing with it the need for an effective carbon offset trading system.

SA is in the fortunate position of already having the infrastructure needed for the system’s swift and cost-effective implementation, says Robbie Louw, a director of Promethium Carbon.

Following extensive studies funded by the British High Commission, Promethium proposes that the backbone of SA’s carbon offset trading system be provided by the JSE through its commodities trading platform and Strate electronic settlements system.

It is a role JSE senior strategist Shameela Ebrahim says the exchange began exploring in 2007 and is eager to take on.

“By leveraging off existing infrastructure it should be relatively easy to introduce carbon trading,” says Ebrahim.

Carbon offset trading will be used to mitigate the impact of tax, which is likely to start at R120/t of CO₂ payable above a 60% tax-free threshold, explains Louw. In an approach unique to SA, tax mitigation will be achieved by permitting companies to buy CO₂ tax offsets up to a maximum of 10% of their emissions.

Promethium provides a simple example of a company emitting 100t of CO₂ and other greenhouse gases. The company’s tax liability will be R4 800 after the tax-free threshold but by buying 10t of offsets at R80/t it can reduce its tax liability to R3 600. The saving of R400 equals 8,3% of the original tax liability.

Sellers of CO₂ offsets will be companies generating credits through investment in verified SA emission reduction projects, inside or outside their business. Examples are new forestation and renewable energy projects, says Louw. Proceeds of CO² offset sales will be tax-free.

Indicative of the trading system’s scale, Promethium estimates that the annual demand for CO₂ offsets will stand at up to 27Mt in 2020 and up to 31Mt in 2030.

Another key aspect to carbon offset trading will be to ensure the system’s “environmental integrity”,  says Louw. This, he explains, entails verifying that each ton of CO₂ traded represents an actual emission reduction of 1t.

Verification can be achieved simply through adoption of existing offset standards laid down by nonprofit bodies, says Louw. These bodies include the UN’s Clean Development Mechanism, the Verified Carbon Standard and the Gold Standard Foundation, he says.

The exact parameters of SA’s carbon tax regime will be subject to the outcome of a final assessment by national treasury. Other companies set to take big tax hits are Sasol (R2,2bn), ArcelorMittal (R285m), PPC (R115m) and BHP Billiton (R74m). Of particular focus is the reduction of the impact on SA’s biggest greenhouse gas emitter, Eskom, which Deloitte in a 2012 study estimated could face an annual CO₂ tax bill of R11bn.

The carbon tax is aimed at driving a 42% fall in SA’s current 450Mt/year greenhouse gas emissions by 2025.

 

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