By: Allie Goldstein Ecosystem Marketplace
6 May 2014 | In designing its emissions reductions program, South Africa decided to have its cake and eat it too. Rather than choosing between the simplicity and revenue of a tax and the flexibility and cost efficiency of cap-and-trade, the government decided it could have both.
The resulting ‘tax-and-trade’ program is expected to raise between eight million and 30 million rand annually (US $0.76 million to $2.86 million) while allowing compliance entities to purchase offsets for up to 10% of their emissions.
“Carbon offsets will enable firms to cost-effectively lower their carbon tax liability,” a statement by South Africa’s National Treasury explained. “They will also incentivize investment in least-cost mitigation options in the country, driving investment in (greenhouse gas) GHG-mitigation projects that deliver carbon emissions reduction at a lower cost than the carbon tax.”
Years of work on the voluntary market in developing robust emissions reduction standards and tested methodologies for monitoring and verification make the decision to include offsets in a compliance scheme an easier one.
“It’s really nice to be able to use something that’s already built,” said David Antonioli, Chief Executive Officer of the Verified Carbon Standard (VCS), one of several voluntary standards that will be folded into South Africa’s carbon tax.
The Treasury last week released a paper outlining its plans for the carbon offset scheme that will accompany the country’s carbon tax, set to start in 2016. The carbon tax is currently set at 120 rand (about US $11.38) per tonne and aims to help South Africa slash carbon dioxide emissions 34% from ‘business as usual’ – or projected emissions if no efforts were made to curb them – by 2020, and 42% by 2025. Sectors covered by the tax emit about 387 million tonnes of carbon dioxide annually, and compliance entities could demand up to 30 million tonnes of offsets per year, according to a 2012 analysis by carbon project developer Camco Clean Energy.
No Need to Reinvent the Wheel
The Treasury paper reiterates the proposal in a May position paper that these offsets must come from projects located in South Africa and that four standards already in use in the country – including three voluntary ones – will be eligible for emissions reduction certificates. Offsets may be sourced from projects in sectors not covered by the tax, including renewable energy and energy efficiency, agriculture and forestry, transport and waste. All offsets, regardless of standard, are to be screened by the Designated National Authority, the organization responsible for assessing projects developed under the Clean Development Mechanism (CDM), a United Nations mechanism which allows developed country signatories to the Kyoto Protocol to meet a portion of their climate mitigation obligations by purchasing offsets from projects located in developing countries.
As of February 2013, 111 carbon offset projects had been registered in South Africa – the majority of them under the CDM. Other South African carbon projects are certified under the VCS (7 projects), the Gold Standard (24 projects) and the Climate, Community and Biodiversity (CCB) Standard (3 projects) – all used on the voluntary carbon market. Any carbon offsets issued prior to the implementation of the carbon tax would have to be transferred to the to-be-established South African registry before the end of 2016.
“This really speaks to one of the things that we’ve been saying all along: that voluntary credits can be used in compliance systems,” said Antonioli, noting that governments such as South Africa’s are realizing that they don’t have to “reinvent the wheel” when it comes to creating high-quality offset standards.
The inclusion of the CCB standards, however, is a bit curious since CCB is not a carbon standard but rather a co-benefits one that is often used in conjunction with standards that verify emissions reductions. Two of the three CCB projects in South Africa are also pursuing VCS verification; the other is still at the project design stage.
“We interpret this as suggesting that the Government is interested in seeing verified co-benefits,” said Tanya Petersen, Director of Marketing and Communications at the Gold Standard Foundation.