Carbon offset regulations could have key financial implications for businesses

22 August 2016

According to Engineering News, draft regulations on carbon offsets, published for comment between June 20 and 29 July, under the Carbon Tax Bill, are due to come into effect in early 2017 and could have significant financial implications for South African businesses says legal services firm Cliffe Dekker Hofmeyr

The proposed carbon offsets will give effect to one of a number of tax allowances in the Carbon Tax Bill by lowering companies’ tax liabilities through the establishment of a carbon offset scheme for South Africa.

Using the proposed scheme, entities will be able to reduce their taxable emissions by between 5% and 10% of their total greenhouse-gas (GHG) emissions by investing in carbon reduction offset projects.

This involves allowing an entity to reduce its carbon tax liability by investing in offset projects of other entities that reduce, avoid or sequester GHG emissions, at a lesser cost than would be required to invest in mitigation options in its own operations.

Cliffe Dekker Hofmeyrenvironmental practice director Sandra Gore says: “The scheme proposes that a South Africa-specific methodology is developed. This may streamline the lengthy procedure and reduce the costs of offset projects.”

However, she notes that the methodology still needs to be developed under the onerous requirements of the 2015 Paris Agreement, which deals with GHG emission mitigation and was opened for signature in April. “It is unlikely that the procedure will be simplified and costs will be reduced,” says Gore.

Gore notes that creating a carbon registry in South Africa will require the DoE to implement significant institutional capacity and data management systems. “It appears unlikely that this will be in place by early 2017.”

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