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Carbon Tax in SA: draft bill enters parliament

13/2/18 (Business Day) – The proposed South African Carbon Tax Bill has entered the parliamentary process after two years of extensive consultation on various drafts. The draft bill will be subjected to public hearings and further submissions before being revised into a final draft that is expected to be completed by mid-2018. The first draft of the bill was published for public comment in November 2015 but preparations started well before that in 2010.

Extensive consultations have already taken place with stakeholders across the spectrum of society and the Treasury has also invited further submissions until March 9.

In terms of the proposals, carbon emissions above a certain level will be taxed at a rate of R120 a tonne of carbon. The tax, which aims to reduce carbon emissions, will be phased in with adjustments being made to other taxes and provision made for tax incentives to ensure the tax is revenue neutral.

A basic tax-free threshold has been proposed for 60% of emissions, with additional allowances made for specific sectors as well. Up to 95% of emissions could be tax exempt. These exemptions could translate into an effective tax rate of R6-R48 a tonne of carbon emissions.

The first phase is expected to last for about four to five years after the implementation date.

The Department of Environmental Affairs’ chief director of climate change mitigation, Deborah Ramalope, and Treasury deputy director-general Ismail Momoniat briefed a joint meeting of Parliament’s two finance committees and its environmental affairs committee on the proposals on Tuesday.

No implementation date for the proposals has yet been set. This will be announced later by Finance Minister Malusi Gigaba, taking into consideration the state of the economy.

The aim of the carbon tax in South Africa, Ramalope said would be to incentivise large carbon emitters to take measures to reduce their emissions. This will assist SA to achieve its international commitments under the Paris Agreement on climate change. In terms of these commitments, SA’s emissions will peak between 2020 and 2025, plateau for a 10-year period thereafter and decline from 2036 onwards.

“Pricing carbon is key to driving the transition to a green economy,” Ramalope told MPs. It will incentivise companies to change their carbon emission behaviour.

Momoniat noted that a carbon tax in South Africa bill gave effect to the polluter-pays principle and would help to ensure that firms and consumers took these costs into account in their future production, consumption and investment decisions.

The implementation of the carbon tax will be complemented in the first phase (up to 2022) by a package of tax incentives and revenue recycling measures to minimise the impact on the price of electricity and energy-intensive sectors such as mining and iron and steel. The impact of the tax in the first phase is designed to be revenue neutral.

The Treasury estimates that a carbon tax in South Africa will result in a decrease in emissions of between 13% and 14.5% by 2025 and 26% and 33% by 2035 compared with a business-as-usual approach.

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Carbon Tax Bill draft published for comment

14/12/17 (Business Day) – On Thursday, Treasury published the second draft of the Carbon Tax Bill for public comment and introduction in Parliament. Public hearings on the draft bill — expected early next year — will be held in Parliament, following which a revised bill, taking into account the public comments, will be formally tabled in Parliament, probably around the middle of 2018.

The first draft Carbon Tax Bill was published for public comment in November 2015. It is the product of an extensive consultative process on carbon tax policy which started with the publication of the carbon-tax discussion paper in 2010, followed by the 2013 carbon-tax policy paper, and the 2014 carbon-offsets paper.

Treasury said in a statement that the carbon tax bill will enable SA to meet its commitments under the 2015 Paris Agreement on climate change and to reduce its greenhouse gas emissions. According to its estimates, the tax would lead to an estimated decrease in greenhouse gas emissions of 13% to 14.5% by 2025, and 26% to 33% by 2035.

The actual date of implementation of the carbon tax will be determined through a separate and later process by Finance Minister Malusi Gigaba in an announcement either during 2018 or at the time of the 2019 budget, taking into account the state of the economy.

“The announcement on the implementation date of the carbon tax will be complemented by a package of tax incentives and revenue recycling measures to minimise the impact in the first phase of the policy (up to 2022) on the price of electricity and energy-intensive sectors, such as mining, iron and steel,” Treasury said.

“The impact of the tax in the first phase is designed to be revenue-neutral in terms of its aggregated impact when assessed with the complementary tax incentives and revenue-recycling measures. Further, to ensure a minimal impact on the price of electricity in the initial phase, a credit for (or reduction in) the electricity-generation levy and the renewable-electricity premium (built into the current price of electricity) will also be introduced.

“Some revenue-recycling measures have already been introduced, such as the energy-efficiency savings tax incentive (introduced in 2013) to help with the transition to a lower carbon economy. The effective recycling of revenues to be collected will mitigate any possible short-term negative impacts on the economy and jobs.

“Beyond the first phase, a review of the impact of the tax after at least three years’ implementation will be conducted. The review will take into account the progress made to reduce greenhouse gas emissions, in line with our commitments. Future changes to rates and tax-free thresholds in the carbon tax will only follow after the review, and will be subject to the same transparent and consultative processes for all tax legislation, after any appropriate budget announcements by the Finance Minister.”

SA Carbon Tax Bill to be released to Parliament

The South African Carbon Tax Bill will be released to Parliament, said finance minister Malusi Gigaba in his mid-term budget speech on 25 October 2017. Climate Neutral Group (CNG) welcomes the news, calling it a great step forward in South Africa’s commitment to fighting climate change.

Besides expected topics such as national energy security and proposed investments in infrastructure and other sectors, Gigaba’s 2017 mid-term budget statement also featured the proposed Carbon Tax Bill.

“In addition tabling of tax legislation for the 2017 Budget, I am happy to announce that Cabinet has approved the release of the South African Carbon Tax Bill to Parliament for formal consideration and adoption,” he said in Cape Town on 25 October.

Carbon management and corporate climate action firm Climate Neutral Group (CNG), which is based in Cape Town, has welcomed the update around the Carbon Tax Bill, of which the first draft was published in November 2015.

“The main thing is that South Africa’s private sector should now start preparing for new carbon legislation in 2018,” says Franz Rentel, CNG’s Director in South Africa. He noted that Gigaba’s mention of the Carbon Tax Bill proves South Africa’s commitment to fighting climate change and the Paris Agreement.

“A carbon tax law will reduce South Africa’s overall emission of greenhouse gases. This is crucial as we have one of the largest carbon footprints in the world. This is because the bulk of our electricity is generated from coal,” Rentel said, noting that the direct implications of climate change are becoming more and more apparent. “Take the persistent drought in the Western Cape and other extreme weather events like the storm in Durban earlier this year. We all can help curb the prevalence and extent of these events, saving lives and protecting the economy.”

Whilst welcoming the news, Rentel noted that the current draft of the Carbon Tax Bill has at least one major shortcoming: the uncertainty regarding offsetting regulations. “From a private sector point of view carbon offsetting is crucial in lowering one’s carbon tax liability. The revised offsetting regulations, therefore, need to be published as soon as possible, seeing that there will not be enough carbon offsets supply to meet potential demand and the long lead time it takes to develop new offsetting projects.”

Rentel stressed that South Africa isn’t the only country with a Carbon Tax law. “According to the World Bank, 15% of all global emissions were subjected to a tax or a pricing mechanism in 2016. Over the past ten months, eight new carbon pricing initiatives came into being, including in Colombia,” he said, noting that Colombia’s Carbon Tax and Trade scheme is quite similar to South Africa’s proposed law. “The country, however, has passed its carbon legislation in the fraction of time compared to South Africa.”

Whilst a new set of corporate tax rules may sound like bad news, Rentel says it doesn’t have to be that way. “A carbon tax law will make companies in South Africa rethink how they can minimise their carbon emissions in order to pay fewer carbon taxes. Besides being good for the planet and lowering one’s carbon tax payments, increased resource efficiency typically results in lower operational costs,” he said, stressing that climate change is a global problem that affects everyone, business included. “That is why everyone needs to get on board, including the public and the private sector.

This article was originally published by Bizcommunity.

Colombia’s carbon tax: is South Africa next?

In June 2017 Colombia, as the third developing country in the world after Mexico and Chile, has successfully passed new environmental and carbon tax legislation. This new scheme allows Colombian organisations to offset 100% of their tax liabilities. What does the Colombian carbon tax entail and what type of carbon offset projects are allowed to participate? We compare and contrast the Colombian carbon tax with South Africa’s proposed carbon tax bill and offsetting rules, with the objective to discuss the importance of a carbon tax law in South Africa.

Colombia’s commitment to climate change

Colombia has successfully ratified the Paris Climate Agreement, committing to reduce emissions by 20% by 2030, 30% below Business-as-Usual (BAU), with international support. President Juan Manuel Santos, who was inspired by Al Gore’s words, has been debating the introduction of the carbon tax since 2011. The Colombian government admitted that more than 70% of Colombian territory is vulnerable to global temperature rises. To be more precise, the majority of the population lives in the elevated Andes, where water shortages and land instability are already a reality, and on the coast, where the increase in sea level and floods can affect key human settlements and economic activities.

While many critics have expressed their scepticism regarding the sincerity of Juan Manuel Santos’s administration concern for environmental sustainability, the Colombian Government ultimately approved a tax on fossil fuels (Part IX, Impuesto Nacional al Carbono) equivalent to approximately US$5/tCO2e payable by producers and importers of fuels in December 2016. Furthermore, in June 2017, the Colombian government finalised the rules and conditions of carbon offsetting to allow high-quality carbon credits to be used against the carbon tax obligations. Unlike South Africa, where the use of carbon credits is proposed to be capped at only 5% to 10%, Colombian entities can offset 100% of their tax liability by investing in carbon offset projects. In addition, carbon credits generated outside of Colombia are eligible until the end of 2017, after which only Colombian carbon credits can be used. By allowing a cap of 100% as well as non-domestic credits during the first few months of the scheme, helps boost market liquidity – crucial in the early stages of any new domestic carbon scheme.
We have briefly reviewed the carbon tax and offset rules in Colombia and compared them to South Africa in the table below:

Colombia and South Africa are considered upper middle-income countries. Both countries are rich in natural resources (e.g. gold, silver, platinum, oil and coal). Although Colombia faces a number of challenges, such as armed conflicts, illegal drug problems, disjointed urban and rural contexts, and limitations in subnational administrative capacity, the country has stepped up the fight on man-made climate change. It has followed the example of other Latin American countries, such as Mexico and Chile, who also put a price on carbon and make fossil fuel industries accountable for their emissions.

Where does South Africa stand?
South Africa is an important and active player in global climate change negotiations. The country has a very strong national climate change response agenda and a highly advanced regulatory and law enforcement framework. Nevertheless, the country faces political instability and corruption that unfortunately is delaying the enforcement and implementation of environmental regulations, and discourages private investment and the uptake of low carbon technologies. The delay in the signing of the power purchase agreements of the Renewable Energy Independent Power Producer Procurement Programme (REIPPP) is one example of many.
The South African carbon market is currently in limbo and if the carbon tax bill does not become law sooner rather than later, the country will miss the opportunity to ensure a much needed, and overdue, transition to low carbon economy which will help generate more employment and make South Africa more globally competitive. Therefore, it is crucial that the revised carbon tax bill, which was supposed to be tabled in Parliament mid-2017, is released as soon as possible. Whilst Colombia has transparent and straightforward carbon tax rules and offsetting legislation, South Africa is still in process of clarifying and simplifying the procedures. How long will it still take South Africa to sign the carbon tax into law? The government has a chance to follow the example of Latin American countries and to become a role model for all African countries in cutting its emissions. The challenge the South African government faces is not only to design and to implement an effective carbon tax and carbon offset regulations but also to carefully balance the energy needs, development priorities and environmental objectives.

Author: Jana Hofmann, Leading Researcher, Climate Neutral Group. For more info, contact Jana at jana.hofmann@climateneutralgroup.com

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Greenhouse Gas Emissions reporting rules a fact

5/4/17 (InfrastructureNews) – South Africa’s National Greenhouse Gas Emissions Reporting Regulations were implemented by environmental affairs minister Edna Molewa in April 2017. The first reporting deadline is 31 March 2018.

The regulations aim to introduce a single national reporting system for the transparent reporting of Greenhouse Gas (GHG) emissions, which will be used predominantly to update and maintain a National Greenhouse Gas Inventory.

It will also be used to assist South Africa in meeting its international obligations in relation to climate change mitigation. Law firm Webber Wentzel has compiled a breakdown of the new regulations, including how the regulations work in practice and what they mean for you.

An integrated GHG reporting system

The rationale for an integrated Greenhouse Gas Emissions reporting system is based on the imminent imposition of the carbon tax for identified affected sectors in South Africa. These sectors will be identified based on their GHG emission concentrations.

The Greenhouse Gas Emissions Reporting Regulations are one of the implementation tools which will be used to regulate the reporting of data and information from identified point, non-point and mobile sources of atmospheric emissions to the National Air Emission Inventory System (NAEIS) with a view to compiling atmospheric emission inventories to inform the proposed carbon tax.

Although still in draft form, the declaration of GHGs as priority air pollutants (which will require persons conducting an activity within a designated GHG emission threshold to prepare a pollution prevention plan in accordance with the proposed National Pollution Prevention Plans Regulations) will, once finalised, and when combined with the GHG Reporting Regulations, complete the regulatory regime for the mandatory reporting of air emissions to the NAEIS housed on the South African Air Quality Information System.  This all means that the dominos are slowly being lined up for the carbon tax to be formalised.

How will the GHG Reporting Regulations work in practice?

The GHG Regulations differentiate between Category A data providers (which include persons controlling or conducting activities which emit GHGs) and Category B data providers (which include public bodies and academic/research institutions which hold GHG emission data for the purposes of calculating GHG emissions).

These data providers are required to report on GHG emissions activities at their facilities in line with the identified categories of emissions sources set out in Annexure 1 to the GHG Reporting Regulations.

The reporting obligations imposed on Category A data providers are more stringent and comprehensive than for those in Category B, as they are based on operational control and must cover all process, fugitive and combustion emissions from all GHG emission sources and source streams belonging to listed activities.

The methods for reporting GHG emissions data are set out in the “Technical Guidelines for Monitoring, Reporting and Verification of Greenhouse Gas Emissions by Industry” for each tier specifying the relevant emission sources.

Category A data providers must submit the GHG emissions and activity data for all of their facilities and in accordance with the data and format requirements specified in Annexure 3 for each preceding calendar year, to the competent authority by 31 March of each year (or the next working day). The competent authority has 60 days following a submission to approve a Category A data provider’s data or to request that such data be validated and verified. Category B data providers, on the other hand, must submit emissions and activity data collected only when requested to do so by the competent authority.

What does this mean for you?

At this stage, all designated data providers, whether Category A or Category B, will be required to register their facilities on the NAEIS or with the competent authority where activities at their facilities exceed the thresholds listed in Annexure 1 by 7 May 2017 or within 30 days after commencing such an activity if at a later stage.

Webber Wentzel said it is a criminal offence for a data provider to provide false or misleading information to the competent authority or to fail to comply with its registration, reporting and record-keeping obligations as set out in the GHG Reporting Regulations.