It has already been 4 months since the South African Carbon Tax was implemented on the 1st of June 2019. This has seriously caused businesses to start exploring options to reduce the subsequent tax liability.
During the first phase (June 2019 – Dec 2022) various tax-free allowances are applicable and, depending on the nature of your business, could result in 95% deduction on tax-payable. One of the simplest means to reduce tax payable is by purchasing domestic carbon offsets. The big question is: “how significant is the impact of purchasing credits in terms of tax-savings?” As an example, a carbon footprint of 50 000t CO2e direct emissions and a 10% offset allowance can easily result in R100 000 tax savings per year (depending on the price of the offset, which is capped at the marginal tax rate of R120 per tCO2e, and not the effective tax rate).
Purchasing offsets however requires planning and thinking ahead. Here’s why:
• There is lead time for credits to be generated
• Waiting until the final hour to purchase offsets can incur risks.
• Given the current spike in demand , in anticipation for SARS-season, there may not be sufficient credits.
• Modelling carried out by various organisations shows that there will always be more demand for offsets than what the market can supply.
• We expect offset supply to be especially constrained during the first two years of phase one of the carbon tax.
• This means that the low supply will drive up costs and hence reduce savings.
By timely securing carbon offsets for your business you will be guaranteed a carbon tax saving at the best price, whilst simultaneously contributing to a more sustainable South Africa.
https://climateneutralgroup.co.za/wp-content/uploads/2019/09/Carbon-Tax-01.png221487Climate Neutralhttp://climateneutralgroup.co.za.www522.jnb1.host-h.net/wp-content/uploads/2017/04/climateng_logo.pngClimate Neutral2019-09-30 11:02:012019-09-30 11:02:01Secure carbon offsets NOW and pay less carbon tax in June 2020
A leading National Treasury official has warned industry to prepare for a significant strengthening of South Africa’s carbon tax during the second phase of implementation, which will begin in January 2023, describing the first phase, which came into force on June 1, as “weak”.
South Africa’s headline carbon tax rate has been set at R120/t of carbon dioxide-equivalent (CO2e) emissions. During the first phase, however, several tax-free allowances and offsets have been included, which will result in a materially lower effective tax rate of between R6/t and R48/t.
South Africa’s largest emitter, Eskom, is exempt form paying carbon taxes in the first phase. Had it been included its yearly tax liability would have been R11.5-billion and would have placed further upward pressure on tariffs.
Speaking at a seminar in Johannesburg on Tuesday, deputy director-general Ismail Momoniat dismissed the persistent argument that the tax had been introduced to raise revenue, insisting instead that it had been designed primarily to change behaviour.
“The carbon tax is pretty weak . . . but very important symbolically,” he argued, indicating that it was likely to raise less than R3-billion a year during the first phase.
“But we have also made no secret of the fact that this tax will increase in future.”
Many in business remain sceptical, however, with some mining and industrial executives warning that the carbon tax will result in the loss of production and employment.
Business Unity South Africa’s (Busa’s) Jarredine Morris reiterated organised business’ opposition to the tax during her presentation to the seminar, hosted by Webber Wentzel and the Mail & Guardian.
Morris said that, although Busa recognised the potential benefit of sending an appropriate carbon-pricing signal, it remained concerned that the tax could deter both domestic and foreign investment.
Busa also questioned whether the tax would be an effective instrument for changing behaviour in the South African context, owing to the fact that many of the processes that underpinned mining and manufacturing activities could not be changed.
Morris was also concerned that several subordinate regulations had not yet been published, which made it difficult for companies to calculate their tax liabilities.
Busa would also continue to call on government to transition to a solution that integrated the carbon tax with the proposed carbon budget system whereby the tax was applied as a penalty in those instances where emissions exceeded the carbon budget.
However, Climate Neutral Group senior carbon adviser Silvana Claassen concurred with Momoniat’s view that the first phase had been crafted to “cushion” industry.
She said that, at R120/t, the rate was low when measured against global benchmarks that set the carbon price at between $40/t and $80/t.
“My advice to South African companies is to use the first phase to reduce your emissions so that you can reduce your tax liability come phase two,” Claassen said, arguing that the tax rate was likely to increase and the allowances decrease from 2023 onwards.
Momoniat rejected the notion that the introduction of tax ran counter to government’s ambitions to attract investment and reignite growth.
“If we are not going to deal with climate change and we are not going to make the necessary adjustments, then we are actually going to be left behind.”
He also reiterated the National Treasury’s rejection of calls for the revenue raised from the tax to be earmarked specifically for programmes that would support climate resilience, adaptation and mitigation.
“It is best for revenue to be centralised, otherwise you might find that we direct too little money towards the objective we want to meet.”
In response, Organisation Undoing Tax Abuse executive head Dr Heinrich Volmink called on the National Treasury to provide yearly reports on how much revenue was being raised from government’s various environmental levies and to juxtapose these against the allocations made for environmental programmes.
“You can still recycle the revenue into the central fiscus, but at least if we see these two figures side-by-side we will be able to see if there is some approximation . . . I would argue that it is our fiscal right to be able to see the correlation between what’s been collected and what’s been spent in terms of carbon mitigation.”
How Climate Neutral Group can Help
We are a leading carbon specialists providing carbon management and offsetting services, as well as being an established carbon tax consultant in South Africa.
Contact us to find out how we can assist to become a low carbon and climate neutral business.
https://climateneutralgroup.co.za/wp-content/uploads/2019/07/CNG-blog-carbontax-increase.png221486Climate Neutralhttp://climateneutralgroup.co.za.www522.jnb1.host-h.net/wp-content/uploads/2017/04/climateng_logo.pngClimate Neutral2019-07-10 11:49:202019-07-10 11:57:54‘Weak’ carbon tax to be significantly strengthened from 2023 – Treasury official
Last month IETA welcomed the formal launch of South Africa’s carbon tax and offset law, the first such measure in Africa.
See below the press release, released:
The tax of R120 (US$8) per tonne of CO2 equivalent will be assessed on greenhouse gas emissions from industrial plants in the country. This obligation can be met partially by surrendering certified carbon credits from approved standards.
“We welcome the climate leadership shown by the government of South Africa, for what is a first of its kind on the continent,” said Dirk Forrister, CEO of IETA. “The flexibility will help to ensure rapid reductions in emissions in a cost-effective manner.”
South Africa’s tax forms part of its Nationally Determined Contribution to achieving the goals of the Paris Agreement, which under which nations have agreed to reach net zero emissions in the second half of the century.
South Africa’s tax will allow emitters to use carbon credits to meet between 5-10% of their obligations under the tax.
In the first phase of the tax, only South African-based credits developed under the UN’s Clean Development Mechanism, Verra’s Verified Carbon Standard or the Gold Standard will be eligible for compliance. A future national carbon standard will also be considered. Carbon credits from projects registered and / or implemented before the introduction of the carbon tax regime will be accepted subject to certain conditions.
The official Act is available here in the government gazette of South Africa.
IETA organised a webinar on this topic in April, with participation from the National Treasury of South Africa. You can access the recording and presentations here on the IETA website.
About IETA
For the past 20 years, IETA has been the leading voice of business on market-based ambitious solutions to climate change. Our objective is to build international policy and market frameworks to reduce greenhouse gases at lowest cost, delivering real and verifiable emission reductions with environmental integrity. To produce meaningful prices that drive change, we support market-based policies with effective emissions targets, clear rules and flexible compliance choices. See www.ieta.org for more information.
https://climateneutralgroup.co.za/wp-content/uploads/2019/06/IETA-carbon-tax.png221486Climate Neutralhttp://climateneutralgroup.co.za.www522.jnb1.host-h.net/wp-content/uploads/2017/04/climateng_logo.pngClimate Neutral2019-06-24 10:25:582019-06-24 10:26:51IETA welcomes SA Carbon Tax
This article was written by Climate Neutral Group on May 24 2019.
After nearly a decade of negotiations, the Carbon Tax Act and the Customs and Excise Amendment Act were both officially gazetted on Thursday (23 May) and will come into effect from 1 June 2019. Where the Customs and Excise Amendment Act will be dealing with the administrative issues, the Carbon Tax Act sets out the technical and financial aspects, including emissions sources, the tax rate, tax-free allowances, and so forth.
The carbon tax is aligned to the polluter-pays principle, which means that carbon emissions caused by certain activities will be taxed at a rate defined in the Act. The carbon tax is one of a mix of measures to aid South Africa’s contribution to the global effort to stabilise the currently increasing amount of greenhouse gases in the atmosphere contributing to the climate crisis. The carbon tax is a price signal, which together with other measures including the tax incentives for efficient use of energy, aims to accelerate South Africa’s transition to a low carbon economy.
What does this mean for companies with a large carbon footprint?
South Africa’s economy is carbon intensive as a result of the historic abundance of coal. South Africa ranks number 14 on the list of the world’s biggest carbon emitters.
The SA carbon tax stipulates that carbon emissions from industrial processes, such as cement production and from various industrial activities including mining, will also attract carbon tax.
Therefore, the carbon tax will be implemented in a phased approach to cushion the impact. In the first phase, all carbon tax liable entities will receive a basic tax-free allowance of 60%. This means that 60% of the total taxable emissions will not be taxed. There are more allowances in place, such as a trade allowance, performance allowance and carbon offset allowance, all of which can bring the amount of taxable emissions down further.
Because companies with a large footprint cannot instantly reduce their tax liability, as a result of lack of technology or implications of large upfront investments, the Carbon Tax Act also allows for companies to offset a defined percentage of their taxable emissions. This means that companies can choose to buy carbon emissions reductions that are generated elsewhere, within SA borders, and reduce that amount from their taxable emissions. Eligible carbon offset projects are renewable energy-projects, landfill gas recovery or other social impact projects such as the manufacturing of an energy-efficient cooking device (“Wonderbag”) which uplifts local communities.
Franz Rentel, the South African director of Climate Neutral Group, which works with organisations to help calculate and manage their carbon footprints, said companies should determine which of their activities are generating tax liable greenhouse gas emissions. They should also develop a carbon offset strategy that addresses crucial questions, such as how and when to purchase carbon tax offsets.
See also: 3 Steps to A Climate Neutral Business (Read more>)
“The majority of SA corporates are not ready for the carbon tax but purchasing carbon tax offsets can reduce carbon tax payable by up to 20%. There is no longer any time to wait,” he said.
The first phase will run until December 2022 and the initial tax rate will be R120 per ton of carbon dioxide equivalent.
https://climateneutralgroup.co.za/wp-content/uploads/2019/05/Carbon-tax-update-law.png221486Climate Neutralhttp://climateneutralgroup.co.za.www522.jnb1.host-h.net/wp-content/uploads/2017/04/climateng_logo.pngClimate Neutral2019-05-24 10:13:342019-05-24 10:23:25Carbon Tax Bill Signed Into Law By Ramaphosa
Written by Tshegofatso Mathe, originally published on Daily Maverick on
A carbon tax from June 1 this year will add 9c a litre to the petrol price and 10c to diesel. This comes on top of the recent hike of 74c a litre to cover exchange rate and product changes — and there might be more of those to come.
There will also be a general fuel levy increase of 15c a litre on April 3, as announced by Finance Minister Tito Mboweni in his budget.
The carbon tax on fuel, which will go into the general revenue fund and not towards environmental expenditure, is an attempt by the government to honour its climate change commitments. South Africa agreed at COP15 in 2009 to cut its emissions by 34% by 2020 and 42% by 2025.
The Carbon Tax Bill, tabled in 2016, has been adopted by the National Assembly and is being processed by the National Council of the Provinces.
Notably, though, Eskom is intent on being exempted from the new carbon tax until 2022 because, in part, the utility already pays an electricity levy on its generation of nonrenewable electricity.
According to Harald Winkler, from the Energy Research Centre at the University of Cape Town,“the utility is paying 3.5c per kilowatt-hour in a levy on electricity generated from non-renewables, so that was considered an indirect carbon tax and the utility said it won’t pay a direct carbon tax at the moment”.
Eskom is the largest carbon dioxide emitter in the country. According to its 2018 annual report, it produces 205.5-million tonnes each year.
But the utility manages its air pollution controls poorly, which severely affects people’s health. According to a presentation to the department of environmental affairs in 2017 by United Kingdom-based air quality and health expert Dr Mike Holland, pollution from Eskom’s coal power stations is estimated to cause the premature deaths of more than 2 200 people a year and results in thousands of cases of bronchitis and asthma in adults and children.
A report by United States coal plant expert Ranajit Sahu, released in February, showed the utility had failed to meet its own air quality standards over a 21-month period until December 2017. Its coal power plants exceeded its already lenient licence conditions nearly 3 200 times.
In response to questions, Eskom said it supports the carbon Bill. Deidre Herbst, Eskom’s senior manager for environmental management, said: “With the mechanisms that national treasury have put in place, the impact of the Bill in its current form is expected to have a negligible effect on Eskom until the end of 2022. After 2022, the removal of the renewables rebate can be expected to have quite a significant impact on electricity price increases in 2023 onwards.
“Eskom is undertaking financial modelling work to determine this full impact. The results of this work will continue to be shared with the national treasury.”
Meanwhile, Eskom has to find alternative and less harmful ways to generate electricity.
According to Louise Naudé, the manager of the low-carbon frameworks programme of the World Wide Fund South Africa, Eskom “is supposed to be producing a public good for everybody in the economy. It is going to be exempted for a few years, which will give it enough time to make its electricity less and less dependent on coal.”
The issue is not without controversy. Environmental critics say the Bill is too little too late, but those promoting it say it should be seen as the beginning of a transition.
There is also concern that allowances during the transition phase are too generous and others take a more cynical view and see the tax simply as a ploy to collect more tax without necessarily reducing greenhouse gases.
And then there are those who are pleading to be completely exempt from it.
All emitters will initially get an allowance of 60% and only be taxed on 40% of their emissions. But in some cases, depending on how emitters compare with one another, the allowance can be as much as 95%.
The initial tax will be set at R120 a tonne, which Bobby Peek, the director of nonprofit environmental justice service GroundWork, sees as being too low. He said the tax should be much higher for it to have an effect.
“The idea of a carbon tax is not enough. International research indicates that to move the market the tax needs to be between R560 and R1 120 per tonne in 2020, and that it must rise from there.”
In reality, Peek said, in reality, the effect of the allowances “allows so many loopholes that the actual rate will be between R6 and R48 a tonne”.
Naudé was also critical of the rate: “The allowances can add up to 95%. Companies were very strong in lobbying against this tax, so basically they won the day. There were others who understood the bigger picture and understand we need to reduce our carbon emissions. It’s not all businesses who were resisting this; it’s only those who were heavy emitters.”
The tax may be low, but companies are still pushing back. In Parliament on Tuesday, the Airlines Association of Southern Africa argued that the tax will undermine the competitiveness of local flights.
But according to Climate Neutral Group’s country director for South Africa, Franz Rentel, although this will be the case now, eventually international operators will be subject to carbon taxes too.
Chemical company Sasol said it was ready to comply with the carbon tax, but it had some reservations about how this has been structured.
Johan Thyse, Sasol’s vice president of regulatory services, said: “To ensure that South Africa’s transition is orderly and just, developed policy needs to be clear and cohesive.
“We remain of the view that policy in the form of standalone carbon tax in its current design is not in the best interests of South Africa as it further diminishes the country’s investment attractiveness and competitiveness.
“It appears to be drafted in a manner that prioritises revenue collection over mitigation.”
Business Unity South Africa (Busa) also complained to parliamentarians about the structure of the Bill.
“The tax should factor current economic circumstances. Busa is not opposed to the carbon tax [but] there are certain principles in its current form that warrant further revisiting,” said Jarredine Morris, the organisation’s energy and environment manager.
Trade union federation Cosatu deemed the tax “lazy”, adding that it is “concerned at government’s late approach to resolving climate change and its many other crises”.
“We are equally appalled by the business profit-above-all-else approach. However, we do concede that government has lowered the levels of the tax in response to industry and workers’ concerns.”
https://climateneutralgroup.co.za/wp-content/uploads/2019/03/CNG-blog_Carbon-tax-19.03.png221486Climate Neutralhttp://climateneutralgroup.co.za.www522.jnb1.host-h.net/wp-content/uploads/2017/04/climateng_logo.pngClimate Neutral2019-03-19 13:56:282019-03-19 13:56:28Carbon tax gets a muted welcome
Written by Beatrix Knopjes, originally published on Isometrix on February 27, 2019
On 21 February 2019, South African Finance Minister Tito Mboweni announced that the Carbon Tax Bill will come into effect on 1 June 2019. This announcement is the culmination of nearly a decade of preparation and consultation with industry stakeholders.
The Climate Neutral Group in partnership with IsoMetrix have developed a turnkey solution to help organizations manage their carbon footprint and associated tax liabilities.
What is the Carbon Tax Bill?
The Carbon Tax Bill imposes R120 on each ton of CO2e (carbon dioxide equivalent) directly emitted by a company’s operations. The implementation of this tax follows a phased approach. The first phase commences on 1 June 2019 and will last until 31 December 2022. The biggest difference between the first and following phases is that during the first phase companies enjoy a basic tax-allowance of 60 or 70%. This feature is envisaged to fall away come the next phase of the Carbon Tax. The rationale behind tax-free allowances is to allow businesses time for transition by implementing measures that will reduce their emissions in preparation of a time where basic allowances no longer apply and each ton of emissions will be taxed.
Implementing a Carbon Tax in one of the world’s top carbon producing countries will benefit all South Africans in the long run and is in line with the country’s commitment to the Paris Agreement.
“Climate change poses the greatest threat to humanity and SA intends to play its role in the world as part of the global efforts to reduce greenhouse gas emissions.” Mboweni said in his speech.
Where does this leave South African businesses?
Silvana Claassen, Senior Carbon Advisor at Climate Neutral Group South Africa explains that “South Africa is a carbon intensive country. This is largely due to a legacy of large coal reserves and low electricity costs that allowed industry to flourish. South African industry has been resistant to the implementation of the Carbon Tax Bill. However, global attitudes to curbing greenhouse gas emissions are turning in the direction of zero emissions technologies. As such, it is very much for the long-term benefit of organizations to reduce their carbon footprint.”
Silvana explains, it is typically companies with vested international interest that have done their homework, and often are on top of their carbon footprints enabling them to identify opportunities to reduce emissions resulting in a direct positive impact on their bottom lines. “Calculating a carbon footprint is not an easy task,” Silvana says, “especially when you take into account that your supply chain may pass on the cost of their carbon emissions to you. With carbon tax on the horizon, your carbon footprint comes at a cost, by reducing your emissions, you save costs. It is that simple.”
An opportunity to future proof your company
Robin Bolton, Head of Sustainability at IsoMetrix emphasizes that companies should use the time before the Bill comes into effect to put their house in order. “Organizations that take advantage of this time will get their administration sorted out,” he says, “and then implement a tool to manage and track carbon emissions.” The South African government has afforded a grace period to ease companies into their obligations that come with the Carbon Tax Bill, including the requirement to report on emissions. “This grace period is temporary,” says Robin, “by 1 January 2023, the requirements will be far stricter and the consequences far more serious.
Silvana adds that companies must see the next few years as an opportunity to future proof themselves while the tax free allowances are in place, as after this period not only do the allowances fall away but the rate per ton of CO2e will go up.
IsoMetrix Carbon Tax Module
The IsoMetrix Carbon Management module is designed to help companies calculate and manage their carbon footprint. The system enables the calculation of a company’s carbon footprint. Because of its agility, this module meets the requirements of a variety of published guidelines and protocols and allows for the use of specific factors and formulae. The added value that the IsoMetrix systems bring is that objectives and targets can be set with actions captured and tracked to ensure compliance and to meet these objectives. The partnership between IsoMetrix and Climate Neutral Group is synergistic in nature: Climate Neutral Group provides expert advice on identifying a company’s activities so that the Carbon Management module can be tailored to include reporting of associated emissions. Where IsoMetrix provides the technology tool to track and report a company’s emissions, Climate Neutral Group can propose strategies to reduce a company’s footprint and ultimately pay less tax.
https://climateneutralgroup.co.za/wp-content/uploads/2019/03/CNG-blog-6-march.png221486Climate Neutralhttp://climateneutralgroup.co.za.www522.jnb1.host-h.net/wp-content/uploads/2017/04/climateng_logo.pngClimate Neutral2019-03-06 08:25:462019-03-06 08:29:43Are you ready for the Carbon Tax Bill?
Written by Franz Rental, originally published on LinkedIn on February 20, 2019
Yesterday, 19 February, the National Assembly passed the long-awaited carbon tax bill, clearing a key hurdle in keeping the measure on track to enter into force 1 June 2019. The bill will now be submitted to the Council of Provinces before it is sent to President Ramaphosa to be signed into law.
Under the Bill, offsets can be used to help companies pay less carbon tax. And these savings can be considerable. Many companies, including the large emitters most impacted by the tax, are not aware that by using carbon offsets they can pay up to 20% less in carbon tax, while at the same time boost their Corporate Social Investment mandate.
MARGINAL VS EFFECTIVE TAX RATE
The Bill will apply a marginal tax of R120 rand/tonne of CO2e on virtually all areas of South Africa’s economy, covering greenhouse gases sources from fossil fuel combustion, fugitive emissions, and industrial processes.
The levy will rise annually by 2% plus inflation until the end of the first phase in 2022, and then align with inflation after that.
However, emitters will initially face an effective tax rate of R6 – R48/tonne based on the suite of tax allowances available and the admissibility of offsets, with some companies able to reduce their tax burdens by as much as 95%.
Seeing that the effective tax rate is only R6 – R48 per tonne many people are under the false impression that offsets need to be priced under this rate in order to pay less carbon tax and therefore using offsets will hardly make a difference in reducing a company’s carbon tax.
But this is not the case, as I will explain below.
CARBON TAX OFFSETS
Carbon offsets, or carbon credits, from projects certified under the CDM, Gold Standard, and Verified Carbon Standard (Verra) will be allowed providing they meet certain criteria.
Some project types have been branded ineligible including HFC-23, N2O adipic acid, nuclear, CCS, and installations that have renewable energy generation capacity in excess of 50 MW.
The regulations also stipulate that projects can only be eligible if they don’t benefit from other government incentive programmes such as the Energy Efficiency Savings Tax Incentive (12L) or the Renewable Energy Independent Power Producers Procurement Programme (REIPPPP).
Carbon offsets generated by activities that are covered under the carbon tax are also not eligible. For example, if a company implements a project that reduces the coal use in their boilers the project activity cannot be registered as a carbon offset project for use under the carbon tax as this project will result in a company paying less carbon tax (i.e. to avoid double counting).
SAVINGS FROM USING CARBON TAX OFFSETS
As mentioned above, the marginal tax rate is R120 / tonne, which means that for those emissions you are taxed on, you pay R120 / t. The effective tax rate is calculated if you divide the R120/t by the % allowances.
So for example, if your company has 1000tCO2 of process emissions you do not have to pay tax on the first 70% (tax free allowance) and therefore you only pay tax on 300t (this is your “taxable emissions”). This means you have to pay R36,000 in carbon tax (300t X 120/t).
The effective tax rate is then calculated as follows:
(R120 / 100) X 30 = R36/t.
This means you are paying R36 / t on the full 1000t (and R120 / t on the 300t). From 2022 the basic tax free allowance of 70% falls away, then you are paying R120 / t on the full 1000t.
In terms of offsets, using the above example, a company would be allowed to use 5% of the total 1000t in offsets (process emissions allows 5% offset use). This would be 50t. If this company buys offsets for, say R60, then they would save R60 / t (R120/t tax rate less R60/t offset price). Their carbon tax saving would be calculated as 50t X R60/t = R3000.
So if this company does not make use of offsets they would pay R36,000 in carbon tax. If they use offsets they only pay R33,000 (R36k – 3k). This is a saving of 8%.
As such it can be clearly seen that even though the company paid R60 / t for the offset (much higher than the R36 / t effective tax rate) they still saved carbon tax.
To conclude, as long as a company purchases offsets for less then the price of the marginal tax rate they will still pay less carbon tax.
Generally, how much carbon tax a company can save by using offsets will depend on:
price of the offsets – the lower the price, the higher the savings (but offsets are not free!)
percentage offset allowance – combustion emissions allow for 10% offset allowance – hence higher the savings compared to using 5% offset allowance for process and fugitive emissions
emissions profile – a company with mostly combustion emissions will save more carbon tax when using offsets compared to a company that has mostly process and/or fugitive emissions (this is due to the fact that combustion emissions have a 60% tax free allowance compared to 70% tax free allowance for process and fugitive emissions).
Due to the considerable tax savings to be had, and the fact that there will be more at least 5 times more offset demand than supply, carbon tax liable companies are advised to develop a carbon offset strategy that addresses the following crucial questions:
To purchase offsets, and save tax, or not?
Linking offsets to broader company objectives?
Linking offsets to CSI / social development programmes?
Purchasing a function of price and / or project type?
Who will manage this process (internally or outsourced?)
When to act?
Climate Neutral Group can help your company lower its carbon tax liability through a robust carbon tax offsetting strategy. We also have a large portfolio of eligible South African carbon offsets thereby maximising your carbon tax savings.
https://climateneutralgroup.co.za/wp-content/uploads/2019/02/CNG-carbon-offsets-less-tax.png221486Climate Neutralhttp://climateneutralgroup.co.za.www522.jnb1.host-h.net/wp-content/uploads/2017/04/climateng_logo.pngClimate Neutral2019-02-21 12:20:132019-02-27 10:58:15How SA companies can use carbon offsets to pay less carbon tax
Written by Mike Szabo, originally published on Carbon Pulse on February 19, 2019
South Africa’s parliament on Tuesday approved the country’s long-awaited carbon tax bill, clearing a key hurdle in keeping the measure on track to enter into force this spring.
The margin of approval by lawmakers was unclear, but observers said the legislation was supported by a clear majority, despite some pushback from the opposition Democratic Alliance (DA).
DA lawmakers cited conflicting arguments including high unemployment and the tax being ineffective due to the price being set too low. They also contended that the levy was an inappropriate approach, and that the government should consider implementing an emissions trading system instead.
The bill will now be submitted to the Council of Provinces before it is sent to South African President Cyril Ramaphosa to be signed into law.
“The time has really come for companies to start preparing for the carbon tax, which is now all but certain to become operational and effective in little over three months’ time on June 1,” said consultancy EcoMetrix Africa.
South Africa’s national carbon tax was first floated in 2010, a year before the country hosted the annual UN climate talks. But progress has been slow since then, with the government only publishing the first draft in Nov. 2015 and big emitters including state-owned utility Eskom lobbying to further delay or completely scrap the plan.
If approved in its current form, the bill will apply a tax of 120 rand ($8.49) per tonne on virtually all areas of South Africa’s economy, covering most stationary and non-stationary greenhouse gas sources and applying to fossil fuel combustion, fugitive emissions, and industrial processes.
The levy will rise annually by 2% plus inflation until the end of the first phase in 2022, and then align with inflation after that.
However, emitters will initially face an effective rate of R6-48/tonne based on the suite of exemptions available and the admissibility of offsets, with some companies able to reduce their tax burdens by as much as 95%.
GHGs from purchased electricity, known as Scope 2 emissions, are also excluded.
OFFSET ONSET
Credits from projects certified under the CDM, Gold Standard, and Verified Carbon Standard (Verra) will be allowed providing they meet certain criteria.
Some project types have been branded ineligible including HFC-23, N2O adipic acid, nuclear, CCS, and installations that have renewable energy generation capacity in excess of 50 MW.
The regulations also stipulate that projects can only be eligible if they don’t benefit from other government incentive programmes such as the Energy Efficiency Savings Tax Incentive or the Renewable Energy Independent Power Producers Procurement Programme (REIPPPP).
EcoMetrix said its modelling estimates there will be a “considerable” shortage of usable carbon credits in the short-to-medium term.
This, it added, could trigger a revival of South Africa’s project-based offset market, which along with the wider CDM programme under the Kyoto Protocol has not yet recovered from the crash in CER prices that came following the global economic downturn.
REVIEW
South Africa’s Treasury will hold a review of the tax after three years of implementation, evaluating the headline rate and exemption thresholds while assessing the levy’s effectiveness in reducing greenhouse gas emissions.
The review will also consider how to better align the tax with other environmental initiatives – including South Africa’s carbon budget programme – and whether to expand its reach to other sectors.
The budgets will feed into sectoral targets that will help South Africa meet its Paris Agreement pledge to peak its GHGs in 2020-2025, plateau for a 10-year period from 2025 to 2035, and then cut them from 2036 onwards.
Emitters that exceed their company-level limits will be forced to pay steep penalties.
FACTFILE:
South Africa’s waste, agriculture, forestry, and other land-use sectors are exempt from paying the tax or performing MRV until 2022 due to the difficulty in accurately measuring emissions from those sources.
A basic tax-free allowance of 60% is offered to all emitters, with an additional 10% for having process or fugitive emissions.
Another variable allowance of up to 10% is available for trade-exposed sectors, with an additional 5% available for above-average performance relating to sectoral benchmarks.
Beyond that, a further 5% can be applied by companies that have developed an annual carbon budget and report it to the government.
How Climate Neutral Group can help
We are a leading carbon offsetting specialists providing carbon management and offsetting services, as well as being an established carbon tax consultant in South Africa. Contact us to find out how we can assist to ensure that you comply with regulations and become a climate leader.
Originally published on Carbon Pulse on February 5, 2019
A South African parliamentary committee on Tuesday approved the country’s carbon tax bill, moving the long-awaited levy a step closer to becoming law.
The Finance Standing Committee adopted the legislation, which if approved by the National Assembly and National Council of Provinces, and then signed by the president, will see the 120 rand ($8.97) per tonne tax enter into force on June 1 of this year.
The panel also approved a number of amendments made to the bill in December, according to consultancy EcoMetrix Africa.
“With this last technical hurdle overcome … it is now up to the political will in parliament,” said EcoMetrix partner Henk Sa, adding that, after gauging sentiment at today’s committee meeting, he believes that lawmakers will give the bill final approval.
Under current legislation, all emitters will face an effective rate of R6-48/tonne based on the suite of exemptions available and the admissibility of offsets, with some companies able to reduce their tax burdens by as much as 95%.
It’s not clear when the full parliament will vote on the bill, but there are a number of plenary sessions scheduled during the four weeks starting Feb. 19.
The term of the current National Assembly officially ends on May 6, but experts expect it to wrap up well before that as the country holds its general elections later that month.
During Tuesday’s committee session, a representative from South Africa’s Treasury said it will hold a review of the tax after three years of implementation, evaluating the headline rate and exemption thresholds while assessing the levy’s effectiveness in reducing greenhouse gas emissions.
The review will also consider how to better align the tax with other environmental initiatives – including South Africa’s carbon budget programme – and whether to expand its reach to other sectors.
The budgets will feed into sectoral targets that will help South Africa meet its Paris Agreement pledge to peak its GHGs in 2020-2025, plateau for a 10-year period from 2025 to 2035, and then cut them from 2036 onwards.
FACTFILE:
South Africa’s national carbon tax was first floated in 2010, a year before the country hosted the annual UN climate talks. But progress has been slow, with the government only publishing the first draft in Nov. 2015.
The tax will affect virtually all areas of South Africa’s economy, covering most stationary and non-stationary sources and applying to fossil fuel combustion, fugitive emissions, and industrial processes.
Waste, agriculture, forestry, and other land-use sectors are exempt from paying it or performing MRV until 2022 due to the difficulty in accurately measuring emissions from those sources.
A basic tax-free allowance of 60% is offered to all emitters, with an additional 10% for having process or fugitive emissions.
Another variable allowance of up to 10% is available for trade-exposed sectors, with an additional 5% available for above-average performance relating to sectoral benchmarks.
Each emitter has an offset usage limit of 5% or 10%, depending on their sector. Credits from projects certified under the CDM, Gold Standard, and Verified Carbon Standard (Verra) will be allowed providing they meet certain criteria.
Beyond that, a further 5% can be applied by companies that have developed an annual carbon budget and report it to the government.
How Climate Neutral Group can help
We are a leading carbon offsetting specialists providing carbon management and offsetting services, as well as being an established carbon tax consultant in South Africa.
Contact us to find out how we can assist to ensure that you comply with regulations and become a climate leader.
Written by Gcina Ntsaluba, originally published on Money Web on January 24, 2019
The worldwide trend is to be cleaner and greener, and a new tax is around the corner … and with business unprepared, the taxpayer will indirectly cough up.
With less than six months left before the Carbon Tax Bill is implemented on June 1, the majority of corporates are not ready for it, an expert says.
Franz Rentel, the South African director of Climate Neutral Group, which works with organisations to help minimise their carbon tax liability, said companies should determine which activities are generating tax liable greenhouse gas emissions. They should also develop a carbon offset strategy that addresses crucial questions, such as how and when to purchase carbon tax offsets.
“Purchasing carbon tax offsets can reduce carbon tax payable by up to 20%. The majority of SA corporates are not ready for the carbon tax. There is less than six months to go,” he said.
Carbon tax is a fee imposed for the burning of carbon-based fuels (coal, oil, gas) and is globally recognised as a core policy instrument for reducing and eventually eliminating the use of fossil fuels, the combustion of which is destabilising the climate.
If set high enough, the tax is a powerful incentive to switch to clean energy, because it is economically rewarding to move to non-carbon fuels and energy efficiency.
The SA carbon tax stipulates that carbon emissions from industrial processes, such as cement production and from various industrial activities including mining, will also attract carbon tax.
Rentel said ordinary citizens would not be directly affected by the carbon tax. Eskom was not allowed to pass the additional cost on to consumers and it would not affect fuel prices.
“The most likely way the man on the street will be affected is that certain commodities increase in price as the big emitters pass on the additional costs to consumers. For example, cements, steel, glass, paper. But as the carbon tax is quite low and the allowances very generous in the first phase, the additional costs will not be significant,” said Rentel.
Companies must report on their greenhouse gas emissions before March 31. The SA greenhouse gas emission reporting regulations came into effect on April 3 last year to assist the national department of environmental affairs to get information from businesses to update the national greenhouse gas inventory.
This is a requirement of the Paris Climate Agreement, which SA ratified in November 2016.
The first phase will run until December 2022 and the initial tax rate will be R120 per ton of carbon dioxide equivalent.
Carbon offsets are essentially a form of trade in which an offset is purchased that funds projects that reduce greenhouse gas emissions elsewhere.
How Climate Neutral Group can help
We are a leading carbon offsetting specialists providing carbon management and offsetting services, as well as being an established carbon tax consultant in South Africa. Contact us to find out how we can assist to ensure that you comply with regulations and become a climate leader.
