At a time when European government retreat from punitive carbon pricing regimes to stimulate their economies, South Africa intends on introducing punitive measures for carbon emissions with its proposed carbon tax policy.

National Treasury last week published the second policy paper, aimed at introducing carbon taxes for implementation from 1 January 2015. In the policy paper, a tax of R120 per tonne of carbon dioxide- equivalent is proposed, with a 60% tax-free emissions threshold and some exemptions for heavy emitters.

But stakeholders in the manufacturing, mining and materials beneficiation industries are perturbed about the potentially negative impact that such a tax could have on the economy, fearing it could increase the cost of doing business in South Africa.

Mike Rossouw, chairman of the Energy Intensive Users Group (EIUG), told MiningMx the organisation’s biggest concerns are that the tax-free allowances stipulated in the policy document are much lower than international norms. “This means business competitiveness in South Africa will suffer,” he said. “The level of tax must consider the total tax burden being carried by business and industry, particularly in the light of the European Union’s carbon price collapse.”

In January this year, the EU proposed a so-called backloading plan, which would involve delaying the sale of 900m carbon permits for five years to increase the price of carbon permits. The plan however needed backing from Europe’s parliamentarians and ministers to become law .

But last month, the EU parliament voted against the proposal. This resounding veto shows European governments have moved to rather stimulate their economies and oppose punitive carbon pricing, Rossouw said.

He emphasised that business and industry have not rejected the carbon tax policy. “But the current proposal requires significant engagement (with treasury) to avoid the negative impact on the economy.”

The Manufacturing Circle, made up of a number of South Africa’s leading medium to large manufacturing companies from different industries, is also concerned about the harmful effect the proposed tax policy could have on the competitiveness on South African industries.

“Chinese manufacturers for example are more competitive precisely because they’re not subjected to environmental taxes,” Coenraad Bezuidenhout, executive director of the Manufacturing Circle told MiningMx.

At a media briefing yesterday, treasury insisted the Carbon Tax Policy is not meant to raise revenue, but to encourage business and consumers to change their behaviour and invest in a greener economy.

Bezuidenhout doubts this tax w ill have the desired effect. “South African manufacturers will probably choose to adapt to this new tax liability than innovate and invest in greener economies.”

According to him, industries which are “heavy carbon emitters” have a limited scope to convert to greener economies before they hit the proverbial brick wall. “Yes, we acknowledge that we need to comply with carbon emission reduction policies, but we are indeed concerned that this is just another way of generating revenue for treasury.”

Another gripe industry players have with the proposed tax is that it would also apply to Eskom. In the policy document, it is stated that the electricity sector will qualify for a tax-free threshold of up to 70% during the first phase. But stakeholders argue Eskom should instead be relieved from this tax.

Says Rossouw: “The electricity sector should be exempted, since this tax will be passed through completely to the consumer.” The Democratic Alliance’s spokesperson on finance, Tim Harris, concurs. “The reality is that the introduction of a carbon tax together with Eskom’s effective monopoly on electricity generation will simply result in the costs of any such tax being passed onto ordinary South Africans who are forced to buy energy from Eskom.”

Business Unity South Africa (Busa) also expressed concern about Treasury’s decision not to do away with the existing electricity levy on electricity produced from non- renew able sources, such as coal, and from nuclear energy. “This tax will however not be abolished as part of the revenue generated from this levy funds some of the demand-side measures currently being implemented by Eskom,” treasury said last week.

The decision to not abolish the electricity levy – which is essentially a tax on carbon – is inconsistent with the commitment to do so made by the Minister of Finance in his 2013 Budget Speech, Busa said.

Promethium Carbon, a carbon advisory firm, pointed out there is also “a number of good news items” included in the Policy Paper, including the low effective tax rate.

Companies will pay tax of between 10% and 40% of their emissions, which sets the effective tax rate at between R12 and R48 per ton of carbon. “This is significantly lower than the R50 to R60 we are already paying in the non-renew able levy and the contribution to government’s Renewable Energy Independent Power Producer Procurement (REIPP) programme,” the company said in a statement.

Treasury’s latest version of the Carbon Tax Policy updates the 2010 discussion paper on how to reduce Greenhouse Gas Emissions and also take into account public comments received. The current paper is the second and final round of comments on carbon tax policy. Stakeholders and the general public w ill have until 2 August this year to comment on the discussion document.

Read more>>

There is still confusion regarding the details and implementation of the new carbon tax, set to become effective in 2015.
The Carbon Tax Policy Paper, released last week by National Treasury, has clarified some issues, but a number of pressing questions still remain.
Chief among these is who the tax will apply to - whether it will affect qualifying companies or whether it will embrace all companies, organisations such as NGOs and municipalities, and even individuals.
Robbie Louw, MD of Promethium Carbon, says that earlier papers had implied the tax would be confined to companies with emissions above a certain threshold, but the new policy paper offers no guidance on the taxable base.
He believes the tax will be applicable only to companies and not individuals as well, but so far this is an open question. In addition, no lower limit has been defined, below which the tax would not be payable. This could mean that companies would be liable for a carbon tax even if their emissions are low enough to exempt them from mandatory greenhouse gas reporting.
A question mark also hangs over the taxation of Eskom, and the fact that this can be passed on to consumers – giving Eskom little financial motivation to reduce its greenhouse gases. This means companies could indirectly pay a high carbon tax, despite reducing their own emissions since they have no way of influencing or reducing emissions from the electricity supplier.
Compounding this issue is the fact that the 3,5 cents per kWhr currently levied on electricity will not be abolished as was previously discussed, although there is the prospect of the current environmental levy being reduced or phased out.
On the positive side, Louw says that the paper is consistent both with prior communications from Treasury as well as with international practice. In fact, by allowing companies to use carbon offsets to reduce their tax liability, it will become an international trailblazer. He believes that, by allowing offsets, funds could be channelled to low-carbon projects that may not have been viable without such a motivation.
The relatively low effective carbon tax rate is also good news for South African companies, Louw says, as companies will pay an effective rate of between R12.00 and R48.00 per ton.
In addition, the paper proposes to allow revenue recycling and tax shifting, which Louw describes as moving away from taxing companies for doing good – such as job creation or profitability – and towards penalising them for doing bad – such as creating carbon emissions.
Clarity is still sought on a number of issues to do with the carbon tax, particularly a number of challenges around benchmarking, accounting, reporting and auditing, Louw adds.

read more>>

Promethium Carbon hosted a press conference and information session regarding the Carbon Tax Policy Paper that was released by National Treasury on 2 May 2013.

The carbon and climate change advisory firm also launched a carbon footprint calculator on that same day. This tool analyses the carbon footprint against the currently indicated regulatory framework with respect to the following issues:

• Requirements for mandatory reporting
• Requirements for the submission of GHG mitigation plans
• Carbon tax impacts:
  • Scope 1 emissions
    • Access to relief measures
    • Impacts of offsets
• Scope 2 emissions
  • Access to relief measures
  • Impacts of offsets

Please download the free carbon footprint calculator at www.carbontax.co.za

Please download the video here (Source of video: Engineering News)

As South Africa moved to become a carbon-taxed economy by 2015, gaps emerged in the proposed policy as to how the country would account for its emissions and who would be responsible, says carbon advisory firm Promethium Carbon.

South Africa planned to mitigate its high greenhouse-gas (GHG) emissions by implementing a phased-in tax rate of R120/t of carbon dioxide equivalent (CO₂e), increasing by 10% a year during the first five-year phase.

The recently tabled second and final comment paper, titled ‘Reducing greenhouse-gas emissions and facilitating the transition to a green economy’, however, provided no indication of emission accounting, auditing standards, the division of emissions and whether the policy was targeted only for industry, Promethium Carbon director Robbie Louw pointed out.

The proposed tax, which was to be calculated on fuel consumption multiplied by Department of Environmental Affairs-directed emission factors, seemed to be based on some of the principles of the United Nations’ intergovernmental panel on climate change, but the policy failed to specify according to which standard South Africa’s GHG inventory or a corporate entity’s carbon footprint would be calculated.

He added that another “shortcoming” of the proposed Carbon Tax Policy was that it failed to clarify or comment on whether municipalities, nonprofit organisations, provincial government operations or individuals were required to pay tax on their emissions, nor did the document stimulate a minimum emissions threshold to be taxed.

The soon-to-be-implemented National Climate Change Response White Paper outlined mandatory reporting on emissions data for companies emitting more than 100 000 t/y of GHGs or consuming more than 100 000 MWh/y of electricity.

It was unclear whether this would be the case for the carbon tax, Promethium commented.

The advisory firm had also released a free carbon tax calculator to assist smaller companies calculate their carbon footprint and potential tax liability, based loosely on the current form of the policy.

Meanwhile, Promethium stated that, despite some tax relief for certain industries, the carbon tax was likely to filter through to the consumer, particularly from the most carbon-intensive sectors such as electricity generation, fuel and transport.

Agriculture, forestry and land use, transport and petroleum refining accounted for 9% each of the country’s GHG emissions, while fugitive emissions from fuels accounted for 16%. Electricity generation contributed the highest amount of emissions at 40%.

The policy outlined a tax-free threshold of up to 60% and additional relief in the form of trade exposure and process emissions of up to 10% each. South Africa was also the first country to include an option to reduce the tax by 10% with carbon offsets, such as clean development mechanisms and verified carbon standards.

These reliefs represented a tax of between R12/t and R48/t of CO₂e, as companies paid for between 10% and 40% of the emissions between 2015 and 2020.

During the first five years, from the date of implementation, until December 31, 2019, the agricultural and waste sectors would be exempt from paying the tax.

The electricity sector and other select sectors would qualify for a tax-free threshold of up to 70% and 90% respectively.

While the policy document clarified that tax would only be levied on Scope 1 emissions, namely emissions from fuel combustion, gasification and nonenergy industrial processes, Scope 2 emissions, which resulted from the generation of electricity, heating, cooling and steam, would be “taxed in the hands” of State-owned power utility Eskom.

Promethium argued in a response document that the provision had “the potential to sterilise the relief mechanism for trade exposed companies” and “diminish the ability of the economy to reduce the tax liability through the development and use of offsets”.

Eskom had no incentive to gear its carbon-intensity down or reduce any tax liability, as it passed the carbon tax cost on to the consumer, the firm stated.

The policy also retracted Finance Minister Pravin Gordhan‘s indication of a phasing out of the 3.5c/kWh nonrenewable electricity levy, as stated in his 2013 Budget speech, as “part of the revenue generated from the levy funds some of the demand-side measures currently being implemented by Eskom”.

However, the Carbon Tax Policy noted that “the electricity generation sector would not be immune to the impact of the carbon tax” but it would affect any future investment decisions, as well as reduce the price-cost differential between fossil fuel-based, nuclear and renewable energy.

The policy proposed a coal-fired power plant CO₂ emission intensity benchmark of 0.91 t/MWh – currently believed to be the most efficient emissions intensity of existing coal-fired power stations – during the first phase of the implementation

Eskom’s current CO₂e emission was 0.99 t/KWh.

This would be reduced to 0.8 t/MWh – the expected output of the Kusile power station – during Phase 2 from 2020 until 2025.

The older, return-to-service stations, namely Camden, Grootvlei and Komati, which were expected to run until 2023/4, were required to cut 11-million tons of CO₂ to reduce their emissions in line with the benchmark.

Electricity generated from renewable sources was deemed GHG emissions neutral and should not fall within the scope of the proposed tax.

POTENTIAL TRADE BENEFITS
However, while the new proposed carbon tax policy produced potential higher prices and some uncertainty regarding regulations, if South Africa did not follow through, the country would fall behind in international trade.

Louw noted that the policy could ensure South Africa’s place in international trade as, increasingly, countries look to trade with other carbon-conscious countries.

Trade partners may impose constraining regulation, levy border taxes or implement similar initiatives, on carbon-intensive goods or services from countries that failing to implement a GHG emission mitigation strategy or carbon price structure.

Louw commented that the Carbon Tax Policy’s timing, price level and scope seemed to be in “good alignment” with the developments of international trends, as well as the efforts of many of South Africa’s international trading partners.

Promethium’s independent analysis found that 28% of global emissions in 2013 would originate from jurisdictions implementing some form of carbon pricing in their economies and 42% from economies with the intention to implement carbon-pricing mechanisms.

By 2015, 71% of global emissions would have originated from economies that had carbon pricing in place.

The Carbon Tax Policy was currently out for comment until August. read more>>

Promethium Carbon’s initial comments on the latest Carbon tax Policy Paper is presented here.   We may update this document in the near future after applying the principles contained in the Policy Paper to a range of companies in various sectors.

The good news

There are a number of good news items included in the Policy Paper. These include:

•  The Policy Paper is largely consistent with the previous communications from National Treasury with respect to the basic    structure and approach of the tax. This consistency gives a solid base for the development of the tax and the engagement around the issue.

•   Low effective tax rate: Companies will pay tax on between 10% and 40% of their emissions between 2015 and 2020.  The provision of a percentage based tax free emissions threshold is designed to match the “free issue” of emission allowances in large economies and suitably aligns the proposed SA tax with international practice. The high initial thresholds set the effective tax rate at between R12 and R48 per ton CO2e emitted.  This is significantly lower than the R50 – R60 per ton already carried by the South African economy as part of the electricity tariff in the form of the non-renewable levy and the contribution to the REIPP program.  The introduction of the carbon tax could potentially have less of an economic impact than what the introduction of these indirect taxes had.

•  Revenue recycling and tax shifting: National Treasury has moved far from its initial position of “no ring fencing” to a constructive discussion of the possibilities of revenue recycling and now also tax shifting.  This is an important development and a move in the direction of making the carbon tax revenue neutral.  Many of the arguments against the implementation of a carbon tax are good arguments against the introduction of any additional tax on the economy.  These arguments are however not valid if revenue neutrality can be achieved through tax shifting. The  impact of  such a  move would  be  that the tax base move away from penalizing the good (such as job creation) to penalizing the bad (pollution).

• Alignment with international practice: There seems to be good alignment with what happens in the international front in the sense that the timing, price levels and scope of the tax is in alignment with developments in many of South Africa’s trading partners. There are obvious points of difference like the fact that many countries prefer cap and trade schemes rather than taxes. The current depressed state of the European carbon prices, but there is general alignment in the fact that carbon is being priced into these economies.  Promethium’s independent analysis shows that in 2013 28% of global emissions come from jurisdictions that have implemented some form of carbon pricing in their economies and 42% from economies that have announced that they are in the process of implementing carbon pricing mechanisms.  By 2015 71% of global emissions will come from economies that have implemented carbon pricing mechanisms.  Should South Africa fail to implement the carbon tax, we will be part of a minority and this could have serious international trade implications.

•  The use of offsets to reduce one’s tax liability: The Policy Paper confirmed that offsets will be used and gives some guidance on the types of credits that can be used.  The introduction of this mechanism puts South Africa in the forefront of international carbon pricing development and has been recognised as such by the international community.   Some guidance is provided on what offsets would be eligible and a separate discussion paper has been promised.  The introduction of this mechanism will significantly enhance the effectiveness of the carbon tax to achieve a reduction of the country’s emissions as it allows tax payers to have direct access to least cost mitigation options.

• Capping of impacts of efficiency:  The Z-factor that is proposed as the variable that will adjust the tax free threshold of companies is capped on both the upside and downside to limit the impact it can have on the tax free threshold at 5%. Note however that the figures quoted in the explanatory example exceed the 5% limit.

• Relief for exposure to international trade:  Some guidance is given on how this will be quantified.

• The  exemption granted  to  the  agricultural sector  for  the  first  5  years  will contribute towards food security.  This is important because South African food prices are linked to international prices and the SA farming community is, to a large extent, a price taker.   The imposition of a carbon tax will reduce the margins of the agricultural industry and threaten the stability of local food security.

• The exemption of fuels for international shipping and aviation is in line with South Africa’s international commitments.

The bad news

The bad news items in the Policy Paper are:

• The comments on the phasing out of the 3.5 cents per kWhr non-renewable levy on electricity that was made in the Budget Speech of February has been softened significantly as the press release accompanying the Policy Paper states: “This tax will however not be abolished as part of the revenue generated from this levy funds some of the demand-side measures currently being implemented by Eskom.” The “tax” that has, to date, not been mentioned is the amount built into the electricity tariff that is earmarked for the funding of the REIPP program. Even though Nersa’s document1 on this matter is opaque, the amount provided comes to between around R10 per ton CO2e in 2013 rising to more than R100 per ton by 2018.   Nersa does make the comment that “The environmental levy should be used to fund IPP development instead of imposing an additional 3% on the electricity price increase”. If this can be achieved and the amount provided for the REIPP removed from the tariff, the net impact could still be positive.

Carbon taxes can only achieve its purpose of stimulating behaviour change towards a low carbon economy if they are made visible as policy instruments. The retention of the non-renewable levy and REIPP contribution in the Eskom tariff as invisible carbon taxes reduces the effectiveness of pricing carbon in the economy. It places the burden on the economy without offering the benefits that should come from a carbon tax.

• Definition of the tax net:  There is still no lower limit below which carbon tax will not be payable.  Although the Policy Paper does not explicitly state that the tax will be levied on companies and not persons, we assume that it does not relate to persons.  It is international best practice that companies emitting below certain levels do not pay carbon tax.  National Treasury seems think that such a lower limit is not necessary in SA.  This means that many companies will have to pay a carbon tax even though their emissions are low enough to exempt them from mandatory greenhouse gas reporting.

• Taxing of Scope 2 emissions: This policy paper clarifies for the first time that the tax will be levied only on direct emissions (Scope 1) and that electricity indirect emission (Scope 2) will be taxed in the hands of Eskom.   Current electricity pricing policy allows Eskom to pass through the full cost to the consumer.  The impact of this is firstly that Eskom has no incentive to mitigate their carbon tax obligation, and secondly that the biggest part of the carbon tax in the SA economy loses its visibility and that the objective of implementing a carbon tax is thereby destroyed.   This provision has the potential to sterilise the relief mechanism for trade exposed companies.  It may also diminish the ability of the economy to reduce the tax liability through the development and use of offsets as Eskom has no incentive to reduce any tax liability, especially not if it involves an increase in operational expenses.

• Sector benchmarks: The application of sectorial benchmarks to adjust   the   tax free threshold of companies can have a significant impact on the tax payable by a company.  The values for the sector benchmarks quoted in the document are not applicable to South African industry and no indication is given on how the benchmarks will be established.   Benchmarking remains highly contentious as different players in specific industries use different business models and product specifications.    Local  data  to  substantiate  benchmarks  is  not  available  and international data is often not relevant to the unique South African context.

• Data used in the analysis:  The emission data quoted in the Policy Paper dates from the year 2000.   In the same way, reference is made to the Integrated Energy Plan (IEP) of 2003.  This leads the reader to assume that Treasury based the analysis of the tax on outdated data and this puts some of the conclusions of the document in question.   The data used for the electricity sector Integrated Resource Plan (IRP) is more up to date (2010), but this analysis was limited as it views the electricity sector in isolation and excludes all non- electricity end-use of energy services. It is therefore not an appropriate basis for analysis of an economy wide carbon tax.

• The  Paper  mentions  a  number  of  other  policy  measures  (such  as  energy efficiency), but it fails to explain how the proposed tax is aligned with those measures.

The uncertainties

The uncertainties introduced in this paper are:

• Public comment period: The closing date for public comment is not clear – The Policy Paper states 28 June but press release issued with the publication of the Policy Paper states 2 August.

• The document is written in a way that makes it clear that the tax base will include companies operating within the boundaries of South Africa.  It does however not explicitly stated who is included in the proposed tax base.  There is no mention of the inclusion or not of individuals, municipalities, not-for-profit organisations, etc.

• The  paper  refers  to  South  Africa’s  international  commitments  to  reduce greenhouse gasses. It does however not refer to the fact that the commitment is conditional upon the provision of funding from the international community, and more importantly what such funding will be applied for.  If such funding can be earmarked to reduce the carbon intensity of the electricity grid, as an example, it can have a significant effect on reducing the tax liability of the tax payers.

• Treatment of different sectors:  The amount of tax a company will end up paying will depend on what sector it is classified in.   The sectors are however poorly defined and the treatment of sectorial classification is inconsistent through the document.

• Access to relief measures: The development of the tax policy has focussed on the creation of relief measures that are designed to protect tax payers against unintended consequences of the implementation of the tax, such as a deterioration of international competitiveness.  Access to the relief measures is determined as a percentage of the emissions of a company.  With the electricity emissions taxed in Eskom’s hands, the relief measures may be sterilised for the largest portion of tax payers.  This problem could be overcome if the access to the relief measures is calculated on both direct and indirect (Scope 1 and Scope 2) emissions, as is the case with the calculation of the z-factor.

• It is stated that the tax design is that of a “fuel input tax”.   This means that emissions are calculated as a function of fossil fuel consumption using approved emission factors.  This approach is however inconsistent with the inclusion of process and fugitive emissions in the tax design as is evidenced by the granting of relief for these sources. Process and fugitive emissions cannot be calculated using this method as other emission factors must be used.  No guidance is given on either the scope of inclusion of process and fugitive emissions, nor on the accounting methods to be used.

• No guidance is given on the auditing requirements or standards that must or may be used in the accounting for the emissions on which tax will be payable.  This is a significant issue that should not be treated lightly.

• Reference regarding access to relief measures for the aluminium sector was included in the budget speech, but is not included in the policy paper.

• Eskom emission factor is specified as being 0.91 t CO2e per MWh for the first 5 years and that it will be reduced to 0.8 t CO2e per MWh thereafter. There are a number of problems with this approach.  The first is that is differs significantly from the current Eskom emission factor of 0.99 t CO2e per MWh.  Secondly, it moves away from the principle stated in the tax design section that tax will be calculated on actual fuel combusted.  Lastly, the fixing of the Eskom emission factor removes all incentives for Eskom to improve its efficiencies and therefore destroys the ability of the carbon tax to act as a motivator for the reduction of emissions.

Please see attached our latest comments on the Carbon Policy Paper >>

The good news

There are a number of good news items included in the Policy Paper.   These include:

• The Policy Paper is largely consistent with the previous communications from National Treasury with respect to the basic structure and approach of the tax. This consistency gives a solid base for the development of the tax and the engagement around the issue.
• Low effective tax rate:        Companies will pay tax on between 10% and 40% of their emissions, which sets the effective tax rate at between R12 and R48 per ton.  This is significantly lower than the R50 – R60 per ton we are already paying in the non-renewable levy and the contribution to the REIPP program.  The introduction of the carbon tax could potentially have less of an impact than what these indirect taxes had.
• Revenue recycling and tax shifting: National Treasury has moved far from its initial position of “no ring fencing” to a constructive discussion of the possibilities of revenue recycling and now also tax shifting.  This is an important development and a move in the direction of making the carbon tax revenue neutral.
• Alignment with international practice: There seems to be good alignment with what happens in the international front in the sense that the timing, price levels and scope of the tax is in alignment with developments in many of South Africa’s trading partners. There are obvious points of difference like the fact that many countries prefer cap and trade schemes rather than taxes, but there is general alignment in the fact that carbon is being priced into these economies.
• The use of offsets to reduce one’s tax liability: The Policy Paper confirmed that offsets will be used and gives some guidance on the types of credits that can be used.  This puts South Africa in the forefront of international carbon pricing development.   Some guidance is provided on what offsets would be eligible.
• Capping of impacts of efficiency:  The Z-factor that is proposed as the variable that will adjust the tax free threshold of companies is capped on both the upside and downside to limit the impact it can have on the tax free threshold at 5%. Note however that the figures quoted in the explanatory example exceed the 5% limit.
• Relief for exposure to international trade:  Some guidance is given on how this will be quantified.

The bad news

The bad news items in the Policy Paper are:

• The comments on the phasing out of the 3.5 cents per kWhr non-renewable levy on electricity that was made in the Budget Speech of February seems to have been retracted as the press release accompanying the Policy Paper states: “This tax will however not be abolished as part of the revenue generated from this levy funds some of the demand-side measures currently being implemented by Eskom.”  The “tax” that has to date not been mentioned is the amount built into the electricity tariff that is earmarked for the funding of the REIPP program.  Carbon taxes can only achieve its purpose of stimulating behaviour change towards a low carbon economy if they are made visible as policy instruments.  The retention of the non-renewable levy and REIPP contribution in the Eskom tariff as invisible carbon taxes reduces the effectiveness of pricing carbon in the economy.  It places the burden on the economy without offering the benefits that should come from a carbon tax.
• Definition of the tax net:  There is still no lower limit below which carbon tax will not be payable.  Although the Policy Paper does not explicitly state that the tax will be levied on companies and not persons, we assume that it does not relate to persons.  It is international best practice that companies emitting below certain levels do not pay carbon tax.  National Treasury seems think that such a lower limit is not necessary in SA.  This means that many companies will have to pay a carbon tax even though their emissions are low enough to exempt them from mandatory greenhouse gas reporting.
• Taxing of Scope 2 emissions: This policy paper clarifies for the first time that the tax will be levied only on direct emissions (Scope 1) and that electricity indirect emission (Scope 2) will be taxed in the hands of Eskom.  Current electricity pricing policy allows Eskom to pass through the full cost to the consumer.  The impact of this is firstly that Eskom has no incentive to mitigate their carbon tax obligation, and secondly that the biggest part of the carbon tax in the SA economy loses its visibility and that the objective of implementing a carbon tax is thereby destroyed.
• Sector benchmarks: The application of sectorial benchmarks to adjust the tax free threshold of companies can have a significant impact on the tax payable by a company.  The values for the sector benchmarks quoted in the document are not applicable to South African industry and no indication is given on how the benchmarks will be established.
• Data used in the analysis:  The emission data quoted in the Policy Paper dates from the year 2000.  This leads the reader to assume that Treasury based the analysis of the tax on 13 year old data.

The uncertainties

The uncertainties introduced in this paper are:

• Public comment period: The closing date for public comment is not clear – The Policy Paper states 28 June but press release issued with the publication of the Policy Paper states 2 August.
• Treatment of different sectors:  The amount of tax a company will end up paying will depend on what sector it is classified in.  The sectors are however poorly defined and the treatment of sectorial classification is inconsistent through the document.
• Access to relief measures:  The development of the tax policy has focussed on the creation of relief measures that are designed to protect tax payers against unintended consequences of the implementation of the tax, such as a deterioration of international competitiveness.  Access to the relief measures is determined as a percentage of the emissions of a company.  With the electricity emissions taxed in Eskom’s hands, the relief measures may be sterilised for the largest portion of tax payers.  This problem could be overcome if the access to the relief measures is calculated on both direct and indirect (Scope 1 and Scope 2) emissions, as is the case with the calculation of the z-factor.
• Reference to the access to relief measure for the aluminium sector was included in the budget speech, but is not included in the policy paper.

please see attached our comments on the Carbon Tax Policy Paper

SANAS provided accreditation to GHG validation and verification bodies in South Africa. The South African National Accreditation System (SANAS) has launched its latest accreditation programme for the accreditation of greenhouse gas (GHG) validation and verification bodies, for use in related forms of GHG recognition against the requirements of SANS ISO 14065.

“SANAS accreditation will provide formal recognition that accredited GHG validation and verification bodies are competent to perform GHG validation and verification,” said Ron Josias, chief executive officer of SANAS.

Josias said the local accreditation of GHG validation and verification bodies will facilitate the development of a competent group of South African-based greenhouse gas validators and verifiers.

Local accreditation will reduce the costs associated with validation and verification of greenhouse gas-reducing projects. This is because validation and verification services are often obtained from abroad.

“The current cost of international verification is out of reach for most small to medium projects in South Africa, and therefore it excludes a number of beneficial and credible projects. With the SANAS accreditation programme now in place, local accredited GHG verifiers are available,” said Harmke Immink, a director at Promethium Carbon, a carbon advisory firm.

“Large volumes of emission reductions are traded under the Clean Development Mechanism (CDM), which is a bureaucratic and costly scheme. The process involves international auditors accredited by the United Nations (UN), and projects usually take at least one year to be registered.”

Parallel with the CDM, the voluntary verified emission reductions (VER) trading units are generated through projects such as the implementation of solar geysers, fuel switches, solar cookers and energy-efficiency projects.

The Verified Carbon Standard (VCS) is a non-profit organisation that exists to verify and issue carbon credits. The other main standard within the voluntary market is the Gold Standard.

The verification of GHG data, carbon footprints or corporate GHG inventories will also support the credibility of disclosure under the Carbon Disclosure Project. This initiative requires annual disclosure from the TOP 100 entities listed on the JSE.

The new ISO14065 standard, which is available electronically from the South African Bureau for Standards (SABS), requires verification service providers to maintain a management system and demonstrate competence against three main requirements.

These include:

•    Understanding the specific GHG programme, standard and verification methodology.
•    Competency in having sufficient technical expertise to assess GHG projects and organisation.
•    Competence in data and information-auditing expertise in assessing the GHG assertion.

About SANAS

The South African National Accreditation System (SANAS) is the sole accreditation body for South Africa as mandated through the Accreditation for Conformity Assessment, Calibration and Good Laboratory Practice Act, 2006 (in short the Accreditation Act). SANAS is the only accreditation body in Africa that has obtained international recognition for the full scope of accreditation, i.e. testing, inspection and certification.

The scope of SANAS accreditation currently covers the following conformity assessment services:

• Calibration, testing and verification laboratories.
• Medical laboratories.
• Certification bodies.
• Inspection bodies.
• Broad Based Black Economic Empowerment (B-BBEE) rating agencies.
• Monitoring of Good Laboratory Practice (GLP) compliance with principles adopted by the Organisation for economic Co-operation and Development (OECD).

At present, SANAS has accredited more than 1 407 conformity assessment bodies that are available to service the South African economy testing, calibration, inspection, verification and certification needs. please see published article>>

Mrs Harmke Immink, director at Promethium Carbon, joined Classic Business and Classic Government on Classic FM 102.7 on Tuesday evening 9 April 2013 for a discussion about gas, in light of Gas Week 2013. This panel discussion covered many aspects relating gas, i.e. its contribution to future power and also the environmental impacts relating the exploration, extraction and distribution of gas.  please download the broadcast here>>

CARBON TAX Route to revenue Is SA’s impending tax on greenhouse gas emissions really being imposed for environmental reasons? read more>>

This study covers the following:

• An assessment of the potential for and opportunity available for carbon offset projects:
  • Potential project types that would be suitable;
  • Sectors that could contribute;
  • Quantity of emissions reductions possible;
  • Projects attempted under the various schemes in South Africa to date;
  • High level job creation potential in the various projects ; and,
  • Barriers to implement emission reduction projects in the near term.

• An assessment of the auditing standards that will be required for carbon offset projects, including:
  • What standards exists and could be compatible with existing carbon related initiatives in South Africa;
  • Accreditation process to underpin the respective standards; and, Job creation potential and skills development needed.

This report excludes two points as it was not possible to achieve credible results in the timeframes indicated:

• Estimated costs for achieving the emission reductions; and,
• Identification of the funding needs for the implementation of the projects.

These two points would fit into a subsequent phase and would build on this exploratory phase.

The report was prepared as a desktop study. please click here to download report>>