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Tests Show South Africa Is Ready For Carbon Tax

by Lorys Charalambous, Tax-News.com, Cyprus

06 February 2015


Climate-change advisory firm Prometheum Carbon has completed a program to demonstrate the readiness of the existing South African market infrastructure for the carbon offset trading that will form part of the carbon tax system being introduced from 2016.

A demonstration of market readiness was the culmination of a three-year research project executed by Promethium Carbon in close cooperation with the Johannesburg Stock Exchange (JSE), as the trading platform; JSE's Silocerts, as commodities registry; and Done Technologies, the technology provider to the registry.

The demonstration consisted of performing actual over-the-counter trades of carbon credits. These trades were then mirrored in a test environment on the electronic platforms of the JSE and Silocerts. It was shown that carbon offset credits, as contemplated by the South African Government, can be traded in the country's existing market trading infrastructure.

While it was earlier agreed that measures are needed in South Africa to address climate change and to reduce carbon emissions, the Government decided last year that implementation of a carbon tax should be postponed by a year to 2016, to allow for further consultation.

In the meantime, the National Treasury has consulted on proposals for a carbon offset scheme that will enable South African businesses to lower their eventual carbon tax liability. The scheme is meant to complement the carbon tax of ZAR120 (USD10.46) per ton of CO2, which is to increase at a rate of 10 percent annually.

To ensure a relatively smooth transitional period, the carbon tax policy incorporates a number of relief measures and a gradual phased-in approach to protect the international competitiveness of local businesses. These measures include a basic tax-free threshold of 60 percent, below which the tax will initially not be payable.

Under the regime, a carbon offset is defined as "a measurable avoidance, reduction, or sequestration of carbon dioxide (CO2) or other GHG emissions." It is intended that carbon offsets will enable firms to cost-effectively lower their carbon tax liability by up to 10 percent of their actual emissions, and will incentivize investment in greenhouse gas emission-mitigation projects that deliver carbon emissions reduction at a cost lower than the carbon tax.

A number of principles must be fulfilled for a project to be awarded a tradable emissions reduction credit, to ensure the credibility of carbon offset projects, namely: allowable GHG emissions reductions would not have occurred under a "business-as-usual" scenario; would need to be permanent and unlikely to be reversed; and should originate from tangible projects with proof that they have occurred or will occur at a specific point in time.

Projects that generate carbon offset credits must occur outside the scope of activities of the entity subject to the carbon tax, and only South African credits will be eligible for use within the carbon offset scheme.

TAGS: South Africa | environment | tax | investment | business | stock exchanges | tax rates | carbon tax | standards | Africa

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