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South Africa mulls offset use for new CO2 reduction regime

16 Aug 2013 16:08:00 | edcm

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Africa's largest emitter is mulling the inclusion of Kyoto offsetting credits in a domestic scheme to cut carbon, which could offer new market demand for certified emission reductions (CERs). South Africa is planning to introduce a carbon tax on 1 January 2015 to cut its emissions, following a pledge at the Durban summit in 2011 to take action.

As part of a consultation on the carbon tax, the South African treasury has raised the possibility of allowing the limited use of offsets in the regime as an alternative way for polluters to cover their emissions. A carbon tax policy paper dated May 2013 cites the clean development mechanism, which falls under the Kyoto Protocol, as one existing offsetting regime that could be included in its carbon-reduction policy.

Local offset market

At present, there are a total of 74 live projects based in South Africa in the CDM pipeline, latest data from UN research body UNEP Risoe shows. This ranks the country as 13 in the world in terms of the number of projects hosted and number one in Africa. China tops the global chart with 3,985 projects, followed by India at 2,124.

Including international offsets in the South African carbon regime could help boost the number of CERs generated on African soil by increasing demand for these credits outside of the EU.

"It has been an official concern that Africa has been underrepresented in CDM since the beginning of the mechanism," said Jacob Ipsen Hansen of UN research body UNEP Risoe by email last week.

Efforts to increase the number of CDM projects in Africa, including setting up regional collaboration centres, have "actually had an impact, and the number of submissions of projects from Africa has been rising", he added.

The South African treasury also cites figures for growing offset demand in voluntary carbon markets, which is reflected by an array of independent accreditation mechanisms emerging, which could be used instead of the CDM.

"It is proposed that firms should be able to use verified offsets under the internationally recognised carbon offset standards or, alternatively, more streamlined domestic offset programmes to reduce their carbon tax liability up to a certain limit," the paper reads.

The South African treasury has set the carbon tax rate as of 1 January 2015 at R120.00 (€9.01) - which is almost double where the EU allowance (EUA) Dec '15 benchmark closed on Thursday, €4.65/tonne of CO2 equivalent (tCO2e), according to ICIS' assessment. The South African government plans to introduce a threshold for the first phase (2015-2020) of the tax, however, which would lower the cost by 60-90%, to as little as R48-12/tCO2e - meaning operators in South Africa would only pay a fraction when compared with their European counterparts.

The treasury is looking at offsets as an alternative way of complying with the tax to cover domestic emissions. This could prove cheaper to South African polluters than paying the tax, as the certified emission reduction (CER) Dec '15 contract closed at €0.60/tCO2e - or R8.00/tCO2e - on 15 August.

The treasury has proposed applying the tax to the following sectors: electricity generation, liquid fuels, transport, agriculture, forestry and land use as well as waste. This means some of the largest mining operators could be affected. In a report cited by Johannesburg-based law firm Werkmans Attorneys, companies such as Sasol, AngloGold Ashanti and Arcelor Mittal told the South African Department of Energy they needed more clarity on how it will implement the tax in 2015. Marie-Louise du Bois

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