The National Treasury on Tuesday published the ‘Carbon Offsets Paper’ for public comment, outlining proposals for a carbon offset scheme that would enable businesses to lower their carbon tax liability and make investments that would reduce greenhouse-gas (GHG) emissions.

The carbon offsets scheme was meant to complement the carbon tax that South Africa planned to introduce from 2016 onwards and formed part of the measures the country planned to implement to address climate change.

“A carbon offset is a measurable avoidance, reduction, or sequestration of [carbon dioxide] CO₂ or other GHG emissions,” National Treasury explained in a media statement on Tuesday, adding that carbon offsets were sometimes described as being project-based as they typically involved specific projects or activities that reduced, avoided or sequestered emissions.

According to the paper, independent studies suggested that the potential overall national demand for offsets could be up to 30-million tons of CO₂ a year.

Carbon offsets would enable firms to cost-effectively lower their carbon tax liability, National Treasury said, stating that it was proposed that firms could reduce their carbon tax liability by between 5% and 10% of their actual emissions through carbon offsets.

Carbon offsets would also incentivise investment in least-cost mitigation options in the country, driving investment in GHG-mitigation projects that delivered carbon emissions reduction at a cost lower than the carbon tax.

“Such projects can also generate considerable sustainable development benefits in South Africa, including channelling capital to rural development projects, creating employment, restoring landscapes, reducing land degradation, protecting biodiversity and encouraging energy efficiency and low carbon growth,” National Treasury said.

Some eligibility criteria for carbon offset projects proposed in the paper required projects that generated carbon offset credits to occur outside the scope of activities of the entity subject to the carbon tax, that only South Africa-based credits be eligible for use within the carbon offset scheme and that carbon offset projects registered and/or implemented before the introduction of the carbon tax regime be accepted subject to certain conditions and within a specific timeframe.

The development and adoption of an eligible carbon offset project could focus on one of four areas, namely energy and energy efficiency, transport, agriculture, forestry and other land uses and waste.

The paper also proposed that certain specific carbon offset project types be excluded from the scheme to avoid the potential for double counting of financial benefits from GHG mitigation, while projects benefitting from other government incentives also had to be excluded.

National Treasury stated that disallowed projects would include energy efficiency in companies or operations that were covered by the carbon tax, energy efficiency for projects that benefitted from the Energy Efficiency Tax Incentive, the cogeneration of renewable energy for companies owned or controlled by operations that were covered by the carbon tax and fuel switch projects in companies or operations covered by the carbon tax.

Renewable energy projects developed under the Renewable Energy Independent Power Producer Procurement Programme would also be excluded.

National Treasury further said to facilitate the introduction of the carbon offset scheme, it was proposed that carbon offsets developed under the Clean Development Mechanism (CDM), the Verified Carbon Standard, the Gold Standard and the Climate, the Community and Biodiversity Standard would be considered for eligibility should they fulfil specific criteria.

Projects under each of these carbon offset standards had already been developed in South Africa; however, it was envisaged that the initial focus will be for projects approved along the lines of the CDM.

Written comments on the paper had to be submitted by June 30.