Corporate companies are likely to take up National Treasury’s new carbon offset proposal “in a big way”, GCX Africa lead strategist Kevin James said this week.

National Treasury on Tuesday published the ‘Carbon Offsets Paper’ for public comment, outlining a carbon offset scheme to complement South Africa’s planned carbon tax, effective from 2016.

In response to the “late”, but much anticipated, carbon offset proposal, James said it provided larger corporate firms the opportunity to invest a good portion of their carbon tax liability into carbon offsets.

“The carbon tax [was set at an] initial price of R120/t [of] carbon dioxide emissions. Carbon offsets will have to come in at under R120/t [to provide] an opportunity for a discount or an arbitrage opportunity where companies can actually reduce their carbon tax liability,” he noted.

National Treasury proposed that firms could reduce their carbon tax liability by between 5% and 10% of their actual emissions through carbon offsets.

Further, James pointed out that companies would also be able to see “exactly” where their funds went, while a portion of the firms’ carbon tax liability could be invested in a qualifying project, such as waste-to-energy, municipal landfill-to-energy or reforestation.

“I do believe this is the right thing for South Africa. The hybrid between a carbon tax and a carbon offset scheme is quite smart as it allows companies the flexibility to choose where they want to invest,” James said.

And this would likely stimulate a local carbon-trading scheme, leading to carbon project development and taking projects through the whole development lifecycle of generating carbon credits.

“This is a really good thing because companies will be able to align their investments and offsets with their corporate social responsibility strategy, and that is a great opportunity,” James added.

He concluded that the new proposal would have “some positive impacts”, as implementing the carbon tax without the carbon offset scheme “could become quite perverse” and lead to funds collected through the carbon tax being invested in coal-fired power stations, for example, where South Africa was currently under extreme strain and needed a boost.

“[This] would be absolutely against the whole objective of this scheme in the first place,” noted James.