Consultancy Cova Advisory says South African businesses have a chance to recoup a significant slice of their carbon tax bill, but warns that they should not dither over this.

Cova last week hosted a carbon tax seminar, in partnership with ACT Financial Solutions. The companies told attendees how they benefit from carbon offsets, which can be used to discount their carbon tax bill.

These carbon offsets are investments in specific projects that reduce or avoid emissions and can be used as “carbon credits” that are tradeable.

During the seminar, ACT senior trader Aleksi Parkkila said there was an international market for carbon credits. For example, in Colombia, you can pay the tax, or offset part of it, with local carbon credits, and this will work in South Africa too.

“However, in South Africa, the market is heavily in storage. We need to create more projects to help companies pay less tax.”

He added that first-mover companies were likely to achieve lower costs, as the price of carbon credits would increase as demand rises.

Cova director Duane Newman noted that a company needed to plan for carbon tax and offsets until 2030, under the current legislation.

“The carbon offset market in South Africa is likely to be R3.5-billion a year. Companies will need a strong information technology system to control the whole process, to avoid making an inaccurate tax payment,” he explained, adding that companies needed detailed and accurate collation of information on emissions and reporting mechanisms within firms.

“Many firms are not yet ready to do this. Many companies have been surprised to learn that they should already have been reporting.”

“Carbon pricing is complex. There is an upstream price, a compliance price, a reputational price and a financing price.

“The money collected by carbon tax should support the transition away from the carbon economy. Very often, many governments prefer to use these revenues in other ways,” added ACT MD Federico Di Credico.

The National Treasury’s Dr Memory Machingambi, however, told those attending the seminar that government would not ring-fence the carbon tax, as it “creates rigidities.”

Meanwhile, Cova and consulting firm Xnovos earlier this month announced that they are developing software to help companies cope with the demanding requirements of the carbon tax, which was implemented in June.

Companies need to submit carbon tax returns from 2020, and, therefore, the software will be ready to meet the applicable tax deadlines in March and July next year.