Local pilot carbon offset trade to show carbon tax relief measures

15th August 2014

By: Mia Breytenbach

Creamer Media Deputy Editor: Features

  

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Carbon advisory firm Promethium Carbon aims to conduct a pilot carbon offset trade by the end of this year.

This pilot trade is in preparation for a future local carbon offset trading programme, says Promethium Carbon director and carbon adviser Harmke Immink.

“Promethium Carbon is currently in discus-sions with companies interested in buying the carbon credits and clean development mechanism projects that have issued credits to sell, and will facilitate the trade on the JSE through the proposed carbon offset system,” Immink says, noting that the aim is to show how businesses can use relief measures from South Africa’s future carbon tax.

In addition, the company will investigate current trading contracts, buyer-and-seller con-tracts and their applications in the carbon offset programme, as well as the roles institutions, such as the South African Revenue Service and the JSE, will play in the programme.

The pilot trade forms part of the second phase of the carbon offset programme funded by the British High Commission and follows a report, conducted by Promethium Carbon, which focused on the potential structuring of a carbon offset trading programme for South Africa. Engineering News reported in April that the report, published in March, had concluded that the country has the necessary infrastructure for a carbon offset programme and that research done for the report also covered high-level analysis of the potential market supply and demand.

Promethium Carbon’s study found that there was “sufficient potential volume to meet the demand generated by the proposed carbon tax at a marginal cost of R120/t of carbon dioxide (CO2), while the estimated volume of trade in the market was sufficient enough to create a viable market”, Engineering News further reported.

“Although carbon tax has been postponed to 2016, Promethium Carbon wants to ensure there is a credible system in place to justify the carbon offset programme’s use to industry,” Immink says, noting that the company would be able to have this system in place within six months, once government has finalised all the regulations pertaining to the carbon offset initiative and provided a clear regulatory signal as to when carbon tax will start.

While Promethium Carbon has received positive local and international feedback on the proposed programme, Immink also notes that the offsets “will open doors for companies to invest in low-cost renewable options”.

In addition, the combination of tax and trade will also enable a company to take interim steps in offsetting their carbon tax, while conducting feasibility studies for large-scale switching to greener technologies.

Reduction Pledge
Immink notes that, while South Africa has the principal platform and infra- structure systems to establish the carbon offset programme, there will be enough mitigation volumes of CO2 tonnages for carbon emissions reduction and, if “ideally imple-mented”, the carbon offsets would drive about 10% of South Africa’s current pledge of a 34% reduction in carbon emissions by 2020.

This pledge was made during the 2009 United Nations Climate Change Conference in Copenhagen, Denmark, which included the meeting of the Parties to the Kyoto Protocol, the international agreement that is linked to the United Nations Framework Convention on Climate Change and sets limits for greenhouse- gas reduction targets, for industrialised coun-tries, Immink says.

She adds that, as most of South Africa’s CO2 emissions, which currently comprise an inventory of about 500-million tonnes, are associated with energy, such as electricity and the use of liquid fuels for the national grid, any methods to lighten the strain on the grid will assist the country in achieving a lower carbon footprint.

Programme Inclusion
Immink notes that, although the National Treasury published the first draft of the Carbon Offset Paper in April, describing the ways in which companies could use carbon credits to lower their tax obligations, and the paper favours several efficiency projects for a carbon offset initiative, several energy efficiency projects, renewable projects and in-house carbon emis-sions reduction projects are currently excluded from the list.

Examples include energy efficiency projects implemented by a mining company on their own operations, such as compressed air and underground ventilation fan optimisation, she adds.

“Promethium Carbon believes the excluded projects are actually the ‘least cost’ projects and we are promoting their inclusion,” Immink says, noting that companies should not be forced to buy carbon credits only from the more expensive carbon emissions projects.

“If these ‘least cost’ projects are excluded, it decreases the carbon emissions offset pool. Carbon offset trading will only succeed if there are enough carbon credits available for supply and demand,” she stresses, noting that if about 80% of the carbon credit supply is excluded, thereby reducing the market, there would be no justification for a carbon offset programme.

“These projects could contribute significantly and we hope to have them included, as they provide a sizable market of about 15-million to 20-million tonnes of carbon credits, which is sufficient for the carbon offset programme,” Immink concludes.

Edited by Megan van Wyngaardt
Creamer Media Contributing Editor Online

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