The National Treasury has published draft amendments to the carbon offset regulations, prescribing carbon offsetting in terms of Section 19(c) of the Carbon Tax Act.

A public comment period is open until the end of April.

The Carbon Tax Act, which came into effective in June 2019, makes provision for the carbon offset tax-free allowance, providing flexibility to firms to reduce their carbon tax liability by either 5% or 10% of their total greenhouse gas emissions through investments in projects that reduce their emissions outside their taxable activities.

The first filing of the carbon tax returns for the 2019 reporting period was required by July 31, 2020, but was deferred by three months to October 31, 2020 as part of the Covid-19 relief mechanisms for taxpayers.

Following the implementation of the Carbon Tax Act, clarification was requested on eligible electrical efficiency projects, the development of a comprehensive framework for inclusion of local standards, and the double dipping limitation on projects qualifying for the energy efficiency savings tax incentive (Section 12L of the Income Tax Act) as eligible carbon offset activities.

In addition, comments were raised on the need to update definitions on the carbon offset regulations to enable cancellations from Kyoto national registries, match the rebranding of the Verified Carbon Standard (VCS) to Verra and include crediting periods for non-Agriculture, Forestry and Other Land Use (AFOLU) VCS project activities.

To address some of these concerns, the draft amendments propose to make reference to the “certificate of voluntary cancellation” for all projects which is inclusive of cancellation documents from any of the Clean Development Mechanism (CDM), Global Standard, VCS and national registries.

They also include the definition of “national registries” as well as indicating that certificates derived from cancellation of credits from such registries will be acceptable for listing requirements under the Carbon Offsets Administration System (COAS). This will help with liquidity as only project developers can cancel credits in the CDM registry hence other market participants can only transfer or cancel Certified Emissions Reductions from other Kyoto national registries.

The amendments also sought to update the definition of “cancellation of carbon credit” to enable for cancellations and provide for transfer from other registries as credits issued exist in either the CDM, Verra, Gold Standard or national registries.

Further, the amendments also make reference to the organisation Verra and the Verra registry has been defined where all information on VCS projects now resides and there is no more reference to the VCS project database as this has been replaced.

Lastly, the amendments also include the crediting period of either a ten years fixed or seven years, twice renewable for a total of 21 years for non-AFOLU projects in line with the most recent VCS Standard document.