An overview of the draft carbon tax legislation and carbon offset regulations:

How will it all work?

Setting the context of carbon tax and carbon off-set regulations

In a press release by National Treasury on 10 November 2016 it was made clear that the
ratification of the 2015 Paris Agreement emphasises the reality that we will have to prepare
to operate in a carbon constrained economy over the medium to long term.

A business as usual scenario is no longer an option treasury stated that appropriate and
proactive actions must be taken to help transition our economy onto a low carbon growth
path as articulated in the National Development Plan. The carbon tax, together with the
carbon offsets, is seen by Government as an important and cost effective instrument, as part
of a package of measures, to put our economy onto a more sustainable growth path. The
carbon tax policy forms an integral part of the climate change response policy package
under the National Climate Change Response Policy (NCCRP) of 2011, and is recognised
as an important instrument to ensure cost effective greenhouse gas (GHG) mitigation in the
National Development Plan

This information piece attempts to summarise information out of a series of workshops that
has been held by government to inform stakeholders of the draft regulations and to provide
an opportunity to comment on the regulations. Please note that the regulations are still in
draft form and that changes may take place and the information presented should be read in
this context.

How will the carbon tax be administered and what legislation applies?

Ideally, carbon tax should be designed in such a way as to create incentives for companies
to change their behaviour and consumption patterns to reduce their reliance on fossil fuels.

The main pieces of legislation and the role they play has been summarised below. The
Carbon tax bill and associated regulation is still in draft form and needs to be accepted by
Parliament. In addition certain legislative and regulatory frameworks need to be put in place
to give effect to the proposed legislation and regulations.
Legislation/Regulations Status Responsible authority
National Environmental Promulgated Department of Environmental Affairs
Management: Air Quality (DEA). The DEA will host the National
Act No.39 of 2004 Atmospheric Emissions Inventory System
(NAEIS). The NAEIS is an online national
reporting platform that will hold both air
pollutants and greenhouse emissions
inventories of the republic.
National Greenhouse Draft DEA
Gas (GHG) Emission
Reporting Regulations
Energy Act (Act 34 of Draft Department of Energy
2008) Draft regulations (DoE)
on the Provision of
Energy Data
Carbon Offset Draft DoE
Regulations, 20 June
2016.
The Carbon Tax Bill, 2 Draft National Treasury and implemented by
November 2015 SARS.

Administration of the act:

1. The carbon tax will be implemented by the South African Revenue Service (SARS).
2. Regulations for mandatory reporting of GHGs and the Technical Guidelines have been
developed and published.
3. The DEA will maintain a mandatory GHG inventory database which feeds into the
National Atmospheric Emissions Information System (NAEIS); T
4. The Department of Energy (DoE)s reporting on energy use data through the Central
Energy Database and Energy Efficiency Target Monitoring System will also be
incorporated into the NAEIS maintained by DEA;
5. SARS will liaise with DEA and will be able to access the GHG inventory and the NAEIS.
6. The DoE currently hosts the Designated National Authority (DNA), which will be
responsible for administering the carbon offset scheme.

What are carbon-offsets and how will it work?

Firstly, what is and offset? An offset means a measurable avoidance, reduction or

sequestration of carbon dioxide (CO2) equivalent GHG emissions (Explanatory note for the
Draft Regulations on the carbon offset, 2016). As part of implementing carbon tax regime it
is planned that companies can reduce their carbon tax liabilities through carbon offsets. The
purchase of offsets will enable entities to cost effectively lower their carbon tax liability.

Carbon offsets are guided by a variety of principles, which will typically need to be fulfilled for
a project to be awarded a tradable credit under a specific standard (Carbon offsets
Development System Consultation Workshop, 2016). A carbon tax liability can be reduced
by using credits up to a maximum of 5-10 percent of their total greenhouse gas (GHG)
emissions (Explanatory note for the Draft Regulations on the carbon offset, 2016). The
reason for setting a limit is to ensure that organisations make a significant effort to mitigate
their own emissions.

A specific set of criteria has been proposed for carbon offset project which include the
following:

1. Projects that generate carbon offset credits must occur outside the scope of activities
subject to the carbon tax.
2. Only South African based credits will be eligible for use within the carbon offset scheme
3. Carbon offset projects registered and / or implemented before the introduction of the
carbon tax regime will be accepted subject to certain conditions and within a specific
timeframe (Department of Energy Carbon Offset Administration System Workshop,
National Treasury).

Acknowledgements:
The following sources have been used in the compilation of the information presented
above. Please note that the regulations are still in draft form and subject to change. This
should be taken into consideration when reading the material presented.

1. Department of Energy Carbon Offset Administration System Workshop, Dr. Memory

Machingambi, National Treasury.
2. Carbon offsets Development System Consultation Workshop, 2016. Daniel Modise,
Department of Energy and Designated National Authority.
3. The Draft Carbon Tax Bill, 2 November 2015.
4. Draft explanatory memorandum for the Carbon Tax Bill, 2015.
5. Draft Regulations: Carbon offsets, 20 June 2016.
6. Explanatory note for the Draft Regulations on the carbon offset, published in terms of
section 20(b) of the draft carbon tax bill, 2015. 20 June 2016.