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Legal, tax implications of carbon offset scheme

Legal, tax implications of carbon offset scheme

Aug 19, 2014

The South African National Treasury published proposals earlier this year for a carbon offset scheme as part of a set of measures to address climate change. Treasury says “a carbon offset is a measurable avoidance, reduction, or sequestration of carbon dioxide or other greenhouse gas (GHG) emissions”.

South Africa has committed to reduce its GHG emissions by 34% by 2020 and 42% by 2025 and this scheme aims to increase investments in projects that will reduce emissions, while also enabling businesses to reduce their liability to carbon tax, set for introduction in 2016.

Carbon offsets are a form of trade and buying an offset helps to fund projects that reduce GHG emissions. The government hopes that the scheme will drive investment in projects that reduce emissions at a lower cost than the carbon tax; and fund projects that will generate considerable sustainable development benefits in South Africa.

According to an article published by www.southafrica.info , the proposed carbon tax policy includes a basic tax-free threshold of 60% below which the tax will initially not be payable; a factor formula to adjust basic tax-free threshold to reward companies that have taken voluntary actions to reduce their emissions before the introduction of the carbon tax; and additional tax-free allowances for sectors with limited potential for emissions reduction, such as industrial process emissions.

The draft policy also proposed additional graduated relief for trade-exposed and emissions-intensive sectors, and carbon offsets that businesses can use to reduce their carbon tax liability. The overall maximum tax-free threshold is limited to 90 percent.

Says Gareth Cremen, attorney at Ramsay Webber in Johannesburg: “The initiative is step forward for Government and the meeting of its environmental commitments. Many companies, however, will need assistance with the legal implications of carbon tax and other initiatives that will arise through the ‘green revolution’.

“While the carbon offset scheme and carbon tax issues are still being discussed, companies should be gearing up to ensure they meet the eligibility criteria and have proper strategies in place.”

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