The current rate of climate change and the projected impact it will have in the future is as challenging as Greta Thunberg at a climate-change brunch with world leaders. South Africa is the twelfth largest greenhouse gas emitter in the world – and most of our greenhouse gas emissions are attributed to our dependence on coal for energy. In fact, South Africa has the third highest per-capita coal power emissions of the G20 nations.
Our dependence on coal isn’t the only culprit. Several other industries contribute to the country’s greenhouse gas emissions including waste, industrial processes and product use, agriculture, forestry, and other land use, or AFOLU for short.
In response to this stark reality, the South African government is introducing several mechanisms to stabilise our greenhouse gas emissions, one of which is the Carbon Tax Act 15 of 2019 (Carbon Tax Act). According to the Carbon Tax Act: “government is of the view that imposing a tax on greenhouse gas emissions and concomitant measures such as providing tax incentives for rewarding the efficient use of energy will provide appropriate price signals to help nudge the economy towards a more sustainable growth path”
The Carbon Tax Act presents both risks and rewards for the AFOLU industry depending on the specific activities being undertaken and whether they are carbon positive or negative. Implications of the Carbon Tax Act for forestry Holistically the AFOLU industry contributed 4% to South Africa’s greenhouse gas emissions in 2017, but at the same time, the forestry industry also has a positive impact on our greenhouse gas emissions as it acts as a “forest land sink”, meaning that forests absorb CO 2 – decreasing the country’s
According to South Africa’s most recent National Greenhouse Gas Emissions Inventory Report, emissions (including forestry and other land use) for South Africa decreased by 5% between 2015 and 2017. This reduction was attributed to the 37% decline in the AFOLU sector emissions because of the increasing forest land sink. The blunt edge Agriculture, forestry, fishing, and fish farms are listed activities which may be liable to pay a carbon tax. The Carbon Tax Act thankfully limits this liability to combustion activities within these sectors. The threshold of which is the capacity to combust 10 MW(th) of fuel.
The Carbon Tax Act also provides for a basic tax- free allowance for fossil fuel combustion emissions of 60%. Further allowances are made which can total up to 90% in reductions. What is important to note is that this includes a 10% offset allowance – and this is where the rewards for the forestry sector may kick in.
The sharp edge According to the Regulations under section 19 of the Carbon Tax Act (the Regulations), an offset means: “an avoidance, a reduction, or a sequestration of carbon dioxide equivalent (CO2e) emissions recognised in terms of an approved project”.
In short, a carbon taxpayer can reduce the tax payable by making use of an offset project which avoids, reduces, or absorbs greenhouse gas emissions. As a result of the forest land sink absorbing carbon emissions – carbon negative forestry activities are recognised as offset projects (although this will need to be determined on a case-by-case basis) and potentially benefit from the Carbon Tax Act through carbon taxpayers investing in these projects.
The Government has specifically recognised AFOLU as eligible sectors that can qualify as offsets and according to the Department of Treasury, the following AFOLU activities will be eligible to be offset projects:
- Restoration of sub-tropical thicket
- Forests and woodlands
- Restoration and management of grassland
- Biomass energy
- Anaerobic biogas digesters
- Reduced tillage.
For the offset project to be realised, it will have to be eligible (as listed above) and recognised as an offset project. To be recognised, the project must be registered under the Clean Development Mechanism, Gold Standard, or Verified Carbon Standard as an offset project. These various registries are international and have several requirements for projects to be recognised as offset projects. Once registration has taken place, an offset project can be used and invested in by the carbon taxpayer.
The Carbon Tax Act is a double-edged sword. On the one side, the Act presents risks for greenhouse gas emitters and on the other side rewards carbon negative activities that are registered as offset projects. Given that the forestry industry is a forest land sink, the Carbon Tax Act may benefit those who are serious about creating a more sustainable growth paths and look towards offset projects.