South Africa

MRV

The Department of Environmental Affairs (DEA) in partnership with the South African Weather Service, the host of the South African Air Quality Information System (SAAQIS), will prepare a GHG Emissions Inventory annually. The inventory will conform to the IPCC’s 2006 or later guidelines, and will be periodically reviewed by an international team of experts. The inventory will also undertake and report analyses of emissions trends, including detailed reporting on changes in emissions intensity in the economy and a comparison of actual GHG emissions against the benchmark national GHG emission trajectory range. DEA contemplates a mandatory reporting of emissions data for entities (companies and installations) that emit more than 0.1 Mt of GHGs annually, or that consume electricity which results in more than 0.1 Mt of emissions from the electricity sector. Qualifying entities will also be obliged to report energy use by energy carrier and other data as may be prescribed.

The emissions inventory will be a web-based GHG Emission Reporting System and will form part of the National Atmospheric Emission Inventory component of the SAAQIS. It will be developed, tested and commissioned by approximately 2013.

Policy Mapping on Carbon Tax

Carbon tax which will start from January 1, 2015 should be implemented gradually and complemented by effective and efficient revenue recycling to contribute to significant emissions reductions. Carbon tax will therefore be introduced as part of a package of interventions along with the existing policies to ensure that the primary objective of GHG mitigation is achieved.

South Africa has a set of other fiscal measures to combat climate change and they will be mapped in consideration of carbon tax. For example, it has levied electricity generation tax to non-renewable electricity generation since July 1, 2009. To ensure the effective pricing of carbon and facilitate the structural change currently taking place in the energy sector, a gradual phasing down of the current electricity levy will be considered. Also, Energy Efficiency Savings (EES) Tax Incentive will be granted until January 2020. This is complementary mechanism in anticipation of the implementation of the proposed carbon tax. Some of the carbon tax revenue will be recycled through this EES Tax Incentive.

Modeling Carbon Tax

In South Africa, a number of modeling studies have been undertaken since 2005 to simulate carbon tax and assess the potential impacts of the introduction of a carbon tax instrument. Such studies were necessary to help both policy decision and specific designing of carbon tax. A computable general equilibrium (CGE) model used by University of Pretoria (2006) and the World Bank (2009), a Standard General Equilibrium (STAGE) model in long-term mitigation scenarios and a dynamic computable general equilibrium (DCGE) model all found that carbon tax will bring about a considerable reduction in carbon emissions and can bring net welfare and economic benefits when some conditions are met.

The presentation on South Africa’s experience of modeling studies on carbon tax suggests that to make modeling studies more relevant, it needs to be conducted with current or final carbon tax scheme and for an analysis to identify the optimal combination of tax revenue recycling options.

The PMR will support South Africa to:

• Assess the impact and refine the design features of a proposed carbon tax and complementary offset mechanism

Sources: PMR Organizing Framework submitted by the government of South Africa, May 28, 2012; Policy Mapping Workshop: South Africa's Policy Interaction Experience; Modeling & Reporting Workshop: Carbon Price Modeling & Challenges: South Africa; Carbon Tax Policy Paper (for public comment), May 2013

Emissions Trading

A transparent, credible and competitive emissions trading mechanism is probably not feasible in South Africa over the medium term because:

• The oligopolistic structure of the energy sector is likely to reduce efficiency gains that would result from such a mechanism
• The lack of a sufficient number of industry players and appropriate market structure with diverse abatement costs suggests limited opportunities for domestic trade that could result in inappropriate permit prices
• The institutional capacity to manage an emissions trading system is lacking and will not be in place in the foreseeable future

Source: PMR Organizing Framework submitted by the government of South Africa, May 28, 2012

Carbon Tax

• South Africa will introduce its first carbon tax in January 2015. The aim of the proposed tax is to “correct” the prevailing prices of goods and services that generate excessive levels of anthropogenic GHG emissions.
• In order to allow for a relatively smooth transition to a low-carbon economy, and taking into account concerns about international competitiveness and the burden of higher energy prices on households, the government is proposing a relatively modest carbon tax of R120 per tCO2-eq (approximately US$13.6/tCO2eq) above the thresholds to be introduced in 2015.
• It is further proposed that the tax rate of a R120 per tCO2-eq be increased at a rate of 10 per cent per annum until the end of 2019, in order to provide a clear long-term price signal. This annual rate of increase will be reviewed during 2019, with the intention to announce a revised annual rate of increase in the 2020 Budget.
• A tax-free exemption threshold of 60% will be set, with additional allowances for emissions intensive and trade-exposed industries.
• An offset program will be included to allow these industries to invest in projects outside their normal operations to help reduce their carbon tax liabilities.
• More details on carbon tax design to specific sectors can be found in the Carbon Tax Policy Paper prepared by the National Treasury of the Republic of South Africa.

Sources: PMR Organizing Framework submitted by the government of South Africa, May 28, 2012; Carbon Tax Policy Paper (for public comment), May 2013

Offset and/or Other Emission Reduction Crediting Programs

• To date, there are 301 CDM projects submitted to the Designated National Authority (DNA): 226 Project Idea Notes (PINs) and 75 Project Design Documents (PDDs). Out of 75 PDDs, 21 have been registered by the CDM Executive Board (8 Issued with CER’s), and 54 are at different stages of the project cycle – DNA approval, validation stage and/or request for review. These projects cover bio-fuels, energy efficiency, waste management, cogeneration, fuel switching and hydro-power, and from sectors like manufacturing, mining, agriculture, energy, waste management, housing, transport and residence.

Source: PMR Organizing Framework submitted by the government of South Africa, May 28, 2012