Carbon Emissions Soon to Become Taxing for Big South African Polluters from IPS News on Vimeo.

South Africa, the world’s 12th highest emitter of greenhouse gas carbon dioxide, is attempting to transition to a low-carbon economy. Credit: Brendon Bosworth/IPS

By Brendon Bosworth
CAPE TOWN, May 28 2014 (IPS)

To curb greenhouse gas emissions, South Africa wants to put a tax on carbon emissions from big polluters.

The aim of making polluters pay for the carbon they pump into the atmosphere is to help South Africa, the world’s 12^th highest emitter of greenhouse gas carbon dioxide, transition to a low-carbon economy.

“We have one of the most carbon intensive economies in the world,” Anton Cartwright, a researcher on the green economy at the University of Cape Town’s African Centre for Cities, told IPS.

Coal-burning power plants provide close to ninety percent of South Africa’s electricity, making the economy highly carbon intensive.

“We don’t get a great bang for buck on our coal,” said Cartwright. “We use a low-grade coal with a very high CO2 content.”

The tax was slated to take effect in 2015 but in February this year National Treasury announced it would be pushed back to January 2016, citing the need for “further consultation.”

Offsets to cushion blow to industry

Initially, the carbon tax would see big polluters, including companies in the mining, fossil fuel and steel sectors, paying 11.50 dollars per tonne of carbon dioxide equivalent on between 20 and 40 percent of their total carbon emissions.

To cushion the effect on industry, the National Treasury has proposed allowing polluters to lower their tax liability by investing in carbon offsets.

“The combination of a tax and offsets is very sensible,” said Cartwright. “You’re priming the market and then providing flexibility.”

A carbon offset is a measure that reduces, avoids or sequesters emissions. Polluters buy credits, each equivalent to one tonne of carbon, from verified projects — including, for example, reforestation programmes and initiatives that increase energy efficiency in the housing sector — at prices cheaper than the tax.

South Africa’s large-scale carbon offset market is currently stagnant.

“There is no trading happening at the moment,” Robbie Louw, director of Promethium Carbon, a South African carbon and climate change advisory firm, told IPS. “The international price for offsetting credits is very low at the moment.”

In Europe, carbon credits are selling for less than 50 cents, Louw said.

Without the carbon tax big South African emitters have no obligation to reduce their emissions or engage with carbon offsetting programmes, Carl Wesselink, director of SouthSouthNorth, a Cape Town based non-profit organisation that focuses on climate change and development, told IPS.

The carbon tax should change that.

The proposed carbon tax and offset legislation will increase demand and price for carbon credits, Roland Hunter, a consultant at C4 EcoSolutions, told IPS.  C4 EcoSolutions is a firm that consults on a government offset project which involves reforesting degraded parts of the Eastern Cape province with Spekboom, a succulent tree with a high potential for capturing carbon.

Flagship offset project faces challenges

South Africa’s flagship carbon offsetting initiative, the Kuyasa CDM Pilot Project, which is registered with internationally recognised credit scheme the Clean Development Mechanism (CDM) — established under the Kyoto Protocol — has been slow to issue carbon credits.

The initiative involved retrofitting 2,300 low-cost homes in Khayelitsha, a semi-informal township outside Cape Town, with solar water heaters, ceiling insulation, and energy efficient light bulbs.

These energy efficient measures save 7,000 tonnes of carbon dioxide equivalent per year. But despite being registered with the CDM in 2005, and being completed in 2010, the award-winning project has not yet issued any carbon credits.

A combination of bureaucratic red tape, from local and national government, combined with the CDM’s protracted verification process, is to blame for the lack of credit trading at Kuyasa, said Wesselink, whose organisation developed the project and, as a partner to the City of Cape Town, is responsible for trading the carbon credits.

An estimated 10,000 CER (Certified Emissions Reduction) credits should be issued this year, he said.

The money from the credit sales will go into maintenance costs, which are currently being shouldered by SouthSouthNorth with donor funds.

The funds are needed since the solar water heaters made by a Chinese company, and numbering 1,500, are prone to rusting and leaks, and have a short-life span, Zuko Ndamane, project manger for the Kuyasa CDM project, told IPS.

“A day, maybe about 10 people will come and report their geyser is leaking,” he said. “If I’m [not in the office] they’ll go to my house.”

When the credits are sold, the project will invest in replacing the rusting geysers with units from a South African company, which have a 20-year lifespan, he said.

Kuyasa was not established to make a financial profit. With the project costing about 3.5 million dollars it would take decades to recoup the costs through selling carbon credits alone.

“Putting solar water heaters and insulation in houses is something government, or someone, should be funding — it’s a good thing,” said Wesselink. “A project like Kuyasa will happen because it’s a social good but it won’t happen because carbon is a kicker.”

The return on investment from a public health and social development perspective is worth the financial outlay. But such projects need to be done at a larger scale to make financial sense, he explained.

Tax still to be finalised

The carbon tax and associated offset options should see an uptick in trade for carbon offsetting projects in South Africa. But industry remains concerned about the looming tax, especially state-owned power supplier Eskom.

Eskom would not be able to absorb increased production costs from the carbon tax, Gina Downes, Eskom’s corporate consultant for environmental economics, told IPS.

“It’s unfortunately not like we can switch off any of our production, particularly now with the low reserve margin,” said Downes. “We probably can’t, in the short-term, even try to optimise based on emissions.”

The utility has been in talks with National Treasury about ways to account for the costs associated with the implementation of the Department of Energy’s 2010 Integrated Resource Plan, which lays the path for the share of coal-fired electricity generation in South Africa to drop from around 90 percent in 2010 to 65 percent in 2030, Downes added.

Analysts expect to see some changes in the final tax related to its impact on the national utility.

“I think there may be substantial changes in [the tax’s design], especially relating to the Eskom emissions,” said Louw, of Promethium Carbon. “That’s the thing that has got the biggest impact on the economy.”

WindWatt Nevis Ltd uses eight wind turbines to produce a maximum capacity of about 2.2 megawatts, which works out to approximately 20 percent of the tiny island’s total energy needs.The increase in renewable energy projects means the Caribbean's energy generation mix is more diverse, making the region more resilient to the effects of natural disasters. Credit: Desmond Brown/IPS

By Jewel Fraser
PORT OF SPAIN, Trinidad, Apr 6 2014 (IPS)

Since they first emerged as a result of the 1997 Kyoto Protocol, carbon offset markets have been a key part of international emissions reductions agreements, allowing rich countries in the North to invest in “emissions-saving projects” in the South while they continue to emit CO2.

The biggest is the U.N.’s Clean Development Mechanism (CDM) for verifying carbon emissions reduction projects in developing countries."At some point the developed countries will wake up and turn back to the one legal, internationally recognised, functioning market mechanism for reducing carbon emissions." -- Dr. Hugh Sealy

According to Dr. Hugh Sealy, chairman of the Executive Board of the CDM, it has generated 396 billion dollars in financial flows from developed to developing countries.

“We are fairly proud of that. Very few development banks can say they have had that kind of investment,” Dr. Sealy told IPS.

The CDM, which operates under the auspices of the United Nations Framework Convention on Climate Change (UNFCCC), validates and subsequently certifies the effectiveness of projects in reducing carbon emissions.

Such certification can then be used as a basis for obtaining Carbon Emission Reduction (CER) credits that are sold to developed countries seeking to meet emissions reduction targets under the Kyoto Protocol.

The big problem for local entrepreneurs is that the market for CER credits has collapsed in recent years.

In the Caribbean, many of the emissions reductions projects tend to be in the area of windfarming, said Dr. Sealy, since wind technology is proven and banks understand the risks.

The Caribbean’s North-East trade winds make it a very viable one as well. Guyana also has a bagasse project for generating steam and electricity.

In the Caribbean, there are 18 CDM projects, but only one, the Wigton Windfarm project in Jamaica, has made an application for CER certification. Dr. Sealy said that Wigton, which was registered as a CDM project in 2006, reduced carbon emissions by more than 52,000 tonnes per year in its first phase, and then by 40,000 tonnes per year in its second phase.

The challenge facing the Wigton project, as with all CDM projects currently, is the steep decline in the value of CER credits over the past couple of years. Four years ago, Dr. Sealy said, the credits were worth about 104 each dollars. Now they are worth about 50 cents.

He said the actual value the Jamaican company obtains for its CERs “will depend on the contract between it and the buyer.”

Dr. Sealy said the UNFCCC’s Conference of the Parties agreed at a recent meeting to the sale of CERs to entities that do not have obligations under the Kyoto Protocol, in an effort to widen the market for CERs. Under this new arrangement, “anybody, whether private or government, if they are going to voluntarily cancel the CER credits” can buy them as their contribution to the fight against climate change, he said.

The Brazilian government bought 40,000 CER credits to “green” the Rio+ 20 United Nations Conference on Sustainable Development and has done the same for the upcoming World Cup Football championship in that country.

Microsoft has done something similar under a different UNFCCC scheme for reducing emissions, known as REDD+, by buying an unspecified number of carbon credits from Madagascar generated by a rainforest conservation project in that country, according to a report by environmental news website Mongabay.com.

According to the report, attributed to the Wildlife Conservation Society, Microsoft bought the credits as part of its carbon neutrality programme.

Dr. Sealy attributes the steep decline in CER values to the downturn in the developed countries’ economies since 2008 that led to a reduction in greenhouse gas emissions and thus to a decline in the need for carbon offsets. At the same time, the target set by developed countries for carbon emissions reductions was too low in the first place, he said.

“The EU is saying it will aim for 20-30 percent reduction in emissions by 2030. Science is saying we must peak emissions by 2020” in order to reach the target of less than two degrees global warming, Dr. Sealy said.

“At some point the developed countries will wake up to that and turn back to the one legal, internationally recognised, functioning market mechanism for reducing carbon emissions,” he said.

In the meantime, however, he said, the carbon reduction projects in the region are still bringing the Caribbean many benefits. He pointed out that the increase in renewable energy projects means the energy generation mix is more diverse, making the region more resilient to the effects of natural disasters.

Landfill gas mitigation projects in the region are bringing health and environmental benefits, and projects such as one in Haiti for improved cooking stoves are resulting in less soot and less smoke that saves lives.

The UNFCCC’s Regional Collaborating Centre (RCC) in Grenada is working to create awareness in the region of current opportunities available to the region through CDM, said Karla Solis-Garcia, the RCC’s team leader.

So far, she told IPS, the RCC has provided support “to at least 60 CDM stakeholders with renewable energy (wind, solar and biomass), energy efficiency (improved cooking stoves, and efficient buildings) and landfill gas technology projects.

The RCC in Grenada is active in 16 Caribbean countries.

Solis-Garcia said the solid waste management sector and electricity sector were particular focuses of the RCC.

The solid waste sector was of particular interest since “Caribbean states share common challenges on how to deal with waste, considering especially the geographical limitations,” she said. “The waste challenge also represents an opportunity for investors, as emission reductions from landfill gas – methane gas – are significant.”

Regarding electricity, she said, the key issues are “the significant dependency on fossil fuels to generate electricity, the increase of electricity demand, and the potential for renewable sources of energy such as solar, wind, geothermal, hydro and wave/tidal.”

Dr. Sealy said that the region was in a good place with regard to deriving benefit from CDM projects, since it is accepted that failure to deal with climate change means that many islands will cease to exist.

For that reason, he said, countries with obligations under the Kyoto protocol “are quite willing to assist the small islands in any reasonable way they can.” Caribbean islands can, therefore, negotiate for a good price on CER credits, he said, especially if these are from renewable energy projects.