-

Energize Carbon tax vs. carbon trading: Two sides of the...
- Advertisment -

Carbon tax vs. carbon trading: Two sides of the same coin

- Advertisment -

 by Eckart Zollner, EDS Systems

In pursuit of reducing greenhouse gas emissions, various countries have adopted the practice of carbon trading while others, like South Africa, have implemented a carbon tax to make carbon-intensive industries more environmentally conscious.

Eckart Zollner

These two frameworks are intended to compel enterprises to acknowledge their effect on the environment and encourage change; but does one system work better than the other? It is important to acknowledge that while both have their advantages and disadvantages, they’re both sides of the same coin. As such, it is imperative to focus on how organisations can ensure that they’re realistically transforming their operations to lower their emissions instead of getting distracted by which is the best theoretical way to do so.

Defining the differences

Carbon trading works by setting a blanket limit or cap on the quantity of emissions allowable from significant carbon sources. Once this overall limit has been determined, governments then issue permits for the limit which act as credits. These credits can be traded with other companies in the sector and, by reducing its own carbon output significantly, a company can then trade the excess on their permits.

However, where a company is unable to cut down their emissions, it may have to purchase additional permits to account for the difference. Part of the appeal of this framework is that as the limit is gradually reduced the number of credits is reduced, which will compel companies to adjust their operations to pollute less. On the other hand, carbon tax is a form of carbon pricing which sees a tax applied to carbon fuels or the output of carbon-intensive processes, placing a financial burden on entities that pollute. In this framework, companies have a choice: pollute and pay the tax or reduce emissions to avoid tax.

South Africa’s Carbon Tax Act

To meet our obligations in terms of the Paris Accord, the South African government has begun implementing the Carbon Tax Act which makes provision for a phased roll out of tax liability for carbon-intensive industries. One of the advantages of using carbon tax is that it represents a quantifiable source of revenue generation that can be controlled by government, along with providing an incentive to avoid the tax by reducing emissions. Furthermore, by making businesses and consumers alike aware of the environmental costs of production, consumption and investment decisions as they relate to emission initiatives, enterprises can be encouraged to adopt cleaner technologies and consumers can make more sustainable choices in how they spend their money.

The Carbon Tax envisages an incremental approach to imposing carbon tax liability, which is divided into three phases. In the first phase (which runs until the end of 2022), Scope 1 emitters will be liable to pay carbon tax for direct emissions from an owned or controlled source, such as emissions produced during the burning of fossil fuels. Whilst the Act imposes a tax liability it also provides relief in the form of emission allowances that range from 60 to 95% in the first phase. For example, there is a permissible basic tax-free allowance of 60% for all activities. For companies which use carbon offsets, it is possible to reduce their tax liability by up to 10%, and a further 5% budget allowance is given simply for meeting the Act’s reporting requirements. A further 10% allowance makes provision for trade-exposed sectors that might be liable to pay a carbon levy on import/export transactions.

Quantifiable thanks to technology

When it comes to quantifying carbon output, it is no longer a guessing game. Thanks to locally developed carbon tax analytics software, it is possible for organisations to accurately calculate and visualise their carbon footprint. To evidence compliance with the Carbon Tax Act, a carbon analytics tool can be used to generate an automated, accurate report which details emissions by source.

All it takes is for someone to input the process or emissions data into the software, to obtain an exact tax liability amount and a clear picture of the carbon footprint of the entire organisation. Once enterprises have a clear understanding of where their major carbon tax liabilities lie, they’ll be able to strategise on implementing carbon reduction frameworks across the value chain in a manner that properly acknowledges the urgency in reducing the carbon footprint of everything manufactured, traded, transported and consumed around the world.

Send your comments to rogerl@nowmedia.co.za

 

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Latest Articles

Independent transmission system “essential” to end load shedding

by Roger Lilley, Now Media  -   To overcome the scourge of load shedding, two components are urgently needed: more generating capacity and an improved and...

Drivers improving the business case for solar power

Information from IM Power  -   Covid-19 has presented businesses with the opportunity to re-evaluate both their operational models and costs. Proactive organisations found themselves navigating...

Temperature monitor and controller saves municipality money

Instrotech recently supplied its DPM4003 and DPM3001M (low- and high-alarm relay output) temperature indicators to Levivi22 Engineering and Projects, the company contracted by Tshwane...

Undertaking wall thickness testing at Tutuka

During the lockdown in June, rope-access specialist Skyriders undertook an inspection of pulverised fuel (PF) piping at Tutuka power station near Standerton in Mpumalanga...

Rentable solar power now available

Aggreko, a leading provider of mobile, modular power, temperature control and energy services, today announces the immediate availability of its solar power rental offer....

EU solar power association signs cooperation agreement with SAPVIA

SolarPower Europe and the South African Photovoltaic Industry Association (SAPVIA) have signed a Memorandum of Understanding (MoU) to strengthen cooperation and explore new business...

First BW4 wind farm celebrates commencement of commercial operations

South Africa’s first bid window four (BW4) wind farm, part of government’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), has announced its Commercial...

Maintaining backup battery systems for maximum usage and reliability

Information from Fluke  -   Most backup power systems use an uninterruptable power supply (UPS) and a string of batteries. The UPS backs up the digital...

Renewable energy company offers bursaries for tertiary education

Globeleq, a leading independent power producer operating in Africa, is offering bursaries for tertiary education. The Globeleq Scholarship Fund aims to develop skills needed...

SA’s Risk Mitigation tender and what it means for energy storage, renewables and gas

by Andy Colthorpe, Energy-Storage news  -   South Africa’s Ministry of Mineral Resources and Energy is conducting a fairly unique procurement programme for 2 GW of...

Eskom acknowledges load shedding’s damage to the economy, promises improvement

Eskom's CEO, Andre de Ruyter, says the power utility understands that it has a critical role to play in enabling South Africa's economic recovery...

MEA Energy Week conference draws world-class lineup

Information from Siemens  -  Siemens Energy and partners are holding a major Middle East and Africa-focused virtual conference, entitled ‘Shaping the Energy of Tomorrow’, from...

How to classify outdoor circuit breakers

Information from Noja Power  -   Electrical engineering switchgear classification is a challenging topic. With the varied terminology for electrical equipment around the world, clarity on...

What’s on the energy storage market besides Li-ion batteries?

Information from IDTechEx  -   While Li-ion batteries are dominating the stationary energy storage sector, a growing number of companies are developing different technologies to be...

Electrical junction box offers ten entries

A rectangular-shaped junction box, which is both Ex e and IP68 certified, is now available from Pratley. Known as the Enviro Rectangular Junction Box,...
- Advertisement -