The final carbon offset regulations, gazetted 29 November 2019, favour small scale renewables, applying a blanket eligibility to projects below 15MW. Due to concerns from stakeholders regarding the environmental and financial additionality, larger projects will only be eligible for generating offsets to be used under the carbon tax, when the cost of purchasing the power from these projects is higher than R1.09 per kWh. Similar restrictions apply to projects in respect of the IPP bid programme for which power purchase agreements have been signed on or before 9 May 2013.
Lodewijk Nell, partner at EcoMetrix Africa, comments that National Treasury has struck a good balance, by on the one hand lowering the 50MW eligibility threshold to a more stringent 15MW, while on the other hand providing relief for projects deemed not ‘cost competitive’ which remain eligible if the cost price exceeds R1.09 per kWh.
Further technical amendments compared to the draft regulations include declaring temporary credits ineligible and additional requirements regarding offset certificates issued. Offset certificates issued for the purpose of utilising offsets shall specify the tax period to which the offsets will be applied and state that certificates are not transferable. The certificates need to be retained for a minimum of 15 years.
Although various sections of the offset regulation need further in-depth analysis regarding the exact meaning and impact, we are happy with the amendments and look forward to supplying the local offset market with credits from various projects we have in our portfolio, says Henk Sa, partner and offset trading executive at EcoMetrix Africa. Our preliminary supply and demand calculations adjusted to the new regulations, shows an undersupply and currently we envisage a carbon price to establish in the range of 60 to 90 Rand.