I recently got to thinking about the role carbon offsets play in climate change mitigation and in carbon tax specifically, and here are my thoughts.
In South Africa, a 5% carbon offset allowance is included with the carbon tax that has been recently effected. Carbon offsets as they currently exist are best for reducing the carbon tax burden (at great cost) of a heavy greenhouse gas (GHG) emitting company but not necessarily mitigating GHG emissions themselves. I say this because the anthropogenic production of GHG far outstrips GHG sequestration by offset mechanisms such as planting trees, biogas, clean fire techniques, etc.
What can really make a dent in GHG emissions and the associated climate change, is the implementation of energy efficiency and demand side interventions, and a move towards renewable energy sources or highly efficient energy sources like nuclear power. These interventions would directly and immediately affect the amount of GHG emitted and put a dent in the carbon tax bill of a company, not to mention its utility bill. Off course there is a capital cost involved in this. However, there is policy support for energy efficiency and demand side projects, which can alleviate the implementation costs associated with adopting energy efficiency and demand side interventions.
An example of the support energy efficiency has in policy is the potential extension of the Section 12L energy efficiency tax incentive in South Africa and the Energy Efficiency and Demand Side Management (EEDSM) program also implemented in South Africa.
Note. I am not against carbon offsets, every little thing we can do to fight negative climate change cannot be dismissed. I just think current offset mechanisms (particularly those in Africa) are limited in their effectiveness.
Given below are two illustrations comparing the benefits of implementing EEDSM measures at a high energy consuming facility compared to the cost of achieving the same carbon saving benefit through a carbon offset. Please note that the benefits are annualised.
The above illustration shows that if a company achieves a demand saving of 10 MW by implementing EEDSM measures, it can benefit in 3 ways, namely; by claiming a tax allowance for energy efficiency, lowering its demand utility cost, and by lowering its carbon tax bill. EEDSM measures can be implemented by the company's own engineering staff, so the cost of labor is essentially covered by their wages. Below is an illustration of the cost of purchasing a carbon offset to achieve the same tonnes of carbon dioxide saved by implementing EEDSM measures.
The above illustration shows that to purchase a carbon offset of 87,600 tonnes, a company would have to pay R12,439,200 for 292 hectares of trees. Also, it's important to note that this would only be at year 30 (a 30 year old plantation); assuming that there is enough rainfall and the right conditions for each hectare of trees to sequester 300 tonnes of carbon dioxide a year.
I've performed measurement and verification (M&V) on more than 80 projects across different sectors under the Eskom EEDSM program, the Section 12I additional investment allowance and the Section 12L energy efficiency tax incentive, claiming more than R2.5 billion for clients in various industrial sectors. For more information on carbon tax mitigation and carbon tax feel free to contact me.
Zadok Olinga, Cell: +27813129821, Email: zadok@oelinga.com
You can find the author on LinkedIn at https://www.linkedin.com/in/zadokolinga/
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