By Harmke Immink, a director of Promethium Carbon, a carbon advisory firm
It is not well known that many of the burdens of carbon offset schemes have been significantly reduced through innovations in recent years, designed to reduce the barriers in accessing carbon finance while maintaining the credibility of the programmes and the integrity of the carbon credits generated.
A report produced by Promethium Carbon on Fast-Tracking Low Carbon Development in SA, funded by the British High Commission in Pretoria supports the unlocking of low carbon investment in South Africa in line with the National Development Plan.
The unique carbon tax and offset scheme proposed for South Africa allows for carbon off-sets to be used to mitigate a firm’s carbon tax liability. Projects that qualify to generate credits for the scheme must use an internationally recognised programme approved by the government and must be implemented inside the borders of the country and comply with the stated eligibility.
The research focuses on the streamlining of administrative processes to be followed to obtain carbon finance. It also addresses the removal of barriers faced by smaller projects.
Carbon finance is linked to specific carbon programmes such as the Clean Development Mechanism (CDM), Verified Carbon Standard (VCS) and Gold Standard (GS). The programmes proposed for the South African carbon offset scheme have a reputation of having large administrative burdens. In many cases this is deserved.
It is however not that well known that many of these burdens have been significantly reduced through innovations in recent years, designed to reduce the barriers in accessing carbon finance while maintaining the credibility of the programmes and the integrity of the carbon credits generated.
Reducing costs and administrative burdons have been a key area of development for many international offset programmes. Examples include the recent developments of standardised baselines in the CDM and the development of positive lists in the VCS. These developments are aimed at accelerating the access of specifically smaller projects to the potential sources of carbon finance.
Many of the innovations in carbon offset programmes require action from the government of the country in which the programmes are implemented. Examples include certain submissions that need to be made by the Designated National Authority of a country to utilise certain provisions for automatic additionality under the CDM.
Additionality is the effect of the offset project activity to reduce anthropogenic greenhouse gas emissions below the level that would have occurred in the absence of the project activity. It is also defined as whether an emissions reduction project would have occurred in the absence of incentives, such as a payment for emissions reductions.
The baseline scenario is the scenario for an offset project activity that reasonably represents the anthropogenic emissions that would occur in the absence of the proposed project activity. The baseline emissions are the greenhouse gas emissions that would occur in the baseline scenario.
Carbon offset programmes are designed with the primary aim of maintaining environmental integrity. When the systems were initiated in the early 2000 a substantial amount of checks and balances were put in place to ensure the integrity of the systems.
The result was that the systems had very low risks of erroneous inclusion of projects but this came at a high price. The price was a high administrative burden and a high risk of erroneous exclusion. Recent developments in both the CDM and the VCS have focused on the easing of the administrative burden. Many of the changes are however not automatically available.
In the case of the CDM, it needs action from the Designated National Authority in a country to allow that country to make use of the changes. In the case of the VCS, methodologies need to be developed to access the potential benefits.
The two main areas of innovation lie in proving additionality and establishing standardised baselines. All offset projects, irrespective of the programme used, need to prove additionality.
Traditionally this step requires significant inputs from experts and auditors to ensure that the criteria are met. If projects can be deemed automatically additional, a huge burden of proof is removed from the project.
Emission reduction is defined as the difference between the emissions in the baseline and the emissions of the project. Proving emissions in the baseline can be challenging because it mostly-represent theoretical calculations. This requires inputs from experts and auditors and can be cumbersome to prove. The use of standardised baselines can make a big impact on the inputs required during project validation.
Removal of Barriers
Much of the administrative burden in offset project registration lie in the steps of proving project additionality and establishing the project baseline. Two main tools are available in this respect: automatic additionality and standardised baselines. These tools are similar in nature in the CDM, the VCS and GS.
Automatic additionality in the CDM allows for either technologies or projects in specific geographic areas that comply with certain predetermined conditions to be deemed automatically additional. In the case of technologies, the requirement is typically based on the rate of adoption of specific technologies in a region. Technologies that have low adoption rates are typically exempt from having to prove additionality during project registration. In the case of regions, small scale projects implemented in areas that are classified as special underdeveloped zones (SUZ) also do not have to prove additionality during project registration.
Special Underdeveloped Zones
The CDM deems small scale projects that are implemented in special underdeveloped zones (SUZ) to be automatically additional. As both the VCS and the GS allows for the CDM methodologies, this fast track option is, therefore, available under all three programmes considered.
A special underdeveloped zone is an administrative unit where the proportion of the population with income less than US$2 per day, adjusted by purchasing power parity (PPP), is greater than 50 percent. In South Africa, the smallest administrative unit is a municipal ward. Where a large portion of wards in an area qualifies as special underdeveloped zones, the local municipality can qualify as a special underdeveloped zone.
Even though South Africa is a high middle-income country, it is also the country with one of the highest levels of inequality in the world. South Africa can capitalise on the removal of barriers for projects implementation in specific areas if data for underdeveloped zones are provided and
administrative steps followed. The criteria for underdeveloped zone applications can change over time, but it is linked to the income per person per month, based on data not older than three years.
Taking the 2011 South Africa food poverty line of R321, the number of qualifying wards is 956, This includes 45 local municipalities which complies with the criteria in full. These 956 wards are spread across 117 different local municipalities. With the US$2 World Bank Purchasing Power Parity of R286, the number of qualifying wards is 911, including 37 local municipalities.
In the respective long-term Integrated Development Plans prepared and updated annually, the 37 local municipalities linked climate change to disaster management and ecosystem preservation. Carbon finance can increase resilience in these areas and unlock investment for service delivery improvement. Carbon offset projects are well suited for municipal Integrated Development Plans as they are longer-term initiatives with continuous benefits in local poverty alleviation.
Conclusion and way forward
It is widely recognised that an effective response to climate change requires an increased level of mitigation action. South Africa is in the process of implementing an innovative carbon tax and offset scheme in 2017.
Offset projects provide valuable GHG mitigation and support low carbon economic development opportunities in South Africa while offering financial benefit to tax payers. Investment in these carbon offset projects should be fast tracked enabling implementation in 2016, in order to be ready for trading against carbon tax in 2017.
The main challenges with carbon offset project development are that it is very time consuming and that significant upfront costs and effort are typically involved. It is only with data gathering, analysis, projections and verification that these baselines can be set.
The fast track options can assist low carbon development through:
- Utilising recent developments in the three programmes identified in the South African offset scheme to reduce barriers to project registration through automatic additionality, positive lists and standardised baselines; and
- Streamlining the administrative process of project registration based onthese interventions.
Project implementers in South Africa can get access to these fast track options if the Designated National Authority takes certain actions, including:
- Making data on technology penetration rates required to prove automatic additionality available to project developers; and
- Updating the current standardise baseline for grid electricity which is expiring in May 2016.
Low carbon development in underdeveloped regions in South African will not only assist to reduce extreme poverty in these regions, but also help to reduce migration of vulnerable people from these areas. This, in turn, will assist to alleviate inequality in South Africa. Obtaining the data supporting the identification of the underdeveloped zones could be funded through the adaptation part of the Global Environmental Fund.
About Promethium Carbon
Promethium Carbon is a dedicated carbon and climate change advisory firm. The company enjoys the position of being a trusted advisor to major international corporations operating out of South Africa. They are knowledge leaders in the carbon industry. Services include carbon project development, footprinting and disclosure and climate change strategy development. More information is available at www.promethium.co.za