Another building block to carbon tax June 2017

By TRACY-LEE ERASMUS AND ALECIA PIENAAR, Published in Environmental Law

The National Greenhouse Gas Emission Reporting Regulations (Final Regulations) published by the Minister of Environmental Affairs took effect on 3 April and introduced the first single national reporting system for the quantification and transparent reporting of greenhouse gas (GH") emissions.

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Since the publication of the 2013 Carbon Tax Policy Paper, numerous industries have anticipated the implementation of the GHG reporting system as part of the movement towards a carbon tax regime. The Carbon Policy reiterated the sentiments of the 2011 White Paper on Climate Change, which listed a web-based GHG emissions inventory as a potential mitigation response to climate change. Furthermore, mandatory GHG reporting forms part of South Africa's Intended Nationally Determined Contribution (INDC) under the international Paris Agreement, which South Africa ratified in November 2016.

The 2015 draft Carbon Tax Bill provides that anyone who conducts an activity listed in Annexure 1 to the GHG emission reporting regulations will be a taxpayer for purposes of the proposed Carbon Tax Act and liable to pay carbon tax on the associated emissions. The idea is that the South African Revenue Service will liaise with the Department of Environmental Affairs (DEA) to obtain access to the reported emission information.

Draft GHG reporting regulations were first published in 2015 but never promulgated. The Final Regulations follow on the Draft National Greenhouse Gas Emission Reporting Regulations published in June 2016.

Key Features

Application

The duty to report GHG emissions applies broadly to all entities (classified as Category A data providers) in control of or conducting IPCC emission source activities (IPCC Activities) above the thresholds specified in Annexure 1 to the Final Regulations. Although a similar duty rests on public entities (Category B data providers), the following summary pertains only to Category A Data Providers.

Registration

Data Providers whose activities exceed the prescribed Thresholds are required to register all facilities on the internet-based National Atmospheric Emission Inventory System (NAEIS) by 3 May. Information required for registration is detailed in Annexure 2 to the Final Regulations. It is noteworthy that the Threshold for a number of activities, particularly in the industrial sector (which includes the mining industry), is reflected as "none". In such a case, the Data Provider is obligated to report activity data and GHG emissions irrespective of the volume of the emissions or the scale of the operation.

Reporting

By 31 March of each year, in accordance with the Technical Guidelines for Monitoring, Reporting and Verification of Greenhouse Gas Emissions by Industry (available on DEA's website), Data Providers must submit data on every "relevant GHG" (taking into account all process, fugitive and combustion emissions from all GHG sources and source streams) and IPCC Activity for all facilities on the NAEIS. Information set out in Annexure 3 to the Final Regulations must be supplied in the submission.

Emission determination

Each IPCC Activity prescribes different tiered information gathering methodologies to determine GHG emissions. While Annexure 1 identifies the tier(s) applicable to each IPCC Activity, the Technical Guidelines expound on the technicalities of the different tiers or methodologies.

Briefly, a Tier 1 methodology uses readily available statistical data on the intensity of processes and IPCC emissions factors as specified
in the Technical Guidelines. Tier 2 is similar to a Tier 1 methodology but uses technology or country specific emission factors. Tier 3 includes any methodology that is more detailed than Tier 2 and might include process models and direct measurements. The Technical Guidelines differentiate between the Tiers based on the uncertainty of the information provided, with Tier 3 methodology has the lowest level of uncertainty. The Final Regulations do, however, make provision for a transitional arrangement which allows Data Providers to apply Tier 1 methodology to certain activities for a period up to five years until 3 April 2022 where Tier 2 or 3 methodologies are otherwise prescribed (Transitional Arrangement).

A Data Provider may submit a request to DEA's National Inventory Unit to review any emission factor in the Technical Guidelines where it reasonably believes the factor to be inappropriate under the specific GHG emission. The submission must be approved or rejected within 60 days. Once approved, the submission is to be incorporated in the Technical Guidelines.

Scope

A Data Provider must report on all companies or subsidiaries over which it exercises operational control or, put differently, over which it has the full authority to introduce and implement operating policies. Reporting must also include GHG emissions from normal operating conditions and "upset conditions" including start-up, shut-down and emergency situations.

Liability

It is an offence for a Data Provider to provide false or misleading information or fail to register, report or keep records as required in terms of the Final Regulations. A fine of up to R5 million may be imposed upon first conviction, and R10 million for second and subsequent convictions.

Alignment with INDC Commitments

As noted, the Final Regulations were preceded by the Draft Regulations. Although the two sets of regulations are substantially similar, the definition of a "relevant GHG" has been amended to align with the INDC commitments and further draft legislation. While a GHG previously included any gaseous constituents of the atmosphere, for purposes of the Final Regulations and the Technical Guidelines, GHG refers only to the following gases:

  1. carbon dioxide;
  2. methane;
  3. nitrous oxide;
  4. sulphur hexafluoride;
  5. perfluorocarbons; and
  6. hydrofluorocarbons(RegulatedGases).

This aligns with South Africa's mitigation INDC which commits to increased disaggregation over time through domestic, economy-wide mandatory GHG reporting on six GHGs, with a material focus on carbon dioxide, methane and nitrous oxide. Draft Regulations on the Declaration of GHGs as Priority Air Pollutants (Draft PAP Regulations) published early 2016, also declared the Regulated Gases as priority air pollutants (PAPs). Once the Draft PAP Regulations are promulgated, GHG emitters will be required to submit pollution prevention plans in addition to registering and reporting under the Final Regulations.

Reporting sectors

The primary sectors required to register and report under the Final Regulations include: energy; industrial process and product use; agriculture, forestry and other land use; and waste. Although this is widely couched, the Technical Guidelines detail the relevant and large number of subsectors and/or activities under each sector, which essentially constitute the IPCC Activities.

Reporting requirements are less onerous under the Transitional Arrangements, with the majority of the IPCC Activities under the Final Regulations requiring:

  • no reporting;
  • reporting in terms of Tier 1;
  • reporting with the option of using either Tier 1 or 2 emission determination methodologies (EMDs);
  • reporting with the option of using Tier 1 ,2 or 3 EMDs; or
  • reporting using Tier 2 or 3 but subject to the Transitional Arrangement.

The only activities for which Tier 2 and 3 EMDs are prescribed but are not subject to the Transitional Arrangement include the processes undertaken by manufacturing and construction industries involving food procession, beverages and tobacco, transport equipment, machinery, wood and wood products, construction, textile and leather and brick manufacturing.

Important consideration

Data Providers engaged in any of the listed IPCC Activities were due to register all relevant facilities by 3 May. Registration on NEAIS is not currently available. Data Providers are, therefore, required to submit registration information directly to the Chief Director of Climate Change Monitoring and Evaluation at DEA's National Inventory Unit.

Although the first GHG emission reports will only be due end March 2018, industry should consult a suitably qualified specialist timeously to assist with its reporting obligations.

Erasmus is a Senior Associate and Pienaar a Candidate Attorney with Cliffe Dekker Hofmeyr.