Border carbon adjustments

These measures could see countries being penalised for ignoring environmental issues.

Border carbon adjustments
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Climate change fears have seen international institutions and organisations stepping up their efforts to reduce the emissions of carbon-based and other harmful gases into the atmosphere. However, the problem is that many countries have simply ignored the threat of emissions, with their own developmental agendas being prioritised ahead of environmental issues.

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As a result, environmentally aware institutions are brainstorming methods of bringing these errant countries in line with those that are more environmentally responsible. One such control is the introduction of a ‘border carbon adjustment’ (BCA). The measure was referred to by South Africa’s Minister of Finance Pravin Gordhan in the Budget speech earlier this year.

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According to Gordhan, if South Africa does not impose a carbon tax, it will run the risk of its exports being subject to BCA.
The adjustment is a measure that might be taken by countries where producers have implemented costly climate change measures against countries where producers have not taken such measures, in an attempt to level the playing fields.

Taxes allocated as rebates
According to the International Institute of Sustainable Development (IISD), the BCA would be charged on goods imported into a ‘carbon compliant’ country to the extent that it would raise the price of the goods to the equivalent of the cost of local (climate friendly) production. The taxes raised might then be allocated as tax rebates to the exporters in such countries in order to make them more internationally competitive, notwithstanding their ‘green’ commitments.

In countries that are signatories to the ‘cap and trade’, or carbon credit issuing protocols, a BCA could be used to ensure that importers have to purchase emission permits based on the amount of carbon emissions produced in the production of the goods, or to ensure that exporters in foreign non-‘green’ jurisdictions, buy emissions permits based on the emissions associated with the production of the exports.

Carbon leakage
The IISD also notes that BCAs might be used to address ‘carbon leakage’ – where companies move away from high-emission, control-compliant countries to countries where the level of compliance is low or non-existent. In addition, the proposed BCAs would be useful in ‘encouraging’ developing nations to commit to active participation in climate change activities or else run the risk of losing market share.

Green measures put in place in the development of industrial processes and the entire idea of carbon emission/methane gas reduction can be seen not as a threat, but as a potential advantage. Farmers who take note of these trends and act on them might find themselves with a competitive advantage over those who have not had the foresight to do so.

Peter O’Halloran is head of tax at BDO, Gaborone. Contact him on 00267 390 2779 or at [email protected]. Please state ‘Tax’ in the subject line of your email.