GHG Verification, DFFE Reporting and Carbon Tax in South Africa

South African organisations operating within the country's greenhouse gas reporting and Carbon Tax frameworks often encounter three related concepts:

DFFE greenhouse gas reporting, Carbon Tax and independent GHG verification.

They are connected, but they are not the same thing.

DFFE administers South Africa's national greenhouse gas reporting framework, while Carbon Tax is administered by the South African Revenue Service (SARS).

Independent GHG verification provides a separate assurance function: assessing greenhouse gas information and supporting evidence against defined criteria.

Understanding how these elements interact is important for organisations whose reported emissions may be used for regulatory, tax or other compliance purposes.

What is DFFE GHG reporting?

South Africa has a mandatory greenhouse gas emissions reporting framework established under the National Greenhouse Gas Emission Reporting Regulations.

The framework requires qualifying data providers conducting listed activities above applicable thresholds to report greenhouse gas emissions in accordance with the applicable requirements.

Reporting includes matters such as the relevant reporting entity, activities, emission sources, methodologies and quantified greenhouse gas emissions.

Not every South African company is automatically required to report.

Whether an organisation falls within the reporting framework depends on its activities and the requirements and thresholds applicable under the current regulations.

What is Carbon Tax?

South Africa's Carbon Tax places a tax on greenhouse gas emissions from activities that fall within the applicable tax framework.

Carbon Tax is administered by SARS.

Although Carbon Tax and DFFE reporting have different legal and administrative purposes, the systems are connected through the way greenhouse gas emissions are determined and reported.

SARS provides for Carbon Tax emissions to be determined using approved environmental reporting methodologies or prescribed methodologies under the Carbon Tax legislation, depending on the applicable circumstances.

This makes the quality and consistency of an organisation's underlying emissions information important across both environmental reporting and tax processes.

How are DFFE reporting and Carbon Tax connected?

An organisation may encounter both frameworks because the greenhouse gas information used for national emissions reporting can also be relevant to the determination of emissions for Carbon Tax.

This does not mean that a DFFE GHG report and a Carbon Tax return are the same submission.

They are administered under different regulatory frameworks and by different authorities.

However, consistency between the underlying emissions information, methodologies, activity data and calculations can be important.

Differences or errors in underlying GHG information may therefore have consequences beyond environmental reporting alone.

Where does independent GHG verification fit?

Independent verification provides an objective assessment of reported greenhouse gas information against defined criteria.

Under South Africa's national GHG reporting framework, provision is made for verification of information submitted by data providers.

DFFE's Technical Guidelines for the Validation and Verification of Greenhouse Gas Emissions describe processes relating to competent-authority review, independent verification and the responsibilities of relevant parties.

An independent verification engagement may assess areas including:

• the reporting entity and reporting boundaries;
• material emission sources;
• activity data;
• emission factors;
• calculation methodologies;
• assumptions and estimates;
• supporting documentation;
• data-management systems and controls; and
• the resulting GHG statement.

The verifier obtains and evaluates evidence in order to reach an independent conclusion regarding the GHG information assessed.

Is independent verification currently mandatory for every DFFE GHG submission?

No blanket statement should be made that every GHG submission automatically requires the same form of independent verification.

Verification requirements depend on the applicable regulatory framework, implementation phase, reporting period and circumstances of the data provider.

South Africa's verification framework has also developed through transitional arrangements relating to independent assessors and accreditation requirements.

Organisations should therefore determine the requirements applicable to their specific reporting circumstances against the current legislation, regulations and DFFE requirements.

Where independent verification is required or voluntarily commissioned, the applicable criteria, scope and competence requirements should be established before the engagement begins.

Does a Carbon Tax return have to be independently verified?

Carbon Tax compliance and independent GHG verification are related but separate matters.

SARS administers Carbon Tax and specifies the requirements for determining emissions, submitting Carbon Tax accounts and calculating tax liability.

The fact that emissions information is relevant to Carbon Tax does not mean that every Carbon Tax submission automatically requires a separate independent GHG verification engagement.

The applicable requirement depends on the organisation's circumstances and the current environmental and tax frameworks.

However, where underlying GHG information is independently verified, the verification process can provide additional confidence in the emissions data and calculations on which reporting or other processes rely.

What does an independent verifier actually check?

GHG verification goes beyond checking whether numbers have simply been entered into a report.

The verifier assesses the GHG statement and obtains evidence relevant to the agreed verification criteria.

Depending on the engagement, this may include examining:

• source and activity data;
• fuel and energy records;
• emission factors;
• calculation methodologies;
• organisational and operational boundaries;
• material emission sources;
• assumptions and estimates;
• data aggregation and consolidation;
• supporting records;
• reporting systems and controls; and
• identified risks of material discrepancy.

The nature and extent of verification activities depend on the engagement scope, applicable criteria, materiality and agreed level of assurance.

Why is independence important?

Independent verification only provides meaningful assurance if the verifier remains impartial.

The organisation preparing the GHG report remains responsible for its emissions information.

It may develop the inventory internally or use an adviser to assist with calculations, reporting and regulatory requirements.

The validation and verification body performs a different role.

Its responsibility is to independently assess the GHG statement and supporting evidence against the applicable criteria.

For this reason, CoZero does not prepare the GHG inventory, calculations or reporting information that it is subsequently appointed to independently verify.

This separation protects impartiality and the credibility of the verification conclusion.

Does CoZero submit DFFE reports or Carbon Tax returns?

No.

CoZero's role is independent GHG validation and verification.

The reporting organisation and its appointed advisers remain responsible for preparing and submitting the applicable DFFE information and Carbon Tax documentation.

CoZero can independently assess relevant GHG information where a verification engagement is required or commissioned, subject to the applicable criteria, technical competence and CoZero's relevant scope.

This distinction is important because advisory, reporting, tax and independent assurance functions should not be confused.

What should an organisation prepare for verification?

The precise information required depends on the reporting framework and agreed verification scope.

Typical information may include:

• the GHG emissions report or inventory;
• applicable DFFE reporting information;
• organisational and reporting boundaries;
• calculation workbooks or reporting systems;
• source and activity data;
• emission factors;
• methodologies;
• assumptions;
• supporting documentation;
• evidence relating to material emission sources; and
• information about relevant data controls.

Additional evidence may be requested during verification where necessary to resolve questions or evaluate material emissions.

When should an organisation involve a verifier?

Organisations do not necessarily need to wait until the final reporting deadline before considering verification.

Early engagement can help establish:

• whether independent verification is required;
• the applicable verification criteria;
• the intended scope;
• the required level of assurance;
• what evidence will need to be available;
• relevant technical competence requirements; and
• whether the engagement falls within the validation and verification body's applicable scope.

This does not mean that the verifier prepares or corrects the organisation's GHG inventory.

The objective is to clarify the verification requirements while maintaining appropriate independence.

DFFE reporting, Carbon Tax and verification perform different roles

The simplest way to understand the relationship is:

DFFE GHG reporting

Provides South Africa's environmental framework for reporting qualifying greenhouse gas emissions.

Carbon Tax

Creates tax obligations relating to qualifying greenhouse gas emissions and is administered by SARS.

Independent GHG verification

Provides an objective assessment of GHG information against defined criteria.

The three can interact because they may rely on the same underlying emissions information, but each performs a different function.

Independent GHG verification with CoZero

CoZero provides independent validation and verification of greenhouse gas information in South Africa.

For DFFE-related GHG verification enquiries, CoZero reviews the reporting requirement, applicable criteria, scope, level of assurance, technical competence, impartiality requirements and relevant accredited scope before accepting an engagement.

If your organisation is preparing greenhouse gas information for DFFE reporting, Carbon Tax or another regulatory requirement and needs to establish whether independent verification is appropriate, contact CoZero to discuss the verification requirement.