Once we are through the worst of the Covid pandemic, SA stands to reap benefits from the global move towards greening the planet, with many projects here providing carbon-credit benefits for both local and offshore emitters.
The return to global economic recovery is likely to be accompanied by increased corporate action, tackling climate change. Local businesses should be open to the opportunities that arise.
One such opportunity involves carbon credits (also known as carbon offsets). Carbon credits can be earned by developing a carbon offset project, which reduces greenhouse gas emissions.
Carbon-offset projects — such as planting trees or putting up solar panels — reduce the amount of carbon dioxide that would otherwise have been emitted. One tonne of carbon dioxide saved is equal to one carbon credit.
Once these credits have been earned they can be traded, both within SA and globally, to enable the purchasing companies to reduce their carbon tax liabilities without actually cutting their own level of emissions.
In some industries it is not possible to cut emissions any further without closing business completely, so they do need to look outside their own business to reduce emissions.
The company selling the carbon credits can use the income generated to support the development of further carbon-offset projects.
As well as reducing their carbon footprint, the purchasing company may also seek to become more active in areas such as community development or ecological improvement, which are often part of the corporate social responsibility or sustainability objectives. So it could be said you are killing two birds with one stone.
However, the current window on the purchasing of carbon credits will close at the end of next month, and businesses seeking the financial rewards carbon credits bring have no time to waste.
The price of SA carbon credits depends on the carbon tax rate. Therefore, carbon credits in SA will be sold for less than the current carbon tax rate of R120/tonne of carbon dioxide equivalent, which is well below the global price. We expect a price reduction of 10%-20% on the R120 rate.
However, government has said that it introduced the carbon tax at a rather low rate, and that this rate is expected to rise in future phases. It has already increased to R127 from January 2020 and we expect it to increase to R133 in 2021.
This suggests that before too long local carbon credits will increase in value, boosting the attractiveness of undertaking carbon offset projects.
Local buyers for carbon credits are likely to be companies that are liable to pay the SA carbon tax as a result of their emissions. These companies can use carbon credits to bring down their tax liability by a maximum of 10%.
As well as seeking to make similar savings on their domestic carbon tax bill, international buyers may also seek the added benefit of buying a carbon credit from a developing country.
The carbon offset regulations were finalised in SA in November 2019, but the carbon offset administration system was recently launched in July 2020.
As the SA carbon credit market has recently started operating — both locally and internationally — local firms should already be looking at the carbon offset projects they could undertake to reduce their carbon tax liability for years to come.
With so many economies facing this recession caused by Covid, which is on the scale of the Great Depression, there is a muted level of investment, output is down, and so are greenhouse gas emissions (GHG). However, the overall impact of reduced greenhouse gas emissions is small and will be temporary. One needs to remember that the two biggest emitters in SA are Eskom and Sasol, so the impact of other Covid business closures will be small on our overall GHG emissions.
The global carbon price had been falling even before the outbreak of the pandemic, and is expected to be further affected by Covid for the next year or two. Analysts are predicting a fall in global carbon price of as much as 15% ——20% in 2020, which follows a slide of nearly 9% in 2019.
The global decrease in greenhouse gas emissions is likely to be reversed once Covid-19 is curbed and the world economy begins to recover, and this in turn will stimulate the carbon-credit market.
In effect, the large emitters will ramp up production, so their greenhouse gas emissions will increase again. The penalties for their greenhouse gas emissions will rise, and they will most likely look for opportunities to purchase carbon credits to offset their carbon tax liability.
International corporates, having to meet their emissions reduction goals, will probably be able to purchase carbon credits from SA at a cheaper price than they would in the international market.
This global corporate interest will, in turn, stimulate the SA carbon credit market, raising prices and making it more attractive to launch local projects to generate carbon credits.
The expanding market for carbon credits will be used to stimulate green growth post Covid. Carbon credits present an opportunity that businesses must not miss, and with the October 31 deadline looming, time is running out.