The Treasury will launch a consultation process this year to consider stakeholder inputs on the possibility of a domestic market to trade tax credits created through the carbon tax.
The consultation will focus on “the building blocks needed to ensure seamless trading” the Treasury said in the 2023 budget that was tabled in parliament on Wednesday by finance minister Enoch Godongwana.
It will ask for inputs on the legal nature of carbon credits as a financial asset, trading and posttrade market architecture, licences for private carbon credit funds and carbon credit certification.
There are no local standards for carbon credits but the department of mineral resources & energy has started work on a the draft framework for the development of domestic carbon offset standards.
High transaction and auditing costs associated with carbon offset schemes developed using the three main international standards pose a hurdle for SA businesses, especially smaller businesses, wanting to invest in sustainable projects that can generate offsets.
Having a local standard in place will make the carbon economy more accessible for individuals and smaller businesses hoping to benefit from the sale of carbon credits to large-scale polluters.
When SA introduced carbon taxes in 2019 it effectively created a market for carbon credits in the country by attaching a price to emissions and by allowing companies liable to carbon taxes to offset a portion of this through the purchase of carbon credits.
To create a demand for carbon credits as a mechanism for offsetting carbon taxes the price per credit (which is equal to one tonne of CO2) should be lower than the cost of simply paying the tax.
The Treasury announced on Wednesday that the carbon tax rate increased from R144 to R159 per tonne in January 2023, which means that carbon credits in SA would have to trade at a lower price than this.
The value of carbon credits is influenced by supply and demand, but at R159/tonne a local carbon-trading market would not be very attractive for those wanting to sell credits because it is far below prices quoted internationally.
The EU Emissions Trading System price rose to almost €100 (R1,940) per tonne at one point last year.
After the Treasury’s decision extend the first phase of SA’s carbon tax rollout to end-2025, the first significant increase in carbon prices is likely only to occur after 2025 with the tax rate expected to reach $20 a tonne by 2026 and $30 by 2030.
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