Climate change did not feature high on the agenda as political parties campaigned to win favour with voters in yesterday’s elections.
Perhaps, when the effects of climate change start to intensify and as it becomes more apparent that vote-winning issues such as housing, health and access to basic services are intrinsically linked to how the government responds to the need for climate adaptation and mitigation, this will become an electioneering platform.
Despite climate change not being at the top of the political agenda, SA has made good progress in putting in place the regulatory and legislative environment that can see the country be a leader in Africa and among other emerging markets in shaping its response for the good of the planet and people at home.
For this to happen, however, the new government, regardless of what it looks like, will have to pick up the momentum — hopefully starting with a president signing into law the Climate Change Bill, which, after five years of consultations, was finally passed by parliament at the end of April.
When SA introduced carbon taxes in 2019 it effectively set the local carbon price and 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.
However, at current rates, SA’s carbon pricing is too low to offer sufficient incentive for investment in more local carbon offset schemes. The nominal carbon tax rate is R190 per tonne of carbon dioxide equivalent emissions (CO2e) but there are still exemptions and allowances in place allowing companies to receive 60% to 95% tax allowances.
Carbon taxes are expected to increase to R462 a tonne by 2030. Meanwhile, carbon prices in the EU are trading above €60, so SA has a lot of catching up to do.
Increasing carbon taxes is not the only way in which the government can support growth in carbon trading. High transaction costs, such as auditing costs for carbon offset schemes, pose a hurdle for SA businesses, especially smaller ones, that want to invest in sustainable projects that generate offsets. Developing domestic carbon offset standards, for which the department of mineral resources & energy has already developed a draft framework, can help bring these costs down.
The Treasury also has a role to play in speeding up its facilitation of developing trading and post-trade market architecture, licences for private carbon credit funds and carbon credit certification.
The EU has started rolling out its carbon border adjustment mechanism, which places an import tariff on the carbon emissions linked to imported goods. Other countries will soon follow.
In instances where carbon prices apply in the country of origin, as they do in SA, some allowances can be made to reduce the carbon prices that importers will be liable to pay. This will mean SA could retain the carbon tax revenue domestically, and more can be retained if local carbon taxes move closer to prices that apply internationally.
According to a new report by the World Bank, carbon pricing revenues exceeded $100bn for the first time in 2023.
Having a mature carbon tax, carbon trading and offsetting regime in place would mean that more of the money that companies would otherwise have paid on exports to other countries can stay in SA to help fund critically needed climate change adaptation projects such as building infrastructure that will be better able to cope with more frequent, more extreme droughts and floods.
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