South Africa’s Nationally Determined Contribution (NDC), updated in 2021 under the United Nations Framework Convention on Climate Change (UNFCCC), commits the country to an emissions range of 350 to 420 million tCO2e (tonnes of carbon dioxide equivalent) by 2030. The Long-Term Low Emissions Development Strategy further sets an aspirational target of net zero CO2 by 2050, distinct from a broader net zero encompassing all greenhouse gases, reflecting a pragmatic focus on CO2 to ease financial pressures on sectors adapting to decarbonisation.
Carbon credits offer a cost-effective compliance tool, particularly for hard-to-abate sectors like steel production or aviation. A well-regulated carbon market can bridge the gap between our NDC targets and domestic capacity constraints. By developing a domestic framework, including a registry for credit issuance and trading, alongside broader market mechanisms and corresponding regulations, South Africa can assert sovereignty over its carbon assets, mitigating risks of exploitation by foreign entities.
As South Africa navigates its obligations under the Paris Agreement and confronts the realities of its carbon-intensive economy, carbon credits emerge as one of several instruments to reconcile environmental imperatives with economic development. Their strategic deployment offers a viable opportunity to secure climate finance, stimulate job creation and advance social equity, provided a robust legal and technical framework underpins these efforts.
A carbon credit, defined as a tradable certificate representing one metric tonne of carbon dioxide equivalent either reduced or sequestered, operates within compliance or voluntary market frameworks. Entities exceeding their emission thresholds may procure such credits to offset liabilities, channelling capital into projects that demonstrably reduce emissions, such as utility-scale solar installations or afforestation initiatives. For South Africa, a jurisdiction responsible for about 40% of Africa’s industrial emissions (according to the Global Carbon Project), the potential is both immediate and transformative.
Economically, the case is compelling. The Africa Carbon Markets Initiative, launched at COP27, projects R108-billion in revenue and 30 million jobs continent-wide by 2030 through carbon credit generation. South Africa’s industrial capacity and abundant renewable resources position it to capitalise significantly on this opportunity.
A tangible example lies closer to home: in July 2024, the City of Cape Town successfully auctioned R36-million in carbon credits, generated from landfill gas-to-energy projects at sites such as Bellville, Coastal Park and Vissershok. This initiative not only reduced methane emissions but also demonstrated how local efforts can yield substantial revenue, funds the City has ring-fenced for further urban waste management projects. Projects such as wind energy developments in the Eastern Cape or soil carbon sequestration on the Highveld could similarly attract investment from domestic and international buyers seeking high-integrity offsets. Part of this supply will support the offsets scheme under the Carbon Tax, already in existence, ensuring industries have certainty that domestic needs are not sidelined for international markets. With proper structuring, South African credits could command premiums in voluntary markets, where demand for credits aligned with article 6 of the Paris Agreement is surging.
The socioeconomic dividends are equally critical. Revenue from credit sales can be directed towards community upliftment, funding infrastructure like rural clinics or training programmes for green jobs, provided equitable benefit-sharing mechanisms are enshrined in law. A precedent exists in Kenya’s Northern Rangelands Trust, where carbon revenues are reinvested into local economies. South Africa builds on existing capacity and experience under the Clean Development Mechanism and the offsets scheme under the carbon tax, applying sustainable development criteria to project assessments. Applicable frameworks will continue to prioritise environmental integrity, additionality and contributions to reducing poverty, inequality and unemployment, binding project developers and host communities through contractual agreements.
Central to this vision is the legal architecture already under way. The Carbon Tax Act (Act No 15 of 2019) establishes a price of R159 per tCO2e, with a generous offset allowance of up to 95% of tax liability through credit purchases. The recent inaugural trade on the Johannesburg Stock Exchange’s Voluntary Carbon Market, executed earlier this year at R148.50 per credit for 10,000 units, underscores the viability of this regime. Scalability hinges on refining the South African Carbon Offsets Programme. Efforts by the Department of Forestry, Fisheries and the Environment to align with international standards, such as those under article 6 of the Paris Agreement and independent frameworks like the Verified Carbon Standard, Gold Standard and Verra, are progressing but require acceleration. Robust monitoring, reporting and verification (MRV) protocols, underpinned by statutory regulations, are non-negotiable to ensure credit integrity and market confidence.
Complexities persist and, of course, it is a long road ahead. Critics contend that carbon markets risk enabling “greenwashing” if credits lack additionality or permanence. This critique is valid, underscoring the need for stringent eligibility criteria under section 19 of the Carbon Tax Act regulations.
Projects must demonstrate that emission reductions are additional to business-as-usual scenarios, and sequestration efforts must be safeguarded against reversal. Transparency, enforced through independent audits and public disclosure mandates, will further bolster market trust.
South Africa stands poised and we will lead Africa’s carbon market evolution, exporting high-quality credits underpinned by environmental integrity while advancing domestic priorities. This is not a theoretical exercise but a practical imperative, grounded in law and economics. As we refine our regulatory apparatus, integrating international benchmarks, fortifying MRV systems and prioritising equitable outcomes, we can unlock a future where climate action and prosperity coexist. The framework is taking shape, the market is nascent but promising, and the opportunity is ours to seize, measured in tangible rands amid a currency that has faced depreciation against the dollar over the past 15 years, underscoring the urgency of leveraging such mechanisms for economic resilience. DM