Carbon Trading in South Africa

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The Carbon Tax Study, has been able to generate a similar level of interest and appreciation of the VSBK Projects involvement within the sector.

This report presents the findings of a research project on the potential structuring of a carbon offset trading program in South Africa. The project has been funded by the British High Commission in Pretoria.

Policy documents published by the South African Government mention the potential use of carbon offsets in two applications.  The first is to allow companies to mitigate its financial liability in terms of the proposed carbon tax.  The second is to be used against a potential carbon budgeting system.  This report focusses mainly on the first application.

The report starts off with the question of whether it will be possible to implement a carbon offset trading scheme within the same time horizon as the announced schedule for the implementation of the South African carbon tax.  It concludes that this will be possible provided maximum use can be made of existing infrastructure.  This infrastructure is required to ensure both the environmental integrity and the economic integrity of the system.

The environmental integrity of the system can be assured through the utilisation of existing offset standards like the CDM, VCS or Gold Standard. Economic integrity can be assured by using the JSE as trading platform and combining it with either a local registry such as Strate or ESC or an international registry such as Markit or APX.  Over time elements such as additional standard, new national offset standards or derivative trading could be added to the proposed basic offset trading framework.

The research found that the introduction of credits into a South African system should be done in a process that checks the appropriateness of the project to be traded into the South African system.  We propose a set of National Appropriateness Tagging Rules.  These rules should specify the eligibility criteria of projects that can be traded within the system.  We further propose that the tagging rules be placed under the custodianship of a committee consisting of both government and the private sector.

The project covered a high level analysis of the potential market supply and demand and found that there is sufficient potential volume at a marginal cost of R120 per ton CO2e to create a viable market.

The overall conclusion of the project is that the necessary infrastructure as well as potential supply and demand exists to create a carbon offset trading scheme within the same timeframes as the proposed South African carbon tax.

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