JSE debuts trade in carbon credits

• Active markets crucial for SA to deliver on emission reduction

Carbon credit trading in SA took another step forward on Thursday when the JSE opened trading on its new voluntary carbon market.

The initiative, run by JSE Ventures (a separate legal entity of the JSE) together with USbased Xpansiv, which runs one of the largest spot exchanges for environmental commodities globally, will allow local participants to buy or sell carbon credits and renewable energy certificates that are held in either local or global registries.

Carbon markets allow for the buying and selling of carbon credits (each credit is equal to one tonne of carbon dioxide). The credits can be used by businesses and organisations to offset their carbon footprint.

“There is a heightened global focus on carbon markets and we saw this as an opportunity to bring an innovative solution to our market participants while positioning SA as a significant contributor to decarbonisation,” said Leila Fourie, the JSE Group

CEO. Establishing active carbon credit trading markets in SA will be essential in achieving the country’s emissions reduction commitments, especially given that it is among the 15 largest carbon dioxide emitting nations globally, she said.

SA’s “carbon emissions remain high because of the country’s reliance on coalpowered energy generation. To meet our 2030 and 2050 emissions targets much more needs to be done to promote climatefriendly business practices”.

The launch of the JSE carbon market, said Fourie, will help scale carbon trading in SA and thus accelerate the growth in carbon trading and increase climate-friendly investment interest in the country.

John Melby, CEO of Xpansiv, said the carbon market will facilitate the flow for projects in SA to facilitate the energy transition and carbon reduction.

According to government data, SA needs an additional R700bn investment to cover the funding gap for the five-year, R1.5-trillion Just Energy Transition Investment Plan.

Robbie Louw, founder and director of Promethium Carbon, who participated in a panel discussion at the launch of the JSE Ventures voluntary carbon market, said countries that are making good progress in implementing their decarbonisation plans generally have strong carbon markets.

TAXATION

In SA they could play a role in decarbonisation by serving as an incentive for investment in renewable energy, for example.

The phased implementation of carbon taxes by the Treasury and the introduction of company level carbon budgets (the total amount of carbon dioxide emissions a company is permitted over a period of time) under the Climate Change Bill, which was recently passed in the National Assembly, are crucial steps to creating a viable carbon trading market in the country.

When SA introduced carbon taxes in 2019 it effectively created a market for carbon credits by attaching a price to

emissions and by allowing companies liable to pay carbon taxes to offset a portion of this through the purchase of credits.

To create a demand for credits as a mechanism for offsetting carbon taxes, the price per credit should be lower than the cost of simply paying the tax.

The carbon tax rate increased from R144 to R159 a tonne in January. This is low compared with EU markets, where the benchmark carbon contract touched a peak of €100/tonne (about R2,000) earlier in 2023. It has generally traded between €80 and €90 this year.

As a result of the Treasury’s decision last year to extend the first phase of SA’s carbon tax rollout to end-2025, the first significant increase in carbon prices is likely to occur only after 2025, with the tax rate expected to be $20 a tonne (about R370) by 2026 and $30 by 2030.

Valdene Reddy, director of capital markets at the JSE, said on Thursday that given SA’s status as the largest carbon emitter in Africa and the potential for countries in Sub-Saharan Africa to become large suppliers of offsets, effective carbon markets could become important economic drivers for SA and the rest of the continent. “The JSE thought it was important to facilitate [carbon trading by establishing a carbon market].”

Reddy said the voluntary carbon market would probably not be a big driver of carbon trading in the next five years, but beyond that — towards 2030 it is likely to grow exponentially.