‘South Africa’s financial infrastructure ready for carbon trading’, says study

Prometheum Carbon said the completed demonstration programme is the culmination of a three-year research project conducted in “close cooperation” with the Johannesburg Stock Exchange (JSE), the JSE’s commodities registry Silocerts and the registry’s technology provider Done Technologies.

The objective of the programme (17-page / 609 KB PDF), which was funded by the British High Commission in Pretoria through the UK’s ‘Prosperity Fund’, was to investigate the applicability of existing South African commercial and financial infrastructure for use as a carbon trading platform.  

The demonstration consisted of performing actual trades of carbon credits on an over-the-counter basis from a wide variety of international standards such as the clean development mechanism (CDM), which can include projects such as hydropower, wind energy and industrial efficiency improvements.

Prometheum said: “These trades were then mirrored in a test environment on the electronic platforms of the JSE and Silocerts. The structure of the JSE commodities market... is 100% applicable to the trade of carbon offset credits. The proposed platform to trade carbon offset credits, relying on existing technology and market structure, can be integrated with the JSE’s existing systems.”

The trading demonstration programme was also designed to help companies prepare for the introduction of a 120-rand (ZAR) ($10.47) per tonne carbon dioxide (CO2) tax.

The South African National Treasury set the ZAR 120 per tonne tax rate, to be payable on emissions above a ‘default’ tax-free threshold of 60%, in its carbon tax policy paper published in May 2013. Promethium said this meant tax would be payable on 40% of overall emissions, “making the default effective tax rate ZAR 48 ($4.18) per tonne”.

The National Treasury published a further ‘Carbon Offsets Paper (50-page / 1.44 MB PDF) for public comment in April 2014. This followed a finance ministry commitment, made in the country’s 2014 budget, that a “package of measures is needed to address climate change and to reduce emissions... this will include the proposed carbon tax, environmental regulations, renewable energy projects and other targeted support programmes”.

Major emitters expected to be affected by proposed carbon tax legislation include South Africa’s national power utility Eskom. However, Prometheum has said the carbon tax will also affect all countries connected to the Southern Africa Power Pool through the impact of the tax on the electricity tariff. “This impact could be mitigated if countries linked to the grid can be allowed to participate,” according to Prometheum.

The first phase of Prometheum’s study, conducted last year, recommended a set of ‘national appropriateness tagging rules’ be used to “specify the eligibility criteria of projects that can be traded within the system”. Tagging rules should be overseen by a committee of representatives drawn from government and the private sector, the study said.

According to the study, a knock-on effect of the carbon trading scheme is expected to be the development of a “local auditing industry”, with accredited auditors in turn helping firms reduce carbon project registration costs.

The study said the offset mechanism under the carbon tax could contribute almost 10% of the total 34% cut in emissions which South Africa has pledged to make by 2020.