Research and analysis

South Africa-ready for carbon trading

Published 6 February 2015

0.1 This publication was archived on 5 August 2016.

This article is no longer current. Please refer to Overseas Business Risk - South Africa.

1. Summary

Johannesburg Stock Exchange promotes High Commission Prosperity Fund project on viability of carbon trading in South Africa. Visual demonstration of “market readiness” to influential audience of business, government and civil society, and a further boost for efforts to promote low carbon growth. For National Treasury now to decide on when – or whether – to introduce a carbon tax and jumpstart a carbon trading scheme.

2. Background

In 2012, the Prosperity Fund in South Africa supported a project with Business Unity SA (CBI equivalent) to develop a credible model for a voluntary offset mechanism, designed to work in tandem with a carbon tax. The High Commission built on this with a second project, implemented by SA’s Promethium Carbon, a green consultancy firm. This explored the use of offsets to mitigate a) corporate carbon tax liabilities and b) corporate obligations under the Desired Emissions Reduction Outcome (DERO, or carbon budgeting) approach. This project concluded that SA does, in principle, have the infrastructure needed to facilitate carbon trading. To test this in practice, the Prosperity Fund supported a further project in 2014 to conduct a pilot trade of carbon offsets.

Promethium Carbon, working with the Johannesburg Stock Exchange (JSE) and willing buyers and sellers, facilitated the pilot trade in late 2014. The JSE, while not yet authorised to trade carbon offsets, demonstrated how its existing electronic trading platforms could be used to facilitate trading of carbon credits in the open market. SA companies – including major players like Nedbank, Harmony Gold, Sanlam, Backsberg Wine Estate and the [Cape Town Marathon] (http://www.worldrunning.com/news/cape-town-marathon-goes-green-in-2015/) – purchased offsets (average price at R100, or about £5.70) from Climate Neutral Group, Sibanye Gold, Statkraft and SAPPI.

3. Prosperity at the Johannesburg Stock Exchange (JSE)

At the end of January, the pilot trading system was demonstrated to 120 leaders in business, government and civil society at a launch event at the JSE, in partnership with Promethium Carbon and the High Commission Prosperity Team. Our partners (including JSE CEO Nicky Newton-King) presented the technical aspects of the trading mechanisms and explained the intricacies of market readiness. [Full reports available here] (http://promethium.co.za/). In her opening address, High Commissioner Judith Macgregor noted the UK’s experience with carbon trading and urged South Africa to embrace this as a business solution to reducing emissions points echoed in her subsequent blog post.

While the trades are miniscule in the wider carbon marketplace, the demonstration removed a key area of uncertainty which has inhibited government from introducing the long-delayed carbon tax. Indeed, officials from the National Treasury, Department of Environment Affairs, Department of Energy and the Designated National Authority were all in attendance.

4. Comment

With relatively modest funding, the partnership has shown how business – through Africa’s main finance hub and a world-leading stock exchange – could play a significant role in the SA Government’s commitment to reduce GHG emissions.

5. Disclaimer

The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.