The evolution of carbon markets has been shaped by international climate agreements, with growing emphasis on market-based mechanisms to drive emissions reductions.
The Foundation of Carbon Markets
The journey began with the Kyoto Protocol, which introduced emissions trading as a tool for mitigating climate change. However, the Paris Agreement of 2015 redefined international cooperation through Article 6, allowing countries to trade carbon credits—referred to as Internationally Transferred Mitigation Outcomes (ITMOs). This framework promotes environmental integrity and safeguards against double counting, ensuring that traded credits reflect real and verifiable emissions reductions (UNFCCC, 2015).
Regional Carbon Markets
The European Union Emissions Trading System (EU ETS)
Around the world, regional carbon markets have evolved at different paces. The European Union Emissions Trading System (EU ETS), launched in 2005, remains the largest and most established carbon market, covering nearly 40% of EU greenhouse gas emissions. Despite challenges, the system has demonstrated resilience, with carbon prices hitting record highs of €100 per tonne in 2023. This has significantly contributed to emissions reductions, particularly in the power sector (European Commission, 2023).
China’s National Emissions Trading Scheme
Meanwhile, emerging economies are establishing their own carbon trading mechanisms. China, for instance, introduced its national emissions trading scheme in 2021, initially targeting the power sector but with ambitions to expand across industries. Today, it represents the largest carbon market by emissions coverage, although price signals remain lower compared to the EU ETS (World Bank, 2022).
The Potential for Africa’s Carbon Market
For Africa, carbon markets present both opportunities and complexities. The African Carbon Markets Initiative (ACMI), launched at COP27, seeks to generate 300 million carbon credits annually by 2030, with an estimated revenue potential of $6 billion. However, ensuring equitable benefit-sharing and maintaining credit quality are crucial challenges that must be addressed for these markets to thrive (ACMI, 2023).
South Africa’s Carbon Market Landscape
South Africa’s carbon tax system, introduced in 2019, allows businesses to offset part of their tax liability through carbon credits. The anticipated development of a domestic carbon market could provide local businesses with new avenues to trade credits and potentially integrate with international markets. Such linkages could unlock investment opportunities and accelerate the country’s decarbonisation efforts (National Treasury, 2022).
Challenges and Considerations
Yet, challenges persist in aligning diverse carbon markets. Standardising methodologies for measuring, reporting, and verifying emissions reductions remains a global hurdle. Questions around the additionality and permanence of carbon credits also need to be resolved to ensure market credibility and long-term impact.
Conclusion
As carbon markets continue to evolve, South Africa has the opportunity to shape its approach by learning from global best practices while ensuring that its carbon market drives real emissions reductions, economic growth, and social equity. The road ahead requires robust policy frameworks, transparent governance, and active participation from businesses and civil society to make carbon markets a viable tool for climate action.
Reference list:
1. African Carbon Markets Initiative (ACMI). (2023). Harnessing Carbon Markets for Africa.
2. European Commission. (2023). EU Emissions Trading System State of the Market Report.
3. National Treasury of South Africa. (2022). Carbon Tax Policy Paper.
4. UNFCCC. (2015). The Paris Agreement.
5. World Bank. (2022). State and Trends of Carbon Pricing 2022.
Contact Us
VUKA is the trusted media partner to key professionals, policy makers, suppliers and
manufacturers. We provide unparalleled opportunities for industry-wide connection.