With growing concern over climate change and its effects, governments worldwide need to agree on a solution that incentivises businesses to cut down on their carbon emissions. Governments worldwide agreed to set up a structure to reduce or prevent excess carbon emissions – this structure gave rise to carbon offset projects. Successful & approved offset projects have the capability of issuing carbon credits, which we will get into later in this blog. From a South African perspective, when a business is unable to reduce their carbon emissions, our government allows it to offset their emissions via credits for tax purposes.
First off, let’s understand what carbon credits are.
Simply put, carbon credits are tradable certificates that represent one metric tonne of carbon emissions reduced. A company that cannot reduce its carbon emissions due to its operational process can use carbon credits to offset the amount of carbon it creates. On the other hand, if a company does reduce its carbon emissions and has extra carbon credits, it can sell those carbon credits for extra capital.
However, it’s important to note that the value of carbon credits is not set in stone – their value is influenced by factors such as where the project is, what the purpose of the project is and when it was performed. So even though carbon credits are a complex, generally difficult-to-understand topic, it remains a helpful initiative for businesses to offset their emissions and reach their environmental goals.
Now, let’s view carbon credits from a South African perspective.
In the South African market, 1 kWh of electricity has an equivalent of 1.06 kgCO2e. This means that by generation through solar, this emission can be mitigated whilst still producing the equivalent electricity. When a business switches to solar energy, it directly reduces its greenhouse gas emissions because solar power generation does not produce carbon dioxide (CO2) or other greenhouse gases. This reduction in emissions can be considered as a form of emission mitigation.
Additionally, solar energy projects generate solar renewable energy credits (SRECs) or carbon credits as a byproduct of their clean energy generation. These credits represent the environmental benefits of producing electricity from renewable sources like solar. While the business may not necessarily need to offset any emissions with these carbon credits because they’ve already reduced their emissions by using solar energy, they can still generate and potentially sell these credits on the carbon market.
So, by switching to solar, a business can both directly mitigate its emissions through clean energy generation and potentially generate additional revenue by selling the carbon credits it earns from its solar projects. This dual benefit supports the business’s sustainability efforts while also contributing to broader climate change mitigation goals.
In South Africa and Africa more broadly, there is currently more demand for carbon credits than supply. However, developers face regulatory and cost uncertainties, which can hinder the development of decarbonisation projects.
Ultimately, understanding carbon credits from a South African perspective requires navigating a complex landscape of regulations, market dynamics, and environmental considerations. Nonetheless, with the right knowledge and tools, businesses can leverage carbon credits to reduce their carbon footprint and contribute to a more sustainable future.
Contact Broadreach Energy for more information.
Sources:
1. Wharton, et al. (n.d.). Carbon Finance Playbook. Published by: USAID.
2. BusinessTech. (2023). Carbon credits and renewable certificates – what South Africa’s new trade platform means. Retrieved from https://businesstech.co.za/news/finance/730397/carbon-credits-and-renewable-certificates-what-south-africas-new-trade-platform-means/
3. PV Consulting. (n.d.). Carbon Credits. Retrieved from https://www.pvconsult.co.za/carbon-credits/
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