|
South Africa update
While its voluntary market has been small to date in comparison with other African nations, South Africa implemented a domestic carbon tax in 2019, which was coupled with offsetting eligibility. More often than not, domestic credits have flowed to this mechanism as demand outstrips supply, driving prices higher than internationally available. Moreover, with Article 6 frameworks under development, the experience and architecture from the carbon tax lays much of the foundations necessary to establish the mechanism.
As Article 6 is implemented this is not expected to cause disturbance to the operation of South Africa’s voluntary market, and a ban on credit exports is not foreseen. Article 6 development is at its early stages, and South Africa has chosen to observe the lessons of early adopters in these markets before entering.
For project proponents, land claims must be considered a risk given the socio-political history of South Africa but, to date, this has not impacted carbon projects. Actors must also be aware that a tax on carbon projects, be it either financial or by credit contribution, cannot be ruled out in the future.
Brazil update
While Brazil offers significant opportunities for investors and developers, its market dynamics are evolving. The enhancement of its NDC post-Bolsonaro, the operationalisation of its emissions trading system (ETS) and the establishment of Article 6 rules are all anticipated in the coming years as part of Brazil’s efforts to align and strengthen its climate policy.
Despite maintaining a generally positive stance towards the VCM, which will remain interoperable with other mechanisms, the potential approval and implementation of Brazil’s ETS could bring about a shift in its market dynamics. This would introduce additional demand, with entities expected to be allowed to offset as much as 20% of annual emissions, but may also impose new costs and administrative burdens for VCM developers selling into the ETS.
Article 6, which has received comparatively low attention thus far, is likely to gain increasing prominence in Brazil in the years to come. It will impact projects, necessitating, at a minimum, additional registration and authorisation processes, and will potentially involve credit carve-outs to contribute to Brazil's NDC.
Pressingly, ongoing debates between the federal and state-level governments on the ownership of jurisdictional REDD+ credits also need resolution to allow the legislative process to continue. As nature-based activities continue to be a major project type in Brazil, stakeholders should be wary of ongoing land disputes in Brazil's complex system.
Access Abatable's complete carbon market country profile and policy alert service here.
|
