Business Day announced yesterday that South Africa would be putting on the market carbon credits, whose sale could bring in R250 million ($31 million) into the state budget. The Department of Environmental Affairs plans to use the revenue from these sales to fund the restoration of damaged agricultural and conservation areas.
The government is determined to take advantage of the carbon market in order to bridge the gap in its state budget needed to restore landscapes and rebuild the country’s ecological resources. It is estimated that South Africa will need to spend R57 billion to achieve its goal. The current budget in place R1.8 billion.
To raise more money, DEA officials claim they are directing state investments into projects such as the Eastern Cape Parks and Tourism Agency initiative to replenish close to 1.4 million hectares of spekboom – a type of thicket with a high carbon sequestration capacity, which used to be seen in abundance in the Eastern Cape area.
In a paper by Anthony J. Mills and Richard M. Cowling, research professors at Nelson Mandela Metropolitan University, the scientists estimate that the “ecosystem carbon storage in intact thicket in the Eastern Cape, South Africa exceeds 20 kg/m2, which is an unusually large amount for a semiarid ecosystem.” Therefore, the spekboom restoration project will also help South Africa reach its GHG reduction goals. The government had committed to reducing its toxic gas emissions by 34 per cent by 2020, upping that goal to 42 per cent by 2025.
According to Christo Marais, manager of the Department of Environmental Affairs’ natural resource management programs, in the period between 2010 and 2011, the government spent R24 million on the spekboom project, with an additional R18 million already set aside for the upcoming fiscal year. Through its carbon sequestration capacity, the project is expected to generate carbon credits, which will then be put up for sale on the open market.
Two voluntary carbon standards have already evaluated and approved the initiative. The Verified Carbon Standard (VCS) and the Climate, Community and Biodiversity Alliance (CCBA) have added the project to their registries, which means the initiative has proven that it is effectively sequestering carbon dioxide.
VCS is perhaps the most widely used quality assurance third-party entity for offset projects on the voluntary carbon market. It also holds about one-third of all carbon credits transacted. CCBA, on the other hand, is a partnership, which includes research institutions and non-government organisations. As its name implies, the standard seeks to
“promote integrated solutions to land management around the world … and identify land management activities that simultaneously minimize climate change, support sustainable development and conserve biodiversity.”
Both of the above standards have the goal to employ market mechanisms as a way of driving industrial and commercial processes in the direction of low emissions or less carbon intensive business processes.
They also evaluate projects on the basis of “additionality” and “leakage.” Additionality means that the project cannot sustain itself financially without the revenue from carbon credits. Leakage refers to the probability that, as a result of the offset project, GHG emissions would occur in a different area. Offset projects have to prove that they have no leakage potential before they are awarded verified carbon credits.
South Africa’s strategic investment can be an example of how governments can direct taxpayer money into investments, which not only help the environment, but also contribute to the state budget.
So far, governments have focused on green initiatives that only pull money away from the state budget and rarely bring in direct financial benefits to the government. Usually, state funds are placed in consumer hands in the form of incentives. The UK feed-in tariff system is a perfect example for that. Qualified households that install rooftop solar panels enter an agreement with the government that the excess electricity produced by the panels will be bought back and merged with the grid at a certain price. The agreement is for 25 years after the initial installation.
Another way that governments have invested in green projects is by using taxpayer money to subsidise corporations, which operate in the green sector. The latest case that comes to mind is the loan the U.S. government paid to Solyndra, a California-based solar panel company. The corporation recently filed for bankruptcy, drowning along the way over $500 million of taxpayer money.
Rarely do governments employ an entrepreneurial business mindset when it comes to achieving their emission reductions goals, be it voluntary or compliance, while also utilising the green potential of state-owned resources.
South Africa saw the opportunity to be its own venture capitalist and project manager at the same time, and it gladly took it. The government realised that restoring the country’s ecosystem and landscapes can contribute to its GHG reduction goals, and it decided to cash in on it, too.
Forests, being dubbed “the lungs of the Earth,” are the most obvious choice when it comes to engaging state money. According to estimates by the 2009 World Forestry Congress, about 86 per cent of the 3.9 billion hectares of the Earth’s forests are publicly owned. Aggregate statistical analyses of forest data further indicates that private forests provide more market based goods such as timber for industrial purposes. Public forests, on the other hand, produce more fuel wood.
Governments worldwide should see their forests as more than just sources of timber and conservation areas, but also as potential reforestation projects, which can be carried out by money brought in from carbon credit sales. This innovative business model will benefit the public funds, create more jobs and, at the same time, spare taxpayer money, which can be allocated to other public services. Not to mention that now, with more governments facing serious challenges with managing state deficit, this new approach can be quite beneficial.
Another way governments can benefit from carbon credit sales is by providing state-owned land to privately operated offset projects. The U.S. Commonwealth of Massachusetts and Chile have already adopted a similar approach. They have lent public land to companies, which are developing renewable energy installations. If the offset projects happen to make and sell carbon credits, part of the proceeds can go straight into the state budget.
Green investments have long been viewed as burdens on national budgets. And understandably so. Tariffs, loans, tax breaks and other existing incentives simply deplete government funds. Perhaps the most commonly used practice for actually brining in money is employing the method of the stick rather than carrot by taxing polluting industries. As more and more companies turn to carbon-reducing technologies, however, this method would become less effective in bringing in revenue. Therefore, with all available natural resources, world governments should seek creative, yet eco-friendly, ways to enrich their state budgets.