73% of CTO Supply from N2O Abatement Projects

Most of the carbon tax offsets (CTOs) listed for previous tax periods originated from Nitrous Oxide (N2O) Abatement projects. As these projects will not be eligible in Phase II of the carbon tax (2023), there will be a significant reduction in the future supply of CTOs, already constrained by a dwindling historic supply and the uncertainty regarding the future of CTO projects. With a reduced supply, opportunities for new local CTO projects abound.

EcoMetrix Africa’s carbon tax offset (CTO) market analysis shows that the majority (73%) of the total CER and VER cancellation for CTO utilisation of 8,025,086 million tonnes of carbon dioxide equivalent (CO2-e) listed on Carbon Offset Administration System (COAS) for the 2019 and 2020 tax periods, originated from Nitrous Oxide (N2O) Abatement projects under the Clean Development Mechanism (CDM).

N2O Abatement projects, like the Sasol Nitrous Oxide Abatement project, converts N2O into harmless gases to reduce emissions. In Phase I of the carbon tax (2019 – 2022), these projects could generate Certified Emissions Reduction (CER) certificates to sell to other companies as CTOs. These projects are no longer eligible in Phase II of the carbon tax (2023 – 2027), as these industries now fall within the carbon tax net.

Without these projects generating carbon credits, the future supply of CTOs will be severely affected. This supply is already constrained by the almost-depleted supply of historic credits, and the uncertainty regarding the future of CDM projects, and the CDM itself.

With a reduced supply of CTOs, opportunities for new local CTO projects abound, particularly in the transport and energy efficiency sectors and Nature Based Solutions (NBS). Opportunities also exist in the gas, renewable energy and waste sectors, where the balance of the 2019 and 2020 CTO supply was generated by CTO projects such as landfill gas (19%); renewable energy (3%); energy efficiency (3%), waste (2%) and fuel switch (<1%).

An independent local carbon standard, and extending the scope of eligible projects to Southern Africa, will certainly benefit the development of the local CTO market.

To speak to one of our partners, please email Lodewijk.Nell@ecometrix.co.za or Henk.Sa@ecometrix.co.za.