Britain will expand funding for a programme to help coal-rich South Africa develop a carbon trading market in an attempt to rein in its rising greenhouse gas emissions.
The British High Commission in Pretoria last week said it will fund a pilot emissions trading programme from next year to help companies prepare for a 120-rand-per-tonne ($11.21) carbon tax that is expected to come into force in 2016.
The value of the grant was not disclosed.
The launch of South African's carbon tax, which would apply to major emitters including steel giant ArcelorMittal, utility Eskom [ESCJ.UL] and petrochemical group Sasol, was delayed by one year to allow more time for planning and consultation with stakeholders.
The South African government earlier this year said major emitters will be allowed to use carbon offsets, which could be generated by investment in domestic or possibly regional clean energy sources, to help meet their tax obligations.
The British High Commission's grant, awarded through its Prosperity Fund, will for a second time go to Johannesburg-based Promethium Carbon.
"Funding from the Prosperity Fund will assist to fast track the development of a local carbon trading system in preparation for the carbon tax," said Robbie Louw, a director at Promethium.
Promethium was first selected by the Commission to carry out a 2013 preliminary study as to whether a carbon offset market could complement the tax and help ease costs for industry.
Promethium said the first phase of the study found such a market could function, so a second phase, expected to conclude next February, will focus on how to start trade and on launching a pilot market on the Johannesburg Stock Exchange from 2015.
Promethium estimates South African offsets could reach prices of around 80-100 rand ($7.48-$9.35) per tonne in the first couple of years of the market's existence – or nearly 20 times the value of credits offsets in the U.N. carbon market, the world's largest and most liquid.
More than 80 percent of South Africa's soaring greenhouse gas emissions come from its energy sector, which is heavily reliant on coal – one of the country's major exports.
Expected to be phased in over time, the country's carbon tax is one of several initiatives, including a biofuels production incentive and higher vehicle emission taxes, which South Africa wants to launch to help reduce its growing carbon footprint.