The Benefits of Carbon Credits for the Real Estate Industry in South Africa
The real estate industry in South Africa can leverage carbon credits to not only meet sustainability goals but also generate additional revenue. This article explores how property owners can benefit from carbon credits, with a focus on their potential in the context of the evolving Carbon Tax Act* and Carbon Budgets regulations.
It also clarifies the distinction between carbon credits and renewable energy certificates (RECs).
What Are Carbon Credits?
Carbon credits are tradeable certificates representing one ton of CO₂ emissions reduced, avoided, or sequestered. Property owners earn these credits by implementing energy-efficient measures or renewable energy systems (e.g., solar or wind). Carbon credits can be sold in voluntary or compliance markets, offering a revenue stream for emissions reductions.
Distinguishing Carbon Credits from Renewable Energy Certificates (RECs)
While carbon credits represent reductions in greenhouse gas emissions, renewable energy certificates (RECs) verify the generation of renewable energy. In other words, RECs certify that a certain amount of energy was generated from renewable sources, such as solar, whereas carbon credits are generated from the reductions in CO₂ emissions associated with that energy generation.
Benefits of Carbon Credits for Real Estate
1. Revenue Generation
By adopting energy-efficient technologies or installing renewable energy systems like solar, property owners can generate carbon credits. These credits can be sold to companies needing to offset their emissions, creating an additional revenue stream.
2. Carbon Tax Act Compliance
The Carbon Tax Act (No. 15 of 2019) imposes a tax on businesses that emit greenhouse gases. By earning and selling carbon credits, property owners can reduce their taxable emissions, effectively lowering their carbon tax liabilities. In 2025 eligible companies will be required to pay R236/tonne carbon dioxide equivalent.
3. Carbon Budgets and Regulatory Compliance
South Africa’s Carbon Budgets, part of the National Climate Change Response Policy, require entities to reduce their emissions over time. Generating carbon credits helps developers meet these targets, contributing to compliance with national climate goals. The carbon offset allowance provides flexibility to firms to reduce their carbon tax liability by either 5 or 10 per cent of their total GHG emissions through investment in projects that reduce their emissions outside their taxable activities.
Retrospective Application of Carbon Credits
A significant benefit is the retrospective application of carbon credits. South African property owners can claim carbon credits for renewable energy systems or energy-efficiency projects that were implemented as far back as 15 September 2022, unlocking additional revenue for past investments.
Example: 1 MWP Solar Project
A 1 MWp solar project in South Africa can offset approximately 1,273 tons of CO₂ annually. For such a system, the potential revenue from carbon credits over the next seven years could look like this:
2024: 1,273 tons * ZAR 49.37 = ZAR 62,824
2025: 1,697 tons * ZAR 61.32 = ZAR 104,045
2026: 1,697 tons * ZAR 80.03 = ZAR 135,788
2027: 1,697 tons * ZAR 90.16 = ZAR 152,981
2028: 1,697 tons * ZAR 100.04 = ZAR 169,734
2029: 1,697 tons * ZAR 110.17 = ZAR 186,928
2030: 1,697 tons * ZAR 120.05 = ZAR 203,681
Total Revenue: ZAR 1,015,982
This example illustrates how solar projects can not only contribute to sustainability but also generate significant financial returns through carbon credits. These credits can even be claimed retroactively for systems installed before September 2022.
Conclusion
The real estate industry in South Africa stands to gain substantially from carbon credits, offering a sustainable revenue model while meeting regulatory requirements. The Carbon Tax Act further incentives emissions reduction, and the Carbon Budget system encourages compliance with national climate targets (Climate Change Act was promulgated in July 2024). By implementing renewable energy and energy-efficient measures, property owners can generate both financial returns and enhance their sustainability profile.
The ability to claim retrospective carbon credits further enhances the value of past investments, making carbon credits an attractive tool for real estate companies looking to stay ahead of the curve in sustainability and compliance.
*The Carbon Tax was introduced in June 2019 at a relatively modest headline rate of R120 / tonne carbon dioxide equivalent (t/CO2e). The Carbon Tax Act gives effect to the polluter-pays-principle and ensures firms and consumers take the negative adverse costs (externalities) into account in their future production, consumption and investment decisions.
