South Africa has announced an increase in the allowable use of carbon offsets under its tax system, a move expected to stimulate the country’s domestic carbon market. The changes, set to take effect in 2026 as part of the second phase of the carbon tax, were outlined in the national budget released on 12 March.
A close-up of a tree nursery worker planting a seedling in rich South African soil, with a vibrant forest in the background. AI generated picture.
The updated measures will allow companies to use carbon offsets for a greater portion of their emissions obligations. For industrial processes and fugitive emissions, the threshold will rise from 5% to 10%, while for combustion emissions—such as those from transport—it will increase from 10% to 15%. This adjustment is lower than the initial proposals from last year’s discussion document, which suggested even higher allowances.
Despite speculation that South Africa might allow international carbon credits to be used for compliance, the government confirmed that only domestically generated credits will qualify. The move reinforces the country’s commitment to developing its local carbon market.
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The government’s decision to increase offset use acknowledges a shortage of domestic carbon credits, according to industry observers. By allowing a higher percentage of emissions to be covered by offsets, the new measures are expected to drive investment in local carbon projects, providing much-needed liquidity to a market that has been relatively stagnant in recent months.
TASC, a South African project developer specialising in cookstoves and nature-based solutions, welcomed the changes, noting they provide ‘market certainty’ and should encourage further project development.
‘With greater clarity and market confidence owing to increased pricing transparency, South Africa is well-placed to attract international capital and accelerate the transition to a low-carbon economy’, said Storm Patel, Commercial Director at TASC.
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South African companies that are subject to carbon tax use the Carbon Offset Administration System (COAS) to manage their emissions liabilities. Currently, only three standards are recognised for eligible offsets: the Clean Development Mechanism (CDM), Verra’s Verified Carbon Standard (VCS), and the Gold Standard.
Ahead of the budget announcement, COAS credit prices were assessed at $9 per tonne by Quantum on 11 March. The latest policy adjustments could influence these prices further, depending on how quickly new projects come online to meet demand.
Additionally, the government confirmed that offsets from projects approved before the introduction of the carbon tax will remain valid for use until 31 December 2028.
The broader carbon tax structure remains unchanged, with levies set to rise steadily from $10 (ZAR190) per tonne of CO₂ equivalent in 2024 to $25 (ZAR462) per tonne by 2030. According to Izak Swart, Director of Africa Tax and Legal at Deloitte, ‘These [overall levies] are certain and unlikely to change in the future.’
With these latest revisions, South Africa is reinforcing its carbon pricing strategy while ensuring that domestic project developers benefit from the rising demand for offsets. As the market adjusts, investors and businesses will be closely watching how these changes shape the country’s transition to a lower-carbon economy.
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