JOHANNESBURG (miningweekly.com) – Carbon offsets can connect mining competitiveness with rural development, The African Stove Company (TASC) commercial director Dr Storm Patel highlighted at the launch of Mineral Council South Africa’s inaugural Climate Change Day of Learning, attended by public and private sector climate mitigation protagonists.

By buying South African credits, mines can reduce part of their carbon tax cost while helping finance land restoration, rural jobs and farmer incomes.

This is not a substitute for cutting emissions at the mine; it is a complementary tool that gives industry a financial reason to invest in climate action beyond the mine gate.

In introducing TASC at the climate day, Minerals Council South Africa senior climate specialist Shalendra Subramoney spoke of carbon offsets needing to form part of a broader portfolio approach to decarbonisation, alongside direct emissions reduction interventions such as renewable energy and energy efficiency, amid mining companies also having to face hard-to-abate or residual emissions that cut across Scope 3 value chains, where there are limited mitigation options.

That makes it important to understand where carbon offsets can complement direct abatement as part of a wider decarbonisation approach. 

There is an increasingly momentous commercial dimension across carbon offsets and carbon trading.

Offsets can help qualifying companies reduce their carbon tax liability, and this is very important given South Africa’s gazetted carbon prices and given that the carbon tax rate will escalate in around 2030, Subramoney pointed out at the event covered by Mining Weekly.

Carbon markets can also create opportunities to develop carbon projects and generate value, or allow companies to access new value pools by selling into the domestic market or into emerging voluntary global markets under Article 6 of the Paris Agreement.

Through climate change observatory pilot work done with member companies, the Minerals Council has been able to gauge that carbon offsets are not yet as widely used as they should be.

Interestingly, the mission of TASC is to finance and develop high-impact climate mitigation projects. The Southern African carbon finance and project developer combats climate change while empowering communities through a portion of the revenue from climate mitigation projects being reinvested to support local well-being and sustainability initiatives. It has issued 12.4-million carbon credits to date and created more than 700 local jobs.

TASC has 1.2-million hectares benefiting from its regenerative grass management projects. These are not on mining land. Where they link into South Africa's mining sector is through the carbon offset allowance of South Africa’s Carbon Tax Act, which permits companies to surrender carbon offsets for a portion of their emissions – 15% for combustion emissions and 10% for process and fugitive emissions.

“This is an amazing initiative by the South African government to incentivise emission reductions and sustainable development to flow to sectors that are not covered under the Carbon Tax Act, such as certain agricultural activities,” Patel pointed out.

In South Africa, TASC is developing a grassland restoration project with local herding communities. This covers 604 780 ha of communal land and 352 218 ha of private farmland under management. In Uganda, a project to improve safe water systems through the distribution of 30 000 ceramic water filters is being implemented.

Patel’s view is that carbon markets often sound more complicated than they are. At their core, they are a way of measuring an emission reduction, verifying that it actually happened and directing money towards that activity so it can continue and grow.

“We develop projects that make carbon offsets. We were established in 2019, largely in response to the carbon tax regulations, and in six years, we've grown into a carbon project developer.

“We're an end-to-end project developer, so we take it from conceptual idea all the way through to implementation and to commercialising and selling the final credit,” Patel explained.

Around 700 000 ha on which it is active is land held and used collectively by a community, and about 500 000 ha is private commercial land.

These two different types of land categories require different approaches, with TASC’s grass project catering for both.

A sustainable market mechanism is a way of using a market to pay for a good environmental outcome. Instead of prescribing exactly what everybody must do, a price is placed on the outcome, with the market finding the cheapest way to deliver and carbon offsets are one of those mechanisms.

A renewable energy certificate (REC) is in the same category. The fundamental principle around this is that some activities produce two things at once: the aspect that one can see and use, and the benefit to the environment that one cannot always see, and those two things can be separated out, and the environmental benefit can be sold on separately to an activity that generated it.

Take a solar farm. If one has a solar farm, power flows into the grid, those green electrons conceptually mix with fossil-based electricity. Once in the transmission wires, one canot distinguish whether that electron came from something green or from a fossil fuel. Every unit of clean power the solar farm provides gets a certificate that states the number of megawatt hours of clean energy generated. One can visualise it as being like a receipt that says this is how much clean energy was generated.

A factory that wants to run on clean energy, but is located way too far away from where it makes sense to establish a solar installation, will then just continue to buy electricity from the grid and receive a renewable energy certificate to match its power consumption. This market mechanism enables companies to invest in renewables.

Carbon offsets work in a similar way. For example, a project that swops out smoky open fires for an efficient cook stove, allows families to cook more cleanly, with less carbon going into the air. Such a carbon reduction is measured and checked, and then turned into a credit.

Some emissions are not able to be reduced where, for example, there is no commercially viable electric or hydrogen-powered mobility available to replace, say, long-haul diesel-powered mining trucks that move rock out of a pit. In such cases, carbon offset credits can be bought to balance out the emissions that are currently not reduceable.

So, RECs and offsets are underpinned by that same idea. Both are tradable environmental attribute certificates that separate the green claim from the underlying activity that generated that green claim, and that is what is bought and sold separately.

"Put simply, the good thing happens in one place, and the credit then travels to where it's needed,” Patel told the Climate Change Day of Learning audience.

How this becomes a market starts with the rules. A carbon credit is not something that one can just simply declare. Its structured rules are surrounded by auditing requirements.

Moreover, carbon credits have to be obtained step by step. They begin with a methodology that sets out what must be done, how the carbon is measured, and proof of reduction. It has to be approved by an international standard, such as the Paris Agreement crediting mechanism (PACM). The feasibility that follows focuses on contextual success. If the community is not on board a specifically community-based project, then there is no project.

The next step is matching the economics to a market mechanism that is funded through capital raised from private equity investors, financial institutions and banks and must make bottom-line sense.

Detailed financial models then give rise to a project design document (PDD). The PDD can be hundreds of pages long and an independent auditor checks it for correct interpretation ahead of giving implementation approval, which is when the real work begins and results measured.

Finally, another auditor checks against that implementation plan and only then is a credit issued with its own individual serial number on a public registry to safeguard that the credit can be sold only once.

A single credit can take years of work and several independent checks before it exists and once the credit is generated, there are three main markets with the the credit remaining the same in each.

In the voluntary market, companies are buying the credit to back their own net-zero plans and climate claims.

In the compliance market, South Africa’s Carbon Tax Act taxpayers can retire eligible offsets to reduce their tax bill.

Then, finally, there is Article 6, a market that is only really materialising now and which is where countries can trade with each other under the rules of the Paris Agreement.

“In South Africa, when government introduced the carbon tax, it did something really forward-thinking in saying that companies can use offsets to cover part of their tax bill. This is smart for two reasons. Firstly, it sends money to parts of the economy that the tax doesn't reach, such as certain farming activities, household energy efficiency, waste. Cutting emissions there can be very cost-effective and also really good for communities. But nobody is being taxed to make that happen, and this carbon offset allowance changes that. Second, it gives companies a very practical way to bring down their tax bill through 15% of combustion emissions, 10% of process and fugitive emissions,” Patel explained.

Exemplified was a mining company that has 100 000 t of taxable greenhouse gas emissions a year, 40 000 t of those emissions coming from burning fuel and 60 000 t of those emissions coming from process and fugitive emissions. Together, that makes up for an offset allowance, giving the company a simple choice of paying the full tax rate or buying offsets for less than the tax rate.

Exemplified was a saving R2.3-million on a bottom line tax bill in a 'use it or lose it' scenario, with allowance roll overs disallowed. By making use of the opportunity, companies save money, South Africa’s climate goals move faster, and communities benefit.

The third Article 6 market is one that is about to change the picture for South Africa. Under Article 6 countries can trade these emission reductions and count them towards their nationally determined contributions (NDCs).

Moreover, with Article 6.2 of the Paris Agreement specifically talking about country-to-country emissions trading, two countries, South Africa and Singapore, for example, could agree a bilateral deal. The host country, South Africa, would then authorise a project's reductions for transfer.

So far, the biggest buyers of these internationally transferred mitigation outcome (ITMO) units are Japan, Singapore, South Korea and Switzerland and at the moment, this ITMO area is descried as being “extremely active”.

In addition there is Article 6.4, a United Nations-run route of the Paris Agreement’s crediting mechanism. Under this, the centralised United Nations organisation facilitates the issuance of the carbon credits. Key under Article 6 is that if South Africa sells to another country, it can no longer count it towards its NDC.

Once in place, which is expected soon, Article 6 will provide South Africa with the added option of a second international buyer for its credits, and that buyer might be willing to pay more than the carbon tax price.

GRASSLAND RESTORATION

Showcased was the grassland restoration and stewardship project taking place in South Africa, through which TASC works with cattle, sheep and goat farmers across a sector the carbon tax does not yet reach.

The project is taking place against the backdrop of a considerable expanse of South Africa’s grasslands being degraded by unmanaged grazing, which makes South Africa’s rangelands very vulnerable through loss of biodiversity and loss of palatable forage for cattle. But without an incentive, there has been very little reason for farmers to change how that land is managed.

Also, while communal farmers own up to half of the livestock in the country, they only have around 9% of the market access because they struggle to get their rural region animals into remote formal meat markets.

This is where the benefit of carbon finance comes in. If the land can be better managed, more carbon dioxide can be extracted from the atmosphere and stored in soil. By measuring how much of that carbon has been sequestered or sunk into the soil, evidence of that can be turned into credits that can be sold to fund these activities.

To incentivise farmers to implement regenerative practices, training is provided and financial incentive created by sharing directly with the communities the revenue from the sale of those carbon credits.

Although TASC registered its grass project in 2023, it only had its first carbon credit issuance in January this year. As a consequence, it had to come up with a way of incentivising the farmers to adopt these behaviours without the carbon revenue.

“This is where our project is really unique, because farmers who reach specific milestones in their regenerative practices get access to veterinary services, so they have healthier animals, and we bring the market to them, and by that I mean we bring mobile meat auctions to the rural communities, mobile sheep sharing services, and the revenue that comes from those market access opportunities goes entirely to the communities, who don’t form part of the revenue that comes into the carbon project.

“We developed this project alongside a fantastic, amazing implementation partner called Meat Naturally. They're a farmer-owned social enterprise. They've got decades of trust in this landscape, and with Meat Naturally support, the grazing associations budget their own expenses, decide who to employ, how to run their land.

“The project investments, the budget for eco-ranger salaries, fire management, vet care equipment. It sits with the communities who are then owners of the project, not just the beneficiaries.

“We’re tagging 178 communal grazing associations that have signed up to this programme, and 145 commercial farms, and this is taking place over 1.2-million hectares. We aim to have two-million hectares under management by 2030.

“The grassland restoration and stewardship project itself was the first project in the world to be registered under Verra's VM42 carbon credit methodology. We also have what is called climate, community, and biodiversity (CCB), which is an additional layer of indicators that we monitor,” Patel explained at the Minerals Council Climate Change Day, covered by Mining Weekly.

From a buyer's perspective, why the extra CCB label is significant is because to earn it, documented evidence must be provided to show the carbon benefit gains for people living on the land, as well as for nature.

For any company whose climate changes are being scrutinised, this is also another level of assurance.

The carbon side of CCB is mainly soil organic carbon. Also monitored is methane reduction from livestock. Healthier cows release less methane. Fire management is implemented to ensure that there are fewer wildfire emissions. But the main contribution is carbon dioxide removal.