Carbon exchange is a hot and sometimes controversial topic, but understanding what it entails along with its risks, opportunities, and challenges is essential.
We interviewed Nicholas Rowley, founder of Green Asset Exchange, who provided insights into the world of carbon credit trading and its potential to drive climate solutions.
What is a carbon credit exchange?
Historically carbon credits were traded OTC but due to this information on pricing and volumes were hard to come by and brokers were taking a huge percentage of the credits and thus less revenue was going to the projects, transactions were also complicated and had counter party risks.
What are the risks?
Risks in carbon trading range from counterparty risk, corruption risks, regulation and policy risks, price fluctuations and liquidity issues, Project, and issuance risks such as methodology changes and double accounting, and political and legal enforcement issues. Many of these risks are mitigated by ensuring robust carbon frameworks and adopting international standards with world class registry and trading infrastructure.
South Africa is one of the few countries that have implemented a carbon tax on emissions which began in 2019 and will be rolled out in phases including more industries and decreasing allowances. South Africa allows the use of carbon credits instead of paying the tax, so if a carbon credit is below the tax rate a company can buy it to use it to offset its emissions rather than pay the tax.
The government has mandated the carbon tax rate to 2030, assuring project developers of pricing. There is currently a shortfall of millions of credits for the South African system and as the carbon price rises more types of carbon projects become financially feasible.
Carbon finance presents a powerful mechanism for accelerating the energy transition, particularly in developing economies. South Africa’s carbon tax provides a model that other African countries could consider when designing frameworks to stimulate demand for carbon credits. Such frameworks not only drive emissions reductions but also create financial support structures for renewable energy and mitigation projects that often face high capital costs in the region.
One notable approach involves using carbon credits to subsidize renewable initiatives, addressing the funding gap and making projects financially feasible. Banks can also contribute by purchasing or underwriting carbon credits, enabling projects to secure equity, which is critical for accessing debt and scaling climate solutions.
In South Africa, carbon credit trading is increasingly accessible through platforms such as ours, and other environmental attributes such as registries like zaREC (the South African Renewable Energy Certificate registry), which help standardize and improve transparency in the market. The use of grouped projects, such as solar initiatives that generate credits, is growing, offering a replicable model for other African nations to implement. In my work, I have seen promising results from biochar sequestration projects and sustainable land use practices. A pilot biochar project in South Africa, for example, aims to sequester carbon from non-native tree biomass, aligning with reforestation and emissions reduction goals. South Africa has over ten million hectares of non-indigenous trees which are legislated to be removed, not many countries have this kind of biomass potential.
Innovative projects like these, supported by incentives such as accelerated tax depreciation for solar PV, and the 12Ba in South Africa, demonstrate that Africa can combine carbon finance and regulatory frameworks to unlock scalable climate solutions. By aligning economic incentives with environmental goals, carbon finance offers a pathway to resilience and sustainability on the continent.
The success of the South African carbon tax framework sets an example particularly for the rest of Africa, to reduce emissions and stimulate local carbon markets, ensuring taxes are paid locally and not at trade borders such as CBAM, and we are very proud to have developed the registry and trading infrastructure for any country to easily white label and use.
The voluntary system, although important, runs the risk of not stimulating the market fast enough and is unable on its own to address the scale of deployment of capital which is needed. Innovative tax systems such as South Africa’s allowing for voluntary credits locally developed to be included in compliance markets further unlock the scale we need. It should not be hard to convince countries to introduce further taxes, and if this were a budgetary crisis the government would just print more money and inflate our way out of the trouble. Currently, this supply of money has led to further unsustainable consumption, but what if we included the carbon price in everything and printed more money for deployment into climate solutions, adaption and deployment into areas of the economy which would avoid what would surely be the biggest and irreversible financial crises, the collapse of our ecosystems?
