South Africa’s carbon offset market is an evolving framework designed to help the country meet its climate goals by allowing companies to compensate for their greenhouse gas emissions via investments in emission-reducing projects. The market operates under two systems: the compliance market, driven by the national carbon tax, and the voluntary carbon market, where organisations offset emissions to meet sustainability commitments. For South African food and agribusinesses, this represents both a risk mitigation tool and a revenue diversification opportunity.
Carbon tax and South Africa’s carbon offset market
When South Africa implemented the Carbon Tax Act in 2019, the primary goal was to reduce national greenhouse gas (GHG) emissions in a fiscally responsible manner. The tax initially gave generous allowances—up to 60% in some cases—to protect economic competitiveness during the transition. However, these allowances were never intended to be permanent, and from 2026, they will be scaled back to 30%.
Additionally, the tax itself (currently set at ZAR 236 per tonne of CO₂ equivalent) is expected to increase steadily in the coming years. The National Treasury has signalled its intention to align the rate with international benchmarks over time, which could see it exceed ZAR 600/tonne by the end of the decade. For comparison, the European Union Emissions Trading System has traded above EUR 90 (approximately ZAR 1,800) per tonne in recent years.
For agribusinesses, the act includes an offset mechanism that allows firms to use certified carbon credits to reduce a portion of their tax liability. In practice, this has created a compliance carbon market where emitters can purchase and surrender carbon credits to save on taxes. The ceiling for offset use in certain categories, such as stationary combustion, will rise from 10% to 25%.
For heavy emitters in South Africa – notably in mining, petrochemicals, cement, and steel – abatement costs can be prohibitively high. Retrofitting old infrastructure or switching to low-carbon fuels often requires multi-year investments and complex permitting. Carbon offsets offer a near-term compliance strategy that can be scaled and diversified.
Opportunities for the agricultural sector
Globally, there is growing interest in carbon removals (sucking CO₂ out of the atmosphere) as opposed to just emission reductions. Forestry and agribusinesses are uniquely positioned in this space, as their operations naturally offer removal opportunities through sequestration-focused activities like planting trees. Though such operations are largely tax exempt, food processors, retailers and distributors further down the value chain may be subject to emissions taxes. This presents an opportunity for agribusinesses to use offsets to reduce downstream liabilities. Alternatively, they can create additional revenue streams by selling these offsets to more heavily taxed entities.
South Africa’s carbon offset programme accepts projects certified under established standards – notably the Clean Development Mechanism (CDM), Verra’s Verified Carbon Standard (VCS), and the Gold Standard. A domestic standard is also under development, but for now these international standards are used.
Challenges and opportunities
While South Africa’s carbon offset market presents tremendous opportunities for agribusinesses to enhance their bottom lines, turning these potential gains into reality is not straightforward, as several barriers remain.
The cost of measuring, reporting, and verifying emissions reductions (known as MRV) can be prohibitively high, especially for smallholder farmers. Complex technical requirements and significant upfront investments often push smaller participants to the sidelines, limiting the inclusivity and scale of the market. Collaborating with carbon project developers and aggregators can help mitigate and distribute these costs and provide technical support for project registration, validation, and issuance of credits. This will make it more viable for small and medium sized enterprises to participate.
Price volatility and growing buyer scrutiny present further challenges. Businesses purchasing credits are increasingly demanding high-quality, rigorously verified projects with clear co-benefits like biodiversity or community development. This trend toward high-integrity offsets requires meticulous project design and robust validation processes. Falling short on either can jeopardise market access and credibility.
Adding to this uncertainty, evolving policy frameworks, including South Africa’s new Climate Change Act and ongoing international negotiations around Article 6, could reshape credit eligibility or market dynamics. Businesses investing heavily now may find their revenues adversely affected by new requirements in the years to come. Similarly, the lack of a stable, long-term carbon price signal can inhibit investment. For instance, in Canada and parts of the EU, clear price trajectories and government-backed minimum prices have encouraged participation. South Africa could follow suit by offering forward price guidance or implementing floor prices within its offset framework to increase confidence in future credit values.
Despite these challenges, momentum is building. Innovations like digital MRV tools are drastically reducing verification costs, while blended finance mechanisms are opening new avenues for land restoration projects. Moreover, corporate “insetting” initiatives are encouraging companies to fund carbon projects within their own supply chains, helping farmers secure stable buyers and better prices.
Agribusinesses that act early and build strong, verifiable carbon projects can unlock new revenue streams while positioning themselves as climate leaders in an increasingly ESG-driven food economy.
The future of South Africa’s carbon offset market
By linking pollution costs with land-based solutions, South Africa is creating a progressive economic framework where climate policy and rural development can advance in tandem. The carbon offset market represents a powerful lever for South African agribusinesses to diversify their income streams and enhance their sustainability credentials. Whether generating credits from regenerative practices or using them to manage carbon liabilities, South Africa’s carbon offset market offers substantial opportunities for local agribusinesses to innovate and grow.
At Farrelly Mitchell, we are committed to the development of sustainable and renewable energy solutions in South Africa and across the world. With deep expertise in sustainability, clean energy, and agribusiness management, we help clients to identify and capture carbon credit opportunities, build high-integrity projects, and successfully leverage these emerging frameworks to drive both profitability and positive environmental impact. If your agribusiness is looking to explore the potential of carbon offsets, better manage your climate risks, or simply understand how this evolving market can support your strategic goals, contact us today.
