As the global community intensifies its fight against climate change, Africa is emerging as a key player in the global carbon markets. While still in the nascent stages, the continent’s engagement with carbon trading is growing, driven by innovative initiatives and a burgeoning recognition of the economic and environmental benefits.

According to the African Development Bank Group, carbon markets encompass a diverse set of systems regulated across different jurisdictions for trading greenhouse gas pollution rights. These rights – called allowances or permits – are globally traded commodities and give the bearer the right to emit an equivalent amount of CO2 emissions.

“Carbon markets offer an alternative mechanism to finance key projects shifting dependence from foreign aid. With the right institutional guardrails and planning this market can be the catalyst for mobilising climate finance from both domestic and international sources” says Wangui Kaniaru, Partner, ALN Kenya (ALN firm in Kenya)

According to a publication by Policy Center, titled Potential or Peril: Carbon Trading in Africa, are generated from avoiding, reducing, or removing greenhouse gas emissions. This can be achieved through switching from fossil fuels to cleaner alternatives, adopting energy-efficient technologies, or conserving and increasing forests, which are primary providers of carbon cycle ecosystem services.

Carbon markets present a unique opportunity to unlock billions for the climate finance needs of African economies. They expand energy access, create jobs, protect biodiversity, and drive climate action. Despite this potential, Africa currently produces only a small fraction of its carbon credit capability.

The Role of ACMI in Promoting the Growth of Africa’s Carbon Markets

The Africa Carbon Markets Initiative (ACMI) was launched at COP27 to scale African carbon markets. According to the United Nations Framework Convention on Climate Change (UNFCCC), exploring Africa’s carbon markets could unlock USD 120 billion and support over 110 million jobs by 2050. Countries including Kenya, Gabon, Malawi, Mozambique, Togo, Nigeria, Burundi and Rwanda are already signatories of ACMI.

In 2023, ACMI released a roadmap report identifying 13 action points to support the growth of Africa’s carbon markets, primarily characterised by Voluntary Carbon Markets (VCMs). In VCMs, companies and individuals purchase carbon credits to offset their emissions.

ACMI is a transformational opportunity for Africa, with the potential to unlock billions in climate finance to support economies, expand energy access, create jobs, safeguard biodiversity, and drive climate action towards achieving Paris goals. remarks Sydney Domoraud, Partner, ADNA (ALN firm in Algeria, Côte d’Ivoire, Guinea and Morocco

ACMI is also collaborating with major carbon credit buyers and financiers, including Exchange Trading Group, Nando’s, and Standard Chartered, to establish an advance market commitment for hundreds of millions of dollars for high-integrity African carbon credits. For instance, mobilising USD 500 million at an average price of USD 10 per carbon credit could support the development and delivery of at least 50 MtCO2e, equivalent to the total credits retired from Africa from 2010 through 2020.

Shaping the Regulatory Landscape to Harness Africa’s Carbon Markets Potential

Africa’s vast landscapes, rich biodiversity, and abundant natural resources position it uniquely to contribute to carbon markets. To make the African carbon market attractive for investment, countries are all either introducing or planning to introduce, new regulations or policy frameworks to ensure that benefits from carbon market activities are retained within communities. According to Gold Standard, governments are developing policies to preserve local citizens such that benefits accrue to them through existing carbon market activities, and they are not impacted by unfair pricing.

A progressive regulatory environment can deliver real benefits to communities and help countries achieve their Nationally Determined Contributions (NDCs). However, African countries must be strategic in their sector selection for carbon markets to avoid falling short of their NDCs. The Policy Center suggests that countries can adopt various sub-components of Article 6 of the Paris Agreement. This includes Article 6.2, which sets guidelines for bilateral actions permitting countries to transfer emission reductions from one country to another to meet the NDC requirements; Article 6.4, which creates a new international carbon crediting mechanism allowing countries to meet their NDCs through emission reduction generated by implementing programs and projects; and Article 6.8, which addresses non-market international cooperation, encompassing social inclusivity, financial policies, circular economy, blue carbon, and adaptation benefit mechanisms.

Many African countries have already begun leveraging aspects of Article 6 for strategic engagement with other developed global economies to advance their domestic needs, especially for developing carbon projects and green energy projects. For instance, Ghana and Senegal have entered partnerships with Singapore for cook-stove-based credits. On the other hand, Singapore has also provided loan guarantees to Ghana for renewable power in return for 160,000 internationally transferred mitigation outcomes by 2030. explains Cephas Caleb, Partner at Aluko & Oyebode (ALN firm in Nigeria)

Future of Carbon Markets in Promoting Sustainable Economic Development

The future of Africa’s carbon markets is promising. As regulatory frameworks become more robust and market awareness grows, the continent is poised to attract greater investment. Nature-based solutions and renewable energy projects can generate carbon credits and drive sustainable economic development by creating jobs, conserving ecosystems, and enhancing energy access.

The continent’s engagement with carbon markets is a crucial step towards addressing climate change while unlocking new economic opportunities. With the right support and strategic initiatives, Africa’s carbon markets can flourish significantly contributing to the global carbon trading system and promoting sustainable development across the region.

Sources

Policy Centre | Africa Carbon Markets Initiative | AfDB | UNFCCC | UNECA | Gold Standard