Africa must embrace carbon trading

Africa must embrace carbon trading

The climate projects that benefit from this system range from reforestation and forest conservation to renewable energy and carbon-storing agricultural practices

By NJ Ayuk

Last November, one of the most promising outcomes of the COP27 climate conference was the launch of the African Carbon Markets Initiative (ACMI). This African-led initiative is designed to significantly drive up the continent’s participation in voluntary carbon markets.

Carbon markets are platforms for carbon trading: the buying and selling of credits that allow entities to release a specified amount of carbon dioxide or other greenhouse gases. Carbon trading will enable countries (or companies) to fund projects that reduce emissions instead of reducing their own emissions.

The climate projects that benefit from this system range from reforestation and forest conservation to renewable energy and carbon-storing agricultural practices.

Like other advocates, we at the African Energy Chamber are excited about carbon trading’s potential to bolster investment in green technologies and projects, especially in developing countries. We’re optimistic that the carbon trading system will lead to more investments in African climate projects, which could help African states generate the necessary revenue to build a renewable energy sector.

However, we are concerned that Africa is not being included in the world’s carbon trade to the extent it should be. According to Good Governance Africa, only about 2% of the global climate projects funded through carbon trading were in our continent, most of which took place in South Africa and the North African region.

Some argue that we don’t have the political will to pursue this opportunity. Others say that we lack the necessary technology or need a regulatory framework to move forward. I believe those statements have some truth, but we must find ways to overcome these obstacles.

Indeed, the creation of ACMI is very promising, but there is still much work to ensure that Africa fully capitalizes on what carbon trade offers. We must begin now.

Limiting  Africa’s participation in the carbon market is a big mistake. This would be a missed opportunity for our continent that we simply cannot afford.

How Carbon Trading Helps

In 1997, the United Nations Framework Convention on Climate Change established the Kyoto Protocol to reduce worldwide carbon emissions by obligating countries to limit greenhouse gases according to individual targets. The protocol asks participating countries to first attempt to meet their hydrocarbon targets through national measures, but if they can’t, the protocol allows them to meet their targets through the market. If a country emits more than its target amount, it may buy “surplus credits” from those that have achieved their protocol targets.

The basic concept is that it doesn’t matter where emissions are reduced, just that they are removed from the atmosphere.

From an ecological standpoint, the carbon trade supports emission reduction goals, and it does so by promoting a win-win situation: A hydrocarbon emitter may exceed its target, as long as it purchases permits or credits generated from emissions-reduction projects. A typical transaction sees an industrialized nation investing its credits in environmental projects in developing countries, which also fast-tracks newer, cleaner infrastructure that these regions might otherwise never have access or the means to introduce.

The ramifications of this are profound.

Consider what the International Emissions Trading Association said in 2019 about carbon trading’s potential to cover the costs of African countries’ nationally determined contributions (NDCs), that is, what they’ve pledged to do to address climate change under the Paris Agreement.

“Cross-border coordination in the form of carbon trading could cut the cost of meeting NDCs in half by 2030, making it possible to cut emissions 50 percent more, at no additional cost.”

And from an economic standpoint, carbon trading is a brilliant mechanism because it works with the reality of the world: Some nations or regions of the world (typically industrialized areas) are unable or unwilling to cut their emissions back far enough, while others (predominantly in developing economies) create far fewer emissions. Trading carbon credits as a commodity supports the needs and goals of industrialized and developing nations.

Capitalize on carbon trading

In addition to the environmental possibilities, carbon trading is also a cash cow.

The market for trading carbon has grown substantially since its inception: In 2021, the value of traded carbon credits hit $851 billion. About 70 carbon pricing instruments (CPIs) are now operating worldwide, including taxes and emissions trading systems, which involve some 23% of global emissions.

It’s fascinating that carbon emission reduction is now tracked and traded like any other commodity. And clearly, this is a vast market.

Unfortunately, much of Africa has been missing the boat when it comes to fully participating in global carbon markets on fair terms.

In a recent report, ACMI’s founders identified some obstacles that Africa must overcome to realize its carbon market potential. The list is significant. A few of the obstacles include the following: a limited number of project developers, about 100, operate in Africa; significant up-front capital requirements to launch carbon credit projects; regulatory challenges exist that vary from country to country; fragmented assets make deploying large-scale climate projects more difficult; fostering community buy-in can be challenging; and the ease of doing business varies by country and community. Moreover, the methodology for designing carbon credit projects is not always a good fit for African countries, where infrastructure and technology can be limited; the required validation and verification of carbon credit projects can be expensive and involve long lead times; and Africa lacks the capacity for project verification.

Now is the time to call upon industrialized leaders to boost their collaboration with their African colleagues. Large emitters must be encouraged to channel investment into African green initiatives through the carbon trading mechanism.

Let’s follow the example that Sweden and Rwanda are setting. They are negotiating their own government-to-government climate financing system, which, in Rwanda, has already restored 100,000 hectares of degraded ecosystems, created 176,000 jobs, and brought renewable off-grid energy to 88,000 households. This partnership can potentially finance Rwanda’s ambitious 38% reduction in greenhouse emissions by 2030.

We need to see even more African participation in collaborations like this.

Africa would be remiss not to embrace carbon trading and have discussions with wealthy nations about channelling more investments into African climate projects. But more importantly, Africans need to take leadership on this.

Waiting for an “invitation” and not being pragmatic enough to embrace carbon trading in its entirety will make it difficult for Africa to catch up later.

This means that we Africans need to drive those discussions. We also need to ensure — and be ensured — that investments in African climate projects are just. We’ve already seen examples of projects that short-changed Africans. Several years ago, Kenyan farmers were promised payments for storing carbon in their soils and farm trees. But the market price for carbon plummeted, and the farmers received little.

The last thing we need is to be boxed into a constrictive market that victimizes Africa by allowing investors to take advantage of us. We must establish fair value for investments in African projects and ensure that wealthy nations pay us fairly.

This brings us back to the ACMI that was launched during COP27. It is committing to developing a transparent, practical, sustainable approach to carbon markets for Africa. By doing that, it says, it will unlock billions of dollars in revenue for African climate projects and create more than 100 million jobs by 2050.

I believe African governments, businesses, institutions, and organizations should support this initiative — and do everything possible to expand Africa’s role in carbon trading.

Doing this offers the prospect of adding massively to African economies by creating jobs and expanding energy access through the renewable energy projects that receive funding. At the same time, we will support environmental causes by protecting biodiversity and driving climate action. These benefits are too important to miss.  (

– The writer is the Executive Chairman of the African Energy Chamber

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