Harnessing the Power of Carbon Credits and Africa’s Path to Sustainable Development

Co-authored by Irene Wakesho.

Africa faces significant challenges in selling carbon credits globally. Several sources indicate that the continent struggles to sell its carbon credits due to a lack of awareness, limited technical and financial capacity, high transaction costs, insufficient access to data, low demand and price due to oversupply, and complex regulatory frameworks. These factors hinder the development and trade of carbon credits, particularly in remote and rural areas, and contribute to the uncertainty surrounding carbon credit projects.

To overcome these challenges, Africa needs to raise awareness about carbon credit projects, develop policies and incentives, harmonize institutional and legal frameworks, enhance project quality and credibility, showcase the unique value proposition of African projects, and foster collaboration among stakeholders in the development and trade of carbon credits. Africa can better align with sustainable development goals and the Paris Agreement by addressing these issues.

The Congo Basin forests, for example, store about 70 billion tons of carbon in their biomass and soil, equivalent to more than three years of global carbon emissions from fossil fuels. The Congo Basin is the world’s second-largest tropical forest carbon sink, after the Amazon, absorbing about 1.2 billion tons of carbon dioxide per year. This region is vital to mitigating climate change and providing ecosystem services for millions in Africa and beyond.

Despite this massive carbon storage, Africa has yet to have a prominent global carbon credit market position. Instead, big US corporations, such as Tesla, sell carbon credits to several significant automakers needing to meet regulatory emission standards. Notable buyers include General Motors (GM) and Fiat Chrysler Automobiles (FCA), now part of Stellantis. FCA has been a significant customer, spending around $2.4 billion on credits from Tesla between 2019 and 2021. These transactions help other manufacturers comply with regulations while generating substantial revenue for Tesla.

Various Western players dominate the carbon credit sector, including recognized carbon credit certification bodies such as the Verified Carbon Standard (VCS), managed by Verra, and the Gold Standard, known for its rigorous sustainability criteria and strong community impact. Other prominent standards include the United Nations’ Clean Development Mechanism (CDM), the Climate Action Reserve, and the American Carbon Registry (ACR).

Prominent carbon trading brokers and companies are mainly in the US, UK, and Europe. They provide online platforms for trading carbon credits, such as the Carbon Trade Exchange (CTX), the Chicago Climate Exchange (CCX), and the European Energy Exchange (EEX). Many Western countries and regions have established registry systems to track and manage the issuance, transfer, and retirement of carbon credits, ensuring a transparent and secure way to verify the ownership and history of carbon credits. Examples include the Clean Development Mechanism (CDM) registry and the European Union Emissions Trading System (EU ETS) registry.

Africa needs its own continental-based, verified certification institution or private entity for carbon trading. Most Western companies established their momentum in the carbon credit market around 2010. This calls for Africa to rise to the occasion and be part of the fourth industrial revolution, in which carbon trading plays a significant role, and to engage, initiate, and contribute as trendsetters in this field. However, the continent first needs to understand the mechanisms of carbon trade.

The global carbon credit market has seen remarkable growth over the past few decades, driven by increasing awareness of climate change and the urgent need to reduce greenhouse gas emissions. If well tapped, this sector could create employment and serve as a revenue-generating industry.

Carbon credits are permits representing the right to emit a certain amount of carbon dioxide or other greenhouse gases, typically one metric ton of CO2. These credits are part of market-based approaches to controlling pollution by providing economic incentives for reducing emissions. There are two main types of carbon credits: compliance credits and voluntary credits. Compliance credits are used in regulated carbon markets, where governments set emission limits through cap-and-trade systems. Companies that exceed their emissions allowance must buy additional credits from those that have yet to use up their allowance. Voluntary credits are used in voluntary carbon markets, where companies or individuals purchase credits to offset their emissions voluntarily, often as part of corporate social responsibility or sustainability initiatives.

Carbon credits encourage businesses and individuals to invest in cleaner technologies and practices by making it financially advantageous to reduce emissions. Suppose a company can reduce its emissions below its cap. In that case, it can sell its excess credits to others over its limits, thus creating a financial incentive for emission reduction. Western countries have been leveraging this market to meet their emission reduction targets.

The price of carbon credits can vary widely depending on several factors, including the type of credit (e.g., Certified Emission Reductions (CERs), Verified Carbon Units (VCUs)), the market in which they are traded, supply and demand dynamics, regulatory frameworks, and the quality of the carbon offset project. In established carbon markets like the European Union Emissions Trading System (EU ETS) or the California Cap-and-Trade Program, carbon credits are typically traded as allowances, and prices fluctuate based on market conditions. Prices are often quoted per metric ton of CO2 equivalent (CO2e), ranging from a few euros or dollars to over €50 or $50 per ton. In voluntary carbon markets, prices can also vary significantly depending on factors such as project type, location, and quality. Prices in voluntary markets may range from a few dollars to over $20 or more per ton of CO2.

Carbon credit prices are subject to market dynamics and can change over time. Prices may differ for renewable energy, forest conservation, or methane capture projects. The most popular carbon credits often come from sectors heavily involved in carbon offset projects and significantly impact greenhouse gas emission reduction. These sectors include renewable energy projects, forestry and land use projects, energy efficiency projects, waste management projects, and industrial processes. Renewable energy projects replace fossil fuel-based electricity generation, while forestry and land use projects contribute to carbon sequestration. Energy efficiency projects reduce emissions, while waste management projects capture and destroy methane emissions.

Africa stands at a unique crossroads where it can participate in this burgeoning market and lead it through its abundant natural resources and innovative approaches. The most lucrative sector of carbon credits that African countries could leverage is reforestation and afforestation projects. Africa has vast tracts of land suitable for reforestation, which can sequester large amounts of carbon dioxide. These projects generate carbon credits and provide co-benefits such as biodiversity conservation, soil erosion prevention, and community development. Investing in renewable energy projects, such as solar and wind power, can be highly beneficial. Projects that result in significant emissions reductions or carbon sequestration tend to generate more carbon credits and potentially higher returns.

In the quest for sustainable development, Africa finds itself at a pivotal moment, poised to forge a transformative alliance with the United Nations Environment Programme (UNEP). With Kenya hosting UNEP’s headquarters, the continent has a unique opportunity to harness the organization’s expertise in crafting tailored solutions to confront pressing environmental challenges. At the forefront of this collaboration is the imperative to establish a certification process for verified carbon credits, a vital step towards mitigating climate change and fostering sustainable practices across industries.

By partnering with UNEP, African nations can draw upon global best practices while ensuring that certification frameworks resonate with the continent’s diverse socio-economic and environmental realities. This partnership calls for inclusive stakeholder engagement, capacity-building initiatives, and pilot projects to refine and optimize the certification process. With robust monitoring and evaluation mechanisms in place, Africa can pave the way for a greener, more prosperous future, setting a precedent for sustainable development on a global scale.

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