Time for action on Africa’s carbon market opportunity

Even before the pandemic, they had significantly greater debt vulnerabilities than at the start of the 2009 global financial crisis, limiting their ability to invest in economic recovery and climate resilience.

The Africa Group of Negotiators has estimated that the continent needs $3trn in order to implement its nationally determined contributions (NDCs) under the Paris Climate Accords. Developed countries have provided only $80bn of the $100bn in climate finance they pledged to contribute annually to developing countries; of this, less than $20bn was provided in total to Africa between 2016 and 2019.

Voluntary carbon markets (VCMs) can play a role in filling this gap while driving a sustainable, inclusive economic transformation in Africa. Fully developed VCMs could not only generate attractive returns on investment in African countries, but also help them meet their own environmental challenges, from boosting renewable power to adopting cleaner cooking methods to reducing deforestation. For example, the recently published UN Global Crisis Response Group’s 3rd Brief on Energy highlights the opportunity for carbon markets to provide the necessary financing to overcome issues related to the high upfront costs of clean energy projects.

Fatal missteps

Unfortunately, this potential is far from being realised. The organisations we represent — focused on speeding the energy transition, ending energy poverty and tackling climate change— have launched the Africa Carbon Markets Initiative (ACMI) to accelerate the growth of Africa’s voluntary carbon markets.

Globally, VCMs have grown strongly in the last five years. Last year saw a greater than 50% increase in real demand (as measured by the retirement of existing carbon credits), to a total of nearly $700m. But of the total credits issued from 2016 to 2021, only about 11% stem from African countries, and the bulk of these come from a few large projects. In 2021, Africa credits were just 15% of the global traded volume. This is just scratching the surface. We estimate Africa could generate at least 1.5 – 2.5 Gt of CO2e annually[6] – and at USD20/tonne CO2 this could be worth $50bn per year.

Some innovative projects already underway demonstrate what success could look like.

Creating victory

SunCulture is a climate-tech platform for rural emerging markets that has raised $40m to provide small holder farmers with reliable access to water, irrigation, lighting and mobile charging through off-grid solar technology. Their solar irrigation systems allow farmers in Kenya and other sub-Saharan African markets to switch from CO2-emitting petroleum and diesel pumps to solar pumps.

This reduces emissions while creating sustainable agriculture jobs less dependent on rainfall. SunCulture is working on developing its carbon credit business to reduce end-user prices and increase access to their systems –they expect to generate over 2 Mt of CO2 emissions reduction credits between 2020-2027.  SunCulture intends to scale across several sub-Saharan African countries in the coming years, selling hundreds of thousands of solar pumps by 2025.

Potential in the continent

KOKO Networks is “the technology platform protecting African forests”. KOKO is driving an energy transition across Kenya, replacing deforestation-charcoal with sustainable bioethanol delivered via a unique utility platform that resembles a telecommunications company in scale and sophistication.  Over 600,000 households now cook with KOKO Fuel, with carbon revenues solving the affordability gap instead of government subsidies.

Africa also has a significant share of global potential for nature-based credits. One of the largest REDD+ projects on the continent is the Kasigau Corridor in Kenya, which seeks to protect endangered species, prevent forest degradation and drive direct climate finance to local communities for self-determined, transformative economic development. In partnership with local communities, Wildlife Works has co-created new economic opportunities, increased food and water security, and improved access to healthcare and education. The Kasigau Corridor covers over 500,000 acres of dryland forest and will generate enough carbon credits to offset 1 million tonnes of CO2 emissions annually for the next 30 years.

The Acorn agroforestry platform established by Dutch financial institution Rabobank encourages small farmers in a number of African countries to plant trees on their land, improving soil quality and extracting CO2 from the atmosphere. It uses satellite data to measure biomass growth on participating farms and issues certified carbon credits that can be bought by companies, like Microsoft, seeking to offset their emissions.

A number of factors are holding back the wider adoption of carbon credit projects across the continent. First, it is very hard for lower-income African countries, which have limited funds and technical capacity, to participate in the carbon market on fair terms. Prices are unpredictable and many of the climate benefits Africa provides don’t fit into current carbon credit methodologies.

Second, there are challenges with the pipeline -the ecosystem of project developers is very limited in scale and scope: 65+ percent of project developers in Africa operate only one project and 80% operate in only one country.

Third, navigating land rights for nature-based projects can be challenging. Fourth, it can be expensive to validate and verify individual projects. And finally, market mechanisms to de-risk investment in supply have not been developed.

Future focus

Our joint initiative, the newly established Africa Carbon Markets Initiative (ACMI), aims to develop a structured approach to address each of these issues. By the time of the COP27 climate summit in Sharm El Sheikh, Egypt next month, we plan to announce an ambition for VCMs in Africa, partner with leading African governments and develop a concrete roadmap for how to scale African VCMs in the years ahead. As a neutral player in the space, ACMI will serve as an accelerant, not a competitor, to existing work.

Carbon credits and associated products have the potential to strengthen African economies and advance the global fight against climate change while creating jobs, protecting ecosystems and expanding energy access.

Success would mean radically reducing the time it takes to generate credits, increasing the underlying quality and price of African carbon credits, and significantly increasing the volume of credits produced. The time to act is now.