Carbon trading offers rich rewards for Africa

by MMC
0 comment

The global carbon credit market is valued at approximately $909 billion. Africa is beginning to exploit this lucrative resource, but a more coordinated effort across the continent could yield rich benefits, writes Faustine Ngila.

Carbon credit markets allow industrialized countries and companies to offset their carbon emissions by investing in environmentally friendly projects elsewhere. A carbon credit or offset represents one metric ton of carbon dioxide removed from the Earth’s atmosphere. Africa, with its wealth of renewable energy sources, can benefit significantly from judicious and informed use of these markets.

Different countries, including South Africa, Morocco, Kenya, Malawi, Gabon, Nigeria and Togo, have pursued this concept through different initiatives. Efforts including regenerating forests and harnessing sustainable energy sources such as solar, wind and hydroelectric power have increased and contributed to the global cause of carbon offsetting.

At COP27 in Sharm el-Sheikh, Egypt last November, Kenya, Malawi, Gabon, Nigeria and Togo committed to working with the new African Carbon Markets Initiative (ACMI).

ACMI aims to produce 300 million carbon credits per year, aspires to unlock some $6 billion in revenue and create 30 million jobs by 2030. Joseph Nganga, member of the ACMI steering committee, says : “Supporting the rapid growth of African carbon markets will not happen by chance. , this will require action from governments, developers and buyers. Other ACMI members are Mozambique, Rwanda and Burundi.

At the first-ever African climate summit in Nairobi, Kenya, in early September, millions of dollars were pledged to increase the production of carbon credits in Africa 19-fold by 2030.

The United Arab Emirates (UAE) has committed to purchasing carbon credits worth $450 million from ACMI. “We must see green growth not only as a climate imperative, but also as a source of multitrillion-dollar economic opportunities that Africa and the world stand ready to capitalize on,” said Kenyan President William Ruto , in his opening speech.

Africa has large amounts of carbon stored in its ecosystems, with Congo’s forests, also known as the world’s second lung, capable of absorbing around 1.2 billion tonnes of carbon each year. The Congo Basin holds approximately 8% of global forest carbon.

“Investing in nature-based sequestration can provide up to 30% of global sequestration needs,” says Jean-Paul Adam, a former member of the United Nations Economic Commission for Africa (ECA) who oversees now the UN project. Great Blue Wall initiative. “At $120 per tonne of carbon, up to $82 billion per year can be mobilized through naturally occurring carbon credits in Africa,” he says.

The ECA led the creation of a regional carbon registry and a harmonized protocol for the issuance of carbon credits for member countries of the Congo Basin Climate Commission.

In recent years, carbon credit markets have grown across the world, and now around 23% of global emissions are covered by some form of carbon credit pricing, with the value of traded carbon dioxide permits reaching a record $851 billion in 2021 according to analysts at Refinitiv, a global provider of financial market data and infrastructure.

One of the most remarkable aspects of carbon credit projects is their potential to empower rural communities. In sub-Saharan Africa, where a significant portion of the population lacks access to electricity, renewable energy initiatives powered by carbon credit revenues can be life-changing. In recent years, many carbon credit projects in Africa have contributed significantly to the reduction of carbon emissions.

For example, the Olkaria II Unit 3 geothermal expansion project in Kenya helped add 35 megawatts of electricity to the Kenyan national grid and emit more than 230,000 carbon credits.

The Earthcare solid waste composting project in Nigeria is expected to emit around 30,000 carbon credits by the end of 2023.

Elsewhere along the Kenyan coast, several local projects such as Mikoko Pamoja in Kwale and several in Lamu and Kilifi have invested in trading carbon credits through their mangrove forest regeneration projects.

In July, Kenya’s parliament approved the Carbon Credits and Profit Sharing Bill 2023, projecting that the country would earn $6.8 million a year from the sale of carbon credits. The annual global market for voluntary carbon credits could reach $50 billion by 2030, according to McKinsey.

Major carbon credit projects

Kenya held its first-ever carbon offset auction in June, organized by the Regional Voluntary Carbon Market Corporation (RVCMC), founded by the Saudi Tadawul Group and the Saudi Public Investment Fund. At the auction, one carbon credit was valued at $6.27, and 1.4 million tons of carbon credits were purchased by Saudi companies.

In June, Malawi launched the Malawi Carbon Markets Initiative, which could help generate carbon offsets worth almost 20 million tonnes of carbon per year. According to Malawi’s President Lazarus Chakwera, this could inject hundreds of millions of dollars into the country’s economy each year. Chakwera hopes that this program will “attract investments that will support and exploit the initiative”.

In West Africa, the first pioneering carbon credit transaction was recorded in 2015 and structured by Afrique, a carbon finance group, in collaboration with Volta Cars Rental Services (VRS), a car leasing company operating in the region , and Investors & Partners (I&P), an investment fund focused on impact on MSMEs in sub-Saharan Africa. The transaction allowed VRS to offset the carbon emissions emitted by its leased vehicles in Senegal, Ghana and Ivory Coast.

In July 2021, Gabon, located in the heart of the Central African rainforest, became the first country on the continent to receive payments for reducing carbon emissions. The first payment of $17 million was part of a groundbreaking agreement between Gabon and the multi-donor Central African Forest Initiative (CAFI) hosted by the UN in 2019, for a total of $150 million over 10 years.

But Nigeria holds Africa’s greatest potential for carbon offset revenue – the capacity to produce more than 30 million tonnes of carbon credits per year by 2030, generating more than $500 million per year. Two projects led these efforts. One of them is the waste heat recovery project of cement manufacturer Dangote Industries Limited, which captures and uses waste heat from cement kilns to generate electricity and reduce dependence on fossil fuels.

The other is the Save Wildlife project run by Access Bank, which has worked with communities to plant more than 100,000 trees in deforested areas. This initiative helped sequester carbon dioxide and improve the livelihoods of residents.

Nigeria is now planning to expand its carbon markets and the government, through the Nigeria Sovereign Investment Authority (NSIA), is preparing to develop its national carbon strategy.

NSIA has signed an agreement with global oil trader Vitol to establish Carbon Vista, a joint venture that will invest in carbon removal projects in Nigeria. The project targets an investment of $50 million in carbon credit projects in Nigeria.

More than a moral imperative

The call for increased investment in carbon credit markets in Africa is therefore not only a moral imperative but also a strategic move as the world seeks to transition to a low-carbon economy.

Industries and countries that invest in carbon credits are now positioning themselves as sustainability leaders in a proactive stance that not only improves their brand reputation, but also protects their businesses from tougher environmental regulations.

In addition, the financial potential of these carbon markets is considerable. According to recent data from Refinitiv, the global carbon market was valued at $909 billion in 2022.

For carbon credit markets in Africa to thrive, a multi-pronged approach is essential. “There is a great need for capacity building for governments so that they can put their infrastructure in place to approve high-quality carbon projects before entering the market,” says Chris Leeds, head of carbon markets development at Standard Chartered Bank of South Africa.

According to Nassim Oulmane, head of green and blue economy at the ECA, the African carbon market needs greater financial accountability in verifying and monitoring transactions.

To develop a sustainable carbon market for Africa, Executive Chairman of the Egyptian Stock Exchange, Mohamed Farid Saleh, says: “We cannot rely only on trading carbon markets; we need to connect the whole process, from project development to financing. It must be a single, collaborative African platform rather than a confined market for specific trade.

To overcome these challenges, it remains necessary to put in place appropriate capacity building initiatives that empower local stakeholders. Training programs, knowledge sharing platforms and mentoring opportunities can equip African governments, businesses and communities with the tools they need to effectively participate in carbon credit markets.

You may also like

Leave a Comment

The news website dedicated to showcasing Africa news is a valuable platform that offers a diverse and comprehensive look into the continent’s latest developments. Covering everything from politics and economics to culture and wildlife conservation

u00a92022 All Right Reserved. Designed and Developed by PenciDesign