Carbon trading offers rich rewards for Africa

Carbon credit markets enable industrialised nations and businesses to offset their carbon emissions by investing in eco-friendly projects elsewhere. One 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 considerably through judicious and informed use of these markets.

Different countries, including South Africa, Morocco, Kenya, Malawi, Gabon, Nigeria, and Togo have been pursuing this concept through different initiatives. Efforts including forest regeneration, and harnessing sustainable energy sources like solar, wind, and hydroelectric power have been growing and contributing to the overall global carbon offset cause.

During COP27 in Sharm el-Sheikh in Egypt last November, Kenya, Malawi, Gabon, Nigeria, and Togo pledged to work with the new Africa Carbon Markets Initiative (ACMI).

ACMI aims to produce 300m carbon credits annually, aspires to unlock some $6bn in revenue and create 30m jobs by 2030. Joseph Nganga, ACMI’s steering committee member, says: “Sustaining the rapid growth of African carbon markets isn’t going to happen accidentally, it’s going to require action by governments, developers, and buyers.” Other ACMI members are Mozambique, Rwanda and Burundi.

During Africa’s first-ever climate summit in Nairobi, Kenya early in September, millions of dollars were pledged to boost Africa’s carbon credit production 19-fold by 2030. 

The United Arab Emirates (UAE) committed to buying $450m-worth of carbon credits from ACMI. “We must see in green growth not just a climate imperative but also a fountain of multi-billion-dollar economic opportunities that Africa and the world are primed to capitalise on,” Kenya’s President William Ruto said in his opening speech.

Africa has vast amounts of carbon stored in its ecosystems with the Congo forests, also known as the world’s second lung, able to absorb about 1.2bn tonnes of carbon each year. The Congo Basin holds roughly 8% of the world’s forest-based carbon.

“Investing in nature-based sequestration can provide up to 30% of the world’s sequestration needs,” says Jean-Paul Adam, formerly with the UN Economic Commission for Africa (ECA) and now overseeing the UN’s Great Blue Wall initiative. “At $120 per tonne of carbon, up to $82bn per year can be mobilised from nature-based carbon credits in Africa,” he says.

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

In recent years, carbon credit markets have gained some momentum across the world, and now roughly 23% of global emissions are covered by some form of carbon credit pricing, with the value of traded carbon dioxide permits reaching a record $851bn 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 revenue can be life-changing. Over the past few years, numerous carbon credit projects in Africa have had significant input in carbon emission reduction.

For instance, the Olkaria II Unit 3 Geothermal Expansion Project in Kenya helped add 35 megawatts of electricity to the Kenyan national grid and issued over 230,000 carbon credits.

The Earthcare Solid Waste Composting Project in Nigeria is expected to issue about 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 carbon credit trading through their mangrove forest regeneration projects.

In July, Kenya’s parliament approved the Carbon Credit and Benefit Sharing Bill 2023, anticipating that the country will earn $6.8m annually from the sale of carbon credits. The annual global market for voluntary carbon credits could hit $50bn by 2030, according to McKinsey.

Major carbon credit projects

Kenya held its first-ever carbon offsets auction in June, organised by the Regional Voluntary Carbon Market Company (RVCMC), founded by the Saudi Tadawul Group and Saudi Public Investment Fund. In the auction, one carbon credit was priced at $6.27, with 1.4m tonnes of carbon credits being bought by Saudi Arabia companies.

In June, Malawi launched the Malawi Carbon Markets Initiative, which could help the generation of carbon offsets corresponding to nearly 20m tonnes of carbon a year. This, according to Malawi’s president Lazarus Chakwera, could inject hundreds of millions of dollars into the country’s economy every year. Chakwera expects this programme to “attract investments that will sustain and leverage the initiative”.

In West Africa, the first pioneer carbon credits transaction was registered back 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 Investisseurs & Partenaires (I&P), an investment fund focusing on impacting MSMEs in sub-Saharan Africa. The transaction enabled VRS to offset carbon emitted by its leased vehicles in Senegal, Ghana and Côte d’Ivoire.

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

But Nigeria holds Africa’s biggest potential in carbon offset revenues – the ability to produce more than 30m tonnes of carbon credits annually by 2030, generating more than $500m per year. Two projects have been leading these efforts. One is the Waste Heat Recovery Project by cement manufacturer Dangote Industries Limited, which captures and utilises waste heat from cement kilns to generate electricity and reduce reliance on fossil fuels.

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

Now, Nigeria is planning to scale up its carbon markets, with the government, through the Nigeria Sovereign Investment Authority (NSIA), gearing up to develop its national carbon strategy.

NSIA signed a deal with global oil trader Vitol to set up Carbon Vista, a joint venture that will invest in carbon removal projects in Nigeria. The project targets $50m-worth of investment in carbon credit projects in Nigeria.

More than a moral imperative

The call for increased investment in Africa’s carbon credit markets is, therefore, not just 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 leaders in sustainability in a proactive stance that not only enhances their brand reputation but also future-proofs their businesses against tightening environmental regulations.

Moreover, the financial potential of these carbon markets is substantial. According to recent data from Refinitiv, the global carbon market was valued at $909bn in 2022.

For Africa’s carbon credit markets to thrive, a multi-pronged approach is essential. “There is a great need for capacity building for governments so they can set up their infrastructures to approve high-quality carbon projects to enter the market,” says Chris Leeds, Head of Carbon Markets Development at South Africa’s Standard Chartered Bank.

According to Nassim Oulmane, Chief of Green and Blue Economy at ECA, Africa’s carbon market needs more financial accountability regarding verification and the following up of transactions.

To develop a sustainable carbon market for Africa, the Executive Chair of the Egyptian Exchange, Mohamed Farid Saleh, says: “We cannot solely rely on trading for carbon markets; we need to link the entire process from project development to financing. It must be a single, collaborative African platform as opposed to having a confined market for specific exchanges.”

To overcome these challenges, there remains a need for tailored capacity-building initiatives that empower local stakeholders. Training programmes, knowledge-sharing platforms, and mentorship opportunities can equip African governments, businesses, and communities with the tools they need to participate effectively in carbon credit markets.