Reform of carbon markets essential, says AFC report

A new report outlines what needs to be done for Africa to gain value from its natural capital.


Image : AFC

This article is sponsored by Africa Finance Corporation

Carbon capture has emerged as one of the promising solutions for reducing emissions, as the world scrambles to halt a rapidly warming planet. Africa, with its vast forests, mangroves and peatlands, presents a tantalising prospect for achieving this goal. However, the continent remains at a disadvantage, taking in significantly less revenue from its carbon credits than other regions. Without a radical rethinking of the current approach, the continent risks repeating the mistakes of the past when its resources were taken at knockdown prices to support the growth of other continents. 

In a report entitled “How Africa Can Unlock World’s Most Promising Net-Zero Solution” released on the sidelines of the UN climate conference, COP28, in the United Arab Emirates, Africa Finance Corporation urges the continent to take control of the carbon market value chain and secure a fairer stake. 

Samaila Zubairu, the bank’s President and CEO, reiterated the call for a new strategic direction for Africa in the carbon markets at a media briefing where he was joined by the principal author of the Report, Dr Rita Babihuga-Nsanze, AFC’s Chief Economist and Head of Research and Strategy, and AFC’s Executive Director of Financial Services, Sanjeev Gupta. 

In his foreword to the report, Zubaira says that African countries must stop selling land rights cheaply if they are to extract more value from the “tarnished and depreciated” global carbon credits market. Africa is home to some of the planet’s most important natural carbon repositories – including forests, grasslands, peatlands and mangroves – giving the continent a potential enormous source of value on the global carbon credits market. Yet under the current system too many countries are selling their valuable assets for meagre returns, says the report.  

“Instead of maximising economic value from our natural assets, countries are engaging in the wholesale long leases and sale of land – our valued birthright – to foreign intermediaries that hope to profit from a more appropriately priced carbon market of the future,” writes Zubairu. “This is akin to the resource curse of past decades. We must guard against complicit arrangements that undervalue our natural assets while enabling the industrialised world to keep on polluting, with Africa suffering the biggest costs from global warming.” 

In his briefing, Zubairu urged African leaders to shift the focus of the carbon market towards conservation and reforestation, emphasising the vital role of natural carbon sinks, such as forests, in absorbing carbon dioxide from the atmosphere. Zubairu also drew attention to the economic aspects of carbon markets, stressing the need for fair value distribution. He pointed out the existing disparity in carbon credit prices, with some markets trading at significantly higher values. 

“We know that in other carbon markets, they are trading at between $100 and $1000 per tonne. We also know that capturing carbon dioxide from industrial chimneys today is about $100 and doing that from the atmosphere can be about 10 times that amount. So we want to highlight the disparity in value and make sure that we are not being encouraged to repeat the mistakes of the past,” he said.

Zubairu said AFC intends to establish  a foundation that will be “focused on draw-ing attention to this important area, building capacity and ensuring that we have a path towards a viable carbon market on the continent.” 

Vital role of Africa’s carbon sinks

Presenting the highlights of the report, Babihuga-Nsanze noted the growing enthusiasm for carbon offsets as a substitute for emission reduction. The report, she said, focused on four key areas, namely, the transition to low carbon energy sources and challenges therein; conservation of carbon sinks like forests and mangroves; resilience for food and water systems and physical infrastructure; and innovation in converting carbon into useful materials.

Digging deeper, Babihuga-Nsanze emphasised the vital role that Africa’s natural carbon sinks, encompassing forests, grasslands, peatlands, and mangroves, play in capturing carbon from the atmosphere. 

“Central African forests alone store between 25 and 30bn tonnes of carbon, which represents about half of the entire world’s annual emissions. Africa is home to about 20% of the world’s mangrove cover, second only to Asia, and these mangroves store collectively around 854m tonnes of carbon; 15 African countries are home to huge stores of peatlands and in fact, one of the world’s largest peat areas is in the Congo Basin, spanning more than 140,000 square kilometres and storing around 30bn tonnes of carbon,” she said, noting that their role has largely been uncompensated.

Babihuga-Nsanze observed that these countries are also among the lowest emitters, globally, underscoring the fact that they are in essence providing a public good that is nevertheless undervalued. Due to this, there is a lack of incentive to conserve Africa’s forest cover, especially when the host communities face severe development challenges, including lack of basic facilities such as energy for cooking. 

“This means that Africa now has the highest deforestation ratio in the world because we have failed to incentivise these communities to keep the trees up. Africa and South America are the only regions in the world losing forest cover,” she said, quoting a report from the Food and Agriculture Organisation which revealed that Africa lost 3,900,000 hectares of forest cover annually between 2010 and 2020 and that the continent’s forest cover is currently less than 16%, down from 18% in 1990. 

Global carbon markets, according to Babihuga-Nsanze, have also failed to adequately support conservation and climate resilience in Africa. “This is reflected in the fact that between 2016 and 2021, only 11% of the total credits issued in the $2bn voluntary carbon markets originated from Africa while the share in terms of dollar value is much much smaller,” she said, pointing out that this reflects a lack of prioritisation for projects linked to carbon sinks and the market’s bias towards reduction or avoidance credits, with only 3% dedicated to projects associated with carbon sinks. 

Current turbulence in the market, however, could be to Africa’s advantage. 

“We see a major rethink and increased demand for quality credits that actually demonstrate a reduction in carbon dioxide or an increased capacity for removals. This plays to Africa’s strengths because we have these powerful natural carbon sinks that have been shown to have an impact on carbon dioxide removal from the atmosphere,” she stressed.

How can Africa’s contribution be monetised?

In his remarks, AFC’s Executive Director of Financial Services, Sanjeev Gupta, provided the economic context to the climate question. “We have to remember that the climate crisis that we are dealing with is a function of economic development and industrialisation, which has led to the situation that we are grappling with today,” he noted. 

In the case of Africa, however, the continent is having to bear a disproportionate impact, even though its own share of emissions is relatively low. Ironically, challenges with development means that trees on the continent, for example, have to be felled to provide energy. “On the one hand, we are dealing with a problem that is a function of development and industrialisation, and on the other hand, we are having to deal with a problem that is getting worse by the day because of a lack of development.” Understanding this, he said, is critical to appreciating the importance of AFC’s initiative. 

Africa, Gupta urged, must take a look at its natural resources which are providing a “free lung” for the rest of the world and determine how they can be effectively monetised, observing that “we do not get what we deserve, we get what we negotiate for”.