Pushes for investment in carbon offset market
As global temperatures continue to rise and carbon emission reduction efforts remain insufficient, the world is in urgent need of new solutions to address the climate crisis. Africa, with its rich biodiversity and extensive carbon sinks, may hold the key to such solutions, with the market for carbon credits offering a potential route to realising this value, according to the Africa Finance Corporation (AFC).
The Africa Finance Corporation, in a recent report titled “How Africa Can Unlock World’s Most Promising Net-Zero Solution”, highlighted the potential of Africa’s natural resources to be monetised through the carbon credit market, emphasising that the market for carbon credits could provide a way to unlock the value of Africa’s vast carbon sinks.
Carbon credits are tradable certificates that represent a reduction in carbon emissions. Companies, governments, and individuals can purchase these credits to offset their carbon emissions.
According to the report, with a well-functioning carbon credit market, African countries could generate revenue by selling carbon credits generated from the conservation and restoration of their ecosystems. This revenue could then be used to finance further conservation efforts, creating a virtuous cycle that would benefit both the environment and the people of Africa.
The AFC report emphasises the crucial role played by Africa’s ecosystems in removing and storing greenhouse gas emissions that are primarily generated by countries outside of the region. However, the contribution of these carbon sinks to the global climate system has been historically undervalued, resulting in a lack of financing for conservation and restoration efforts. The AFC notes that Africa’s forests, savannah grasslands, peatlands, mangroves, and marine ecosystems are not only important for their carbon storage capacity, but also for their biodiversity, soil health, water filtration, and other ecosystem services.
According to the report, despite the importance of Africa’s forests in terms of global climate change mitigation, they have received far less funding for conservation and sustainable management than tropical forests in South America and Asia. It noted that in the decade leading up to 2017, Africa received only 11.5 percent of the total funding allocated for the conservation and sustainable management of tropical forests. While financial pledges made at the 2021 COP26 conference suggested a growing recognition of the value of Africa’s forests, much of the promised funding has not materialised. This lack of funding, the AFC explained, has created a financing gap that must be addressed if Africa’s forests are to be conserved and managed.
The report highlights the fact that, despite the challenges facing African carbon credits, the continent has a unique opportunity to reform the global carbon markets in a way that will build trust, create value, and benefit local communities. It also noted that Africa’s forests alone absorb 600 million tonnes of carbon dioxide per year, the equivalent of 21 percent of Europe’s annual emissions or 18.5 percent of the US’s.
In order to maximise the value of Africa’s carbon credits, the AFC report outlines several focus areas, including ensuring that projects are of high quality, integrity, and carbon removal. It also recommended that high quality projects must be scientifically sound, with a clear and measurable impact on carbon sequestration or avoidance. In addition, it stated that high integrity projects must be transparent, verifiable, and comply with all relevant regulations. It also stated that carbon removal projects must demonstrably remove carbon from the atmosphere, as opposed to simply avoiding the release of additional carbon. The AFC argues that projects meeting these criteria can command a higher price in the market.
“To achieve this, Africa must build its own carbon market value chain with local actors at all levels backed by deep knowledge and long-term capital support. This entails taking a more significant ownership role, beginning with the origination stages, including early project development, verification, and registration, to the distribution processes including brokerage, market making, and reselling. This is the only way to prevent fundamental flaws in the way global carbon markets are currently designed from cheapening Africa’s carbon offsets, the report advised.
While the global carbon market offers significant potential for African conservation projects, the AFC report urges caution. The report highlights the significant challenges facing the global carbon market, including issues of integrity, quality, and lack of trust.
In particular, the EU ETS, which accounts for nearly 90 percent of the global compliance market, has faced criticism for its lack of transparency, poor governance, and limited carbon reductions. The AFC suggests that Africa should carefully consider its involvement in the compliance market, balancing the potential benefits against the risks and challenges.
The AFC proposes that Africa can build trust with investors by ensuring that its carbon offset projects are of the highest quality and integrity. This can be achieved through robust and transparent processes that ensure that projects deliver real and lasting benefits to local communities. Such a strategy, the AFC argues, will not only help Africa to meet global environmental objectives, but also support broader development objectives, including improved livelihoods for local people. In the long term, this strategy could lead to a higher price for carbon offsets, benefiting both Africa and the global climate.
The report calls for African governments to establish policies that create an enabling environment for high-quality carbon offset projects.
The AFC’s report stresses that the success of high-quality carbon offset projects in Africa will depend on the development of five core areas: project development, project finance, verification, market making, and trading. These areas require a strong local presence, long-term capital support, and capacity-building.
According to the report, African leadership is essential to catalyse a shift towards high-quality nature-based carbon removal offsets that can protect the continent’s valuable carbon sinks. This shift would also increase the value of Africa’s offset credits, which could finance further conservation, reforestation, and sustainable livelihoods. The report advocates for a focus on high-quality offsets that are verified and certified, transparent, and result in real, permanent, and measurable carbon removal.
In the executive summary of the report, Samaila Zubairu, the CEO of Africa Finance Corporation, stressed that the global community is missing a vital opportunity by neglecting Africa’s vast natural carbon repositories. He pointed out that the global carbon markets offer a way to attract significant investment for the conservation, energy transition, and climate resilience of the continent. He noted that the potential is enormous, but that it will require a concerted effort from governments, investors, and other stakeholders to realise this potential. He called on the global community to prioritise the protection and restoration of Africa’s forests, grasslands, peatlands, and mangroves.
“Instead of selling our land rights into today’s tarnished and depreciated carbon markets, we should focus on conservation and reforestation – with local actors driving the projects, the financing, the verification, and the trading. Our continent’s natural assets will only achieve their true value through robust mechanisms that guarantee lasting benefits delivered to local communities and governments to sustain conservation long after the initial funding is spent,”Zubairu stated.
The AFC chief stressed that for the global carbon markets to function properly, African carbon credits must be of the highest quality and value. He noted that this is exactly what the world needs right now, as it faces the challenges of climate change and biodiversity loss.
Zubairu went on to argue that Africa’s relationship with the global carbon markets must change in order to maximise the benefits for the continent and the world. He cautioned against selling off large tracts of land to the highest bidder in a depreciated market. Instead, he urged Africa to take ownership of the conservation and expansion of its forests, creating its own emissions reduction value chain that would capture and retain value for the continent. This, he said, would benefit not only Africa but also the entire world for generations to come.