Harnessing the carbon credit market to drive economic growth

• NVCCI’s March 2024 meeting examines carbon credit ops

Onome Amuge

In 2022, unprecedented flooding devastated Nigeria, causing death, displacement, and destruction of homes and farmland. According to official estimates, the floodwaters killed more than 800 people, displaced 1.5 million people, destroyed 332,237 hectares of farmlands and over 200,000 houses, and affected over 2.5 million people. It was regarded as the worst flooding in Nigeria since 2012, with far-reaching consequences for the affected communities.

The floods have highlighted Nigeria’s high vulnerability to the impacts of climate change. The country’s natural environment, such as its forests and wetlands, play a crucial role in mitigating the effects of extreme weather events, but these are under increasing pressure from deforestation and other human activities. As a result, the country is increasingly exposed to the devastating impacts of floods, droughts, and other extreme weather events. To address these challenges, it is clear that urgent action is needed to reduce greenhouse gas emissions and adapt to the changing climate.

One innovative approach gaining traction is the use of carbon credits, a market-based mechanism that incentivises companies to reduce their carbon footprint. Through carbon credit trading, companies are able to offset their emissions by purchasing credits generated from emission-reducing projects.

A carbon credit, according to experts, is a unit of measurement used to quantify and track reductions in greenhouse gas emissions. Each carbon credit represents the avoidance or removal of one metric tonne of carbon dioxide equivalent (CO2e), the unit used to measure different greenhouse gases. Credits are earned through projects that reduce or remove CO2e, such as renewable energy initiatives, afforestation projects, and energy efficiency improvements.

Once a project is verified as meeting certain quality standards, carbon credits can be traded on the carbon market. Companies can use carbon credits to offset their own emissions, or they can sell the credits to other companies that want to reduce their carbon footprint.

The carbon credit market is a competitive market where the price of credits is determined by supply and demand. The supply of credits is created through projects that reduce or remove CO2e, and the demand for credits is driven by the need for companies to meet their emission reduction obligations. The price of carbon credits is also influenced by other factors, such as government regulations, market sentiment, and the perceived scarcity of credits.

According to research by Global Market Insights, a leading market research and management consulting firm, the carbon credit market is projected to see significant growth in the coming years. The firm’s analysis shows that the market was worth around  $103.8 billion in 2023 and is expected to grow at a compound annual growth rate (CAGR) of 14.8 percent between 2024 and 2032. The expansion of carbon pricing mechanisms and the growing demand for corporate sustainability initiatives, are expected to drive business growth.

The market for carbon credits plays a crucial role in achieving the emission reduction targets set by international agreements like the Kyoto Protocol and the Paris Agreement.

Without a functioning carbon market, it would be more difficult for companies to meet their emission reduction obligations. The carbon market provides a financial incentive for companies to invest in projects that reduce or remove CO2e, and it allows companies that have exceeded their targets to sell their excess credits to those that need them. In this way, the carbon market helps to drive investment in emissions reduction projects and allows companies to manage their environmental impact more effectively.

Various researches have shown that carbon credit trading represents an innovative financial mechanism that links environmental benefits with financial value. Through the sale of carbon credits, companies can generate new revenue streams that can be reinvested in further emission reduction projects. This virtuous cycle of emission reduction and financial incentive creates a self-reinforcing system that helps to drive investment in sustainable development. The financial benefits of carbon credit trading also create incentives for companies to invest in new technologies and processes that can reduce their carbon footprint even further.

Beyond the financial incentives provided by carbon credit trading, this system also has a positive environmental impact. By reducing greenhouse gas emissions, companies are contributing to the global effort to combat climate change. Additionally, the adoption of cleaner technologies and practices can lead to improved air quality, reduced water pollution, and better land management practices. These positive environmental outcomes can have a significant impact on the health and wellbeing of local communities, as well as the planet as a whole.

The collaborative nature of carbon credit trading is one of its key benefits. By bringing together companies, governments, and environmental organisations, this system is expected to create opportunities for shared benefits and improved outcomes. For example, companies can work with governments to create policies that encourage the adoption of cleaner technologies, while environmental organisations can support carbon offset projects and provide verification for carbon credits.

Industry collaboration is also seen as a key component of carbon credit trading. These partnerships can generate carbon credits that can be traded between the companies, allowing them to meet their individual emission reduction targets while also contributing to the overall decarbonisation.

Another common form of partnership in carbon credit trading is public-private partnerships. These partnerships involve governments working with private sector entities, such as businesses, foundations, or non-governmental organisations (NGOs).

In addition, international cooperation is also a major benefit of carbon credit trading. By participating in international carbon markets, companies can access a broader range of opportunities for emission reduction, including those in developing countries. This allows them to benefit from lower costs for carbon credits and gain access to new markets and technologies. It also enables companies to share best practices and expertise across borders, leading to greater innovation and progress towards a sustainable future.

Carbon credit trading provides a powerful mechanism for companies to address the pressing challenge of climate change while also creating new opportunities for growth and development. By trading carbon credits, companies can reduce their environmental impact, foster innovation, and build resilience for the future. And by engaging in partnerships with other companies, governments, and NGOs, businesses can leverage the power of collective action to create lasting change. In this way, carbon credit trading is not only an economic tool, but also a force for positive social and environmental transformation.

With the growing demand for carbon credits, the Nigeria-Vietnam Chamber of Commerce and Industry (NVCCI) provides an important opportunity for companies in both countries to collaborate on carbon reduction projects.

The history of the trade relationship between Nigeria and Vietnam dates back to the early days of their respective economic development, when trade was conducted largely on an informal basis. However, in recent years, the relationship has seen significant progress, with the total two-way trade volume estimated to be $50 million in 2007, doubling to $100 million in 2010. The trade agreement, signed in 2009, laid the groundwork for increased trade between the two countries, covering a wide range of areas and facilitating economic cooperation. In particular, Vietnam’s economic progress and achievements in various sectors have been an important driver of foreign direct investment (FDI), which in turn has contributed to the expansion of trade.

In addition, the exchange of business delegations has played an important role in promoting trade. These exchanges have provided opportunities for companies to learn about new markets and opportunities for cooperation, while also fostering personal connections between business leaders. This has helped to build trust and understanding, as well as create a platform for joint business ventures.

The NVCCI’s 2024 quarterly business meeting, to be held in March, will focus on a range of issues, including the establishment of a bilateral partnership between Nigerian businesses and Vietnamese counterparts. The meeting will also seek to create opportunities for carbon credits to be established, with a view to reducing emissions and achieving climate goals.

The meeting will provide an opportunity for companies in both countries to explore the possibilities for cooperation, learn about the latest developments in each other’s markets, and identify potential areas for future collaboration. It will also provide a platform for networking and knowledge sharing.

The theme of the business meeting, “Climate change, food insecurity, youth unemployment perspectives; Strategic visions for management of Nigerian environment-induced issues and challenges”, highlights the need to address the various climate-induced challenges facing the country. These challenges include food insecurity, as well as unemployment among the youth population. The meeting will provide a platform for stakeholders to share their perspectives on these issues and discuss potential solutions.

In addition, the meeting will explore how to create strategic visions for the management of environmental issues and challenges in Nigeria. This includes developing policies and strategies that can help to mitigate the impacts of climate change and create sustainable development opportunities for all.