President William Ruto speaks about carbon finance at the Africa Climate Summit 2023 (Photo courtesy ZAWYA)

Carbon credits are a financial instrument representing a reduction of one metric ton of carbon dioxide (CO2) or an equivalent amount of other greenhouse gases.

These credits are generated through projects that reduce, remove, or avoid greenhouse gas emissions, such as reforestation, renewable energy, and energy efficiency initiatives. Companies, organizations, or governments can purchase carbon credits to offset their own emissions, effectively neutralizing their carbon footprint.

The concept of carbon credits stems from the global effort to combat climate change by reducing the amount of greenhouse gases released into the atmosphere. The idea is to create a market where emissions reductions can be traded, incentivising businesses and countries to invest in environmentally friendly practices.

Types of Carbon Credits

There are two main types of carbon markets:

Compliance Markets: These are established by mandatory national, regional, or international carbon reduction regimes, such as the European Union Emissions Trading System (EU ETS). Companies or countries are given a cap on the amount of greenhouse gases they can emit. If they exceed this cap, they must purchase carbon credits to cover the excess.

Voluntary Markets: These operate outside of regulatory frameworks and allow companies and individuals to voluntarily purchase carbon credits to offset their emissions. According to the World Bank, “The voluntary carbon market has the potential to grow and scale up, offering opportunities for private sector actors to contribute to reducing global emissions.”

The Importance of Carbon Credits to Africa
Africa has a unique stake in the global carbon market, both as a region vulnerable to the impacts of climate change and as a continent with vast potential to contribute to global carbon reduction efforts. Here’s why carbon credits are particularly important for Africa:

Mitigating Climate Change Impacts: Africa is one of the most vulnerable regions to the effects of climate change, despite contributing the least to global greenhouse gas emissions.

Africa is one of the most vulnerable regions to the effects of climate change, despite contributing the least to global greenhouse gas emissions. From prolonged droughts to extreme weather events, the continent faces significant challenges that threaten food security, water availability, and livelihoods.

By participating in carbon credit projects, African countries can contribute to global emissions reductions, potentially reducing the severity of these climate impacts. and mitigation efforts critical to the continent’s sustainable development.”

Economic Development Opportunities: Carbon credit projects present significant economic opportunities for Africa. According to a report by the Global Carbon Council, “African countries are well-positioned to harness their natural resources to generate carbon credits, which can attract foreign investment, create jobs, and drive economic growth in rural areas.”

The continent is home to vast natural resources, including forests, wetlands, and agricultural lands, that can be harnessed for carbon sequestration projects. Additionally, Africa has immense potential for renewable energy development, particularly solar, wind, and hydroelectric power.

“By tapping into Africa’s abundant natural or renewable sources for more sustainable energy, to derive economic and developmental benefit from the global drivers behind it,” Africa development Bank.

Conservation of Biodiversity: Many carbon credit projects, such as reforestation and forest conservation initiatives, also contribute to the preservation of Africa’s rich biodiversity. Protecting forests not only sequesters carbon but also preserves habitats for wildlife, maintains water cycles, and supports the livelihoods of local communities who depend on these ecosystems. This dual benefit of climate mitigation and biodiversity conservation is particularly valuable in Africa, where many species are at risk due to habitat loss.

Promoting Sustainable Development: Carbon credit projects align with broader sustainable development goals by promoting cleaner energy sources, enhancing energy efficiency, and supporting sustainable land management practices.

“Renewable energy projects in Africa can transform lives by providing access to electricity, reducing emissions, and driving sustainable development”, UNEP Executive Director Inger Andersen.

Access to International Funding and Technology: Participation in the carbon market opens access to international funding and advanced technologies.

“Carbon finance can provide crucial funding for low-carbon projects, bringing technology and expertise to regions that need them the most,” The World Bank.

Challenges 
While the potential benefits of carbon credits for Africa are significant, there are also challenges that need to be addressed. These include lack of clear regulatory frameworks and costs of carbon credit certifications, which developing countries have cited as high.

Price Volatility: The price of carbon credits can be unstable, making it difficult for projects to plan for long-term financing.

Equity and Fairness: Historically, Africa has been underrepresented in global carbon markets, receiving a smaller share of carbon finance compared to other regions.

The African Union continues to  stress that global carbon market must ensure that African countries are fairly compensated for their contributions to emissions reductions.

“It is imperative that African countries are not short-changed in the global carbon market, as they bear the brunt of climate change impacts despite contributing the least to the problem.”AU

Capacity Building: Many African countries lack the technical capacity to develop and manage carbon credit projects. “Building local capacity is key to unlocking Africa’s potential in the carbon market,” said Dr. Mohamed Bakarr, Lead Environmental Specialist at the Global Environment Facility (GEF).

Regulatory Frameworks: The United Nations Economic Commission for Africa (UNECA)  recognises the importance of establishing clear and consistent regulatory frameworks as key in supporting the growth of carbon credit projects in Africa.

“Regulatory certainty is crucial for attracting investments in carbon credits and ensuring the long-term sustainability of these projects.”