Design a carbon market that leverages Africa’s strengths

The Neurath power plant

The Neurath power plant in Germany. Africa has the power to protect key carbon-storing ecosystems, lead on renewable energy, and build resilient infrastructure and cities.

Photo credit: AFP

Although Africa has contributed the least to the current climate crisis, it has been among the hardest hit by its impacts. But that’s not the continent’s only story in the global warming debate: The first Africa Climate Summit in Nairobi will focus on the continent’s potential as a centre for climate solutions. It will be a moment to reflect on Africa’s home-grown opportunities to lead on climate and further the ambitions of the African Union’s Agenda 2063, ‘The Africa We Want’.

This vision aims to move from poverty alleviation to wealth creation while reaping environmental and economic dividends – a vision that is possible through climate action. Africa has the power to protect key carbon-storing ecosystems, lead on renewable energy, and build resilient infrastructure and cities. Carbon pricing policies and measures offer an opportunity to move forward on these important climate solutions. In recent months, African leaders have called for measures that provide incentives to comply with emissions reduction targets and offer a powerful vehicle for delivering on other social and economic priorities.

Multinational companies are also looking for projects that reduce climate pollution. Africa has the possibility to attract that investment by offering high-quality opportunities to conserve carbon-storing rainforests, transition away from fossil fuels, or otherwise reduce climate impacts.

But despite this potential, Africa accounted for only two per cent of the global voluntary carbon market in 2021. The value of the global voluntary carbon market could reach up to $100 billion by 2030. If Africa were to capture just 10 per cent of that, it would generate $10 billion in revenue, which could be used to invest in climate and sustainable development measures.

The Africa Carbon Markets Initiative, launched at last year’s global climate talks in Egypt, is working to build Africa’s role as a leader in voluntary carbon markets. The Initiative is working with companies, governments, and civil society to increase the amount of high-quality carbon credit programs in Africa and ensure the benefits are shared equitably across the continent.

To unlock the full potential of these policies, Africa must seize the unique opportunities for reducing emissions in Africa and develop standards and methodologies to create programs around those opportunities. For example, 17 African countries have more diesel generator capacity than grid capacity. Often, these generators do not form part of the declared national power sector emissions.

Although these generators provide energy where the grid power is not available or is unreliable, phasing out diesel generator sets in favour of cleaner energy sources could be a critical opportunity for climate mitigation, preventing health-harming air pollution, and saving the continent over US$20 billion per year in diesel fuel costs.

Designing a carbon market that benefits Africans means aligning the climate strategies and projects with development plans to ensure Africans see the benefits in their daily lives. For example, if a development goal is to expand Africans’ access to reliable, affordable clean energy, there is again the opportunity to target the phase-out of diesel generators. Some of the key challenges facing the African carbon market are investor confidence, credibility, and capacity.

The private sector and investors will only participate in these markets if they are confident their investments will lead to real reductions in climate pollution that can be measured and reported to regulators, stockholders, and customers in their home countries. To build that confidence, leaders need to establish the right enabling environment, which includes regulatory frameworks that encourage transparency and integrity, that give companies confidence that their investments will help them achieve their climate goals. There is also a need to establish appropriate carbon prices that reflect the true value of carbon in the African context.

That, in turn, must be based on reliable standards and methodologies. But to unlock the full potential of African carbon markets, they must be authentically African-led. The continent can’t implement a cookie-cutter approach to an African carbon market.

This is an opportunity for African leaders, businesses and civil society to design and implement a carbon market that leverages Africa’s strengths, meets its challenges and addresses its needs. The leaders of this year’s Nairobi summit must be focused on real, actionable, and tangible results, rather than just more talk about Africa’s vulnerability.

They should aim to catalyse concrete action. Encouraging the growth of carbon markets, which provide the dual benefit of reducing climate impacts and growing emerging economies, should be a major goal of their work.

Ms Kallhauge is the Executive Vice President of Impact at Environmental Defense Fund, while Mr Kamau serves as the Co-Director for the Energy Opportunity Lab.