Anaman, Jakakimba & Mtembu: How to make carbon markets work in Africa

The recent high-profile Africa Climate Week and the Africa Climate Summit (ACS) hosted in Nairobi aimed to address the global climate challenge with African solutions. During the ACS, on September 6, the Nairobi Declaration on Climate Change and Call to Action was adopted.

This landmark Declaration acknowledges Africa's alarming rate of warming and commits to a cooperative green growth agenda which includes creating legal frameworks for green investments, advancing green production and supply chains, facilitating just energy transitions and leveraging the African Continental Free Trade Area to drive green growth. The central question emerging is what Africa can prioritise in its green growth agenda to achieve significant greenhouse gas reductions by 2030.

Carbon markets have emerged as a practical solution to secure climate finance, promote green value chains, and reduce emissions. These markets enable the trade of carbon credits, generated by initiatives that offset greenhouse gas emissions. Article 6 of the Paris Agreement provides support for these markets, allowing for voluntary or regulatory credit generation.

Currently, Africa's carbon market represents just 2 per cent of the global market. Initiatives like the Africa Carbon Market Initiative and the Eastern Africa Alliance on Carbon Markets are already active.

However, there's a critical need to recognise that carbon credits should serve a broader purpose than just generating revenue. To unlock their full potential, these credits must drive innovation in high-emission sectors and develop value chains to retain wealth.

To structure the complex carbon market and harness the potential to not only finance climate action but also drive sustainable innovation and wealth creation across the continent, African countries must do the following:

First, set clear emissions reduction targets in line with revised Nationally Determined Contributions, and establish a carbon budget/emissions cap to limit total allowable emissions within the African carbon market.

Second, using reliable country data, determine what sectors and entities in specific economic activities must be subjected to emissions reduction requirements.

Consider high emissions sectors like power, transport, manufacturing, and construction. Gradually broaden the scope of covered entities and lower their annual emission caps to align with countries' net-zero goals within specified timelines.

Third, establish transparent allocation mechanisms for carbon allowances within the capped limit. Countries can allocate allowances based on historical emissions or through auction to the highest bidders, potentially generating government revenue.

Fourth, expedite carbon emission reductions. Nations should develop carbon offset programmes encompassing both nature-based (like afforestation and reforestation) and technical solutions (like direct air capture and Storage and carbon capture and Storage).

Africa, with significant crude oil and natural gas reserves, can mitigate emissions from petroleum exploitation through these technical solutions. Additionally, Africa boasts vast renewable energy potential, offering opportunities for private capital to generate tradable carbon credits while meeting ambitious renewable energy targets. It is vital, however, to implement robust environmental and social safeguards to prevent any adverse impacts arising from carbon offset initiatives.

Fifth, establish carbon market mechanisms for trading allowances and offsets. Countries must ensure transparency and price stability, potentially using mechanisms like price floors, ceilings, or strategic allowance reserves as emission targets progress.

Sixth, implement a robust carbon registry system to track allowance and offset issuance, transfer, and retirement to prevent fraud and double counting. Ensure strict monitoring and reporting of emissions data from covered entities, potentially improving carbon accounting accuracy with third-party verification. Enforce compliance with penalties for entities exceeding their allocated allowances.

Seventh, transparently reinvest carbon market revenues in sustainability projects and support climate-impacted communities for resilience.

Effective carbon markets in Africa require a strategic foundation, involving collaboration with stakeholders like businesses, environmental groups, and communities. Integration with international markets can enhance efficiency and global emissions reduction. Raising public awareness is vital to engage stakeholders in emission reduction efforts.

Pauline Anaman is a Lawyer at AB & David Africa and an External Advisor on Africa to the European Union’s Horizon 2020 Negative Emissions Project.  Silas Jakakimba is the Group Senior Executive at the Continental Alliance Group and Senior Partner at SESLaw Advocates LLP. Meluleki Mtembu is a Researcher in political strategy and a Strategy Consultant.