Innovative Business Models, Critical for African Governments to Unlock Carbon Markets

Carbon credits in Africa can be generated by projects that curb emissions with a major focus on switching to renewable sources such as solar energy. Nasho solar power plant in Eastern Rwanda. Credit: Aimable Twahirwa/IPS
Carbon credits in Africa can be generated by projects that curb emissions with a major focus on switching to renewable sources such as solar energy. Nasho solar power plant in Eastern Rwanda. Credit: Aimable Twahirwa/IPS
  • by Aimable Twahirwa (nairobi)
  • Inter Press Service

The compliance market in Africa, according to experts, is critical for countries to establish a carbon price through regulations to control the supply of allowances that are then distributed by national and regional regimes.

“It is all about getting the business model right (…) the capability of African Governments is there very central to having the right kind of information and investing in local business models,” Mahua Acharya, the Chief Executive Officer of C-Quest Capital (CQC), one of the world-leading carbon finance company told IPS.

Currently, African leaders are pushing market-based financing instruments, such as carbon credits which can be generated by projects that curb emissions with a major focus on switching to renewable energy sources.

Carbon market initiative allows polluters to offset their greenhouse gas emissions by investing in development or initiatives such as tree-planting or renewable energies. Nevertheless, experts point out that they are still cheaper to purchase in Africa due to poor regulations and weak policies.

Renewable energy was at the heart of discussions at the 2023 Africa Climate Summit (ACS) in Nairobi, Kenya, and shifting away from centralized fossil fuel energy towards people-centred green energy sources is now seen as the single most effective way to expand the continent’s participation in voluntary carbon markets.

The African initiative’s goal is to produce 300 million new carbon credits annually by 2030, comparable to the number of credits issued globally in voluntary carbon offset markets in 2021.

“This is a very ambitious target and a fantastic opportunity for Africa to set the course,” Mahua said in an exclusive interview.

Article 6 of the Paris Agreement’s rulebook governing carbon markets gives countries a right to emit carbon dioxide at an agreed price per tonne, but one of the major challenges facing most African countries is the lack of appropriate strategies to earn money on these carbon markets.

The latest report on carbon markets and climate finance by the Eastern Africa Alliance shows that Burundi, Ethiopia, Kenya, Rwanda, Sudan, Tanzania, and Uganda are currently scaling up carbon credit production via voluntary carbon market activation plans.

Under the new move, internationally traded credits between governments and private sector players are acceptable under Article 6 of the Paris Agreement.

For example, Rwanda, as one of the few countries that expressed willingness to begin trading in voluntary carbon markets, is currently exploring key strategic sectors in which projects that reduce carbon emissions can be designed to sell credits on the carbon market. Officials emphasize that the major focus will be on renewable energy, the country leveraging on the carbon market as the source of climate finance.

However, some experts point out that such projects and programs need to be “authorized” to avoid the same carbon credit being sold twice.

“Voluntary approach is vulnerable to the decisions of corporate entities to meet their net zero goals – which is fine, but shaky if you think that countries should be basing economic planning decisions around this,” Acharya said.

Carbon finance – the revenue from the sale of carbon emission reduction linked with mitigation activities – is a green growth opportunity for many developing and emerging economy countries.

On the sidelines of the Africa Climate Summit in Nairobi earlier this month, some activists rejected carbon markets, describing them as “false solutions and narratives that undermine African communities' rights, interests and sovereignty.”

The Executive Director of the Pan African Climate Justice Alliance (PACJA), Mithika Mwenda, told IPS that he was disappointed that the principle of shared responsibility was a missing point.

“The initiative seems to be promoted by powerful interests who benefit from maintaining the status quo of fossil fuel dependence,” he said.

While Mithika is convinced that, in most cases, these carbon market investments do not serve the climate justice imperatives for Africa, Acharya points out that different African countries are at different stages of preparedness and clarity towards putting carbon markets to work.

“These carbon finance transactions are very precious to many African countries because they are forex-based and provide a good degree of risk mitigation,” Acharya said.

The latest Africa Environment Outlook for Business by the United Nations Environment Programme (UNEP) shows that Africa could become a trailblazer in renewable energy solutions, with abundant solar, wind, hydro, biomass, and geothermal resources that may contribute to a 6.4 per cent increase in GDP from 2021 to 2050.

Businesses in the energy efficiency sector can provide products and services, such as lighting systems, smart buildings, and efficient industrial processes on the continent, it said.

While Carbon markets are seen as an incredible opportunity to unlock billions for the climate finance needs of African economies while expanding energy access, some carbon credit experts stress the need for the African Union (AU) as a continental body to position itself economically on equal footings with other major economic blocks.

“There are thousands of billions of dollars are being allocated as loans on high-interest terms to poor countries seeking help to cope with climate change impacts,” said Adhel Kaboub, Associate Professor of economics at Denison University in Ohio, USA, and the president of the Global Institute for Sustainable Prosperity.

“Through these schemes, Africa cannot continue to play the role of source of cheap raw materials while serving as a large consumer market for the Global North,” he said.

Rwanda is among the countries planning to use carbon markets to meet their Nationally Determined Contributions (NDCS) to the Paris Agreement.

Currently, the Clean Development Mechanism (CDM) and Voluntary Carbon Market (VCM) are the two operational mechanisms allowing the country to earn carbon credit units by reducing greenhouse gas emissions.

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© Inter Press Service (2023) — All Rights ReservedOriginal source: Inter Press Service