At the recent Africa Climate Summit in Nairobi, Kenya, carbon markets were a hot topic among delegates.
“The restoration and expansion of Africa's natural carbon sinks are not just an environmental imperative, but an unparalleled economic goldmine,” said Kenyan President William Ruto at the opening plenary. “They have the potential to absorb millions of tonnes of CO₂ annually, which can translate into billions of dollars to improve livelihoods across the continent.”
Accordingly, the Nairobi Declaration agreed at the summit’s close included calls to “acknowledge Africa’s role as one of the largest carbon sinks through the Congo forest and peatland”. It also calls for Africa to “take the lead in the development of global standards, metrics, and market mechanisms to accurately value and compensate for the protection of nature, biodiversity, socio-economic co-benefits, and the provision of climate services”.
Carbon markets are nothing new: they first emerged from the 1997 Kyoto Protocol, which created a range of new legal instruments to trade emissions reductions. The years that followed saw compliance ‘cap-and-trade’ markets led by the EU Emission Trading System (EU ETS), as well as voluntary markets.
REDD+ forest carbon projects have also been stoking controversy since their appearance 20 years ago, with critics saying it is impossible to ensure such projects are ‘permanent’, that they would not have taken place anyway (‘additional’), or that they are not overestimating their carbon benefits (a classic criticism is that if you are protecting forests in one area, illegal loggers will simply move their activities to an unprotected area).
Carbon markets are back in the spotlight after the rules for Article 6 of the Paris Agreement were finally agreed upon at COP26 in Glasgow in 2021 after six years of negotiations. The rules offer an international governance framework for countries to create and use carbon credits to help them meet and beat their national emissions reductions targets, or so-called Nationally Determined Contributions (NDCs), under the Paris Agreement.
“There is this huge explosion of interest,” says Lily Odarno from think tank the Clean Air Task Force. “This summer, the climate finance conversation has really gravitated towards carbon markets.”
Work remains for governments, regulators and industry groups to implement the rules on a national level. However, the key tenets of the rulebook are that Article 6.2 allows countries to trade emissions reductions – and removals – with one another through bilateral or multilateral agreements, while Article 6.4 creates a mechanism for specific projects to earn carbon credits, similar to Kyoto’s Clean Development Mechanism. As with its predecessor, the goal is to create a global market overseen by a UN body, which will verify credits for purchase.
Countries such as Japan and Switzerland already have frameworks in place to buy credits and count them towards their NDCs. In May 2023, Singapore signed a memorandum of understanding (MoU) with Bhutan to cooperate on carbon credits under the terms of Article 6, in what was at the time the tenth such MoU.
[Link src="https://www.energymonitor.ai/all-newsletters/" title="Keep up with Energy Monitor: Subscribe to our weekly newsletter" font-size="20px"]With comparatively low carbon emissions, and huge natural assets like the Congo Rainforest (now the world’s largest forested carbon sink), African leaders see a major opportunity in Article 6. Bodies like the West African Alliance on Carbon Markets and Climate Finance have emerged to "make carbon markets accessible for West African countries to make sure least developed countries do not miss the train under the Paris Agreement”.
The Africa Carbon Markets Initiative (ACMI) was launched at COP27 in Egypt to accelerate the growth of Africa’s voluntary carbon markets. Led by bodies including Sustainable Energy for All and the UN Economic Commission for Africa, the ACMI aims to support African governments, communities and project developers to create 100 million jobs in African carbon markets by 2050, and increase carbon credit retirements (to cover an emitter’s carbon, as opposed to being re-traded) from 16 megatonnes of CO₂ equivalent in 2020 to 1.5–2.5 gigatonnes of CO₂ equivalent per annum by 2050.
The ACMI is already having a real-world impact. At the Africa Climate Summit, the UAE Carbon Alliance signed a Letter of Intent with the ACMI to pledge an intended purchase of $450m (Dh1.65bn) in African carbon credits by 2030.
Enduring carbon market controversy and a "new scramble for Africa"
Critics, however, argue that carbon markets incentivise countries and companies to divert their attention away from reducing their own emissions. Flaws in the design of compliance markets have led to unmanageable fluctuations in the price of carbon credits. There also remain significant concerns over the quality of credits from a mitigation point of view, including enduring concerns about the permanence and additionality of credits in the voluntary market.
Article 6 has established frameworks to counter the risk of ‘double-counting’ credits under the Paris Agreement. However, there is nothing to ensure credits are not double-counted in the voluntary market, even if projects are labelled high-quality by a rating agency such as Verra. One carbon market executive who spoke to Energy Monitor on condition of anonymity said he believes there is a massive risk that credits traded under Article 6 will be double-counted in the voluntary market.
Hit by media and investor criticism, the offset market failed to grow in 2022. Companies bought 155 million offsets, down 4% from 2021, over fears of reputational risk from purchasing low-quality credits.
Carbon markets also remain controversial in Africa from a development perspective, despite the ostensible economic opportunity. “It is regrettable that the Africa Climate Summit is becoming a bazaar for carbon credit speculators and propagandists that serve to greenwash rather than reduce harmful emissions,” said Thandile Chinyavanhu, Greenpeace Africa climate and energy campaigner during the summit in Nairobi.
A report released by the Nairobi-based NGO Power Shift Africa during the summit describes carbon markets as a “wolf in sheep’s clothing”, suggesting that credits are “an imaginary commodity created to benefit the wealthy, not the climate”, and a “new form of colonialism”.
Evidence suggests such accusations are not just activist speak. In August, reports emerged that a carbon credit deal between the East African nation of Liberia and Blue Carbon, a company based in the United Arab Emirates, may lead to Liberia relinquishing 10% of its territory. The move has been described as part of a “new scramble for Africa”.
[Link src="https://www.energymonitor.ai/author/nickferris/" title="Read more from this author: Nick Ferris" font-size="20px"]“The boom in carbon markets means communities are losing control of their lands,” says Marina Agortimevor, a Ghana-based coordinator for trans-Africa civil society group the Africa Coal Network. “When we are talking about climate solutions for Africa, they should be solutions by Africans for Africans, not solutions by other people.”
Ensuring the involvement of African people and local communities in carbon credit deals is not just about social justice, points out Lindsay Kosnik from the African Wildlife Foundation. It is also about ensuring the efficacy of the credits themselves, and the carbon capture they are supposed to represent.
“You cannot get the carbon out of the system unless you invest in the people who are delivering it,” says Kosnik. “If you want better agriculture practices, reforestation or wetland restoration, it depends on the people who live there, and who are making day-to-day economic decisions in relation to the land.”
Africa’s first carbon market
Given various scandals that have emerged over the legitimacy of carbon credits, as well as reported human rights violations, fears for Africa’s carbon markets are not unfounded.
Nonetheless, if both projects and the trade in credits are run effectively, they have the potential to bring much-needed climate finance to the continent. They also can encourage sustainable economic practices in communities that might otherwise be reliant on informal labour practices or financial handouts.
One company at the forefront of the push for high-quality carbon credits in Africa is CYNK, which launched in Nairobi at the start of the Africa Climate Summit as the first Africa-based verifiable carbon market.
CYNK offers an end-to-end platform for the measurement, verification and sale of high-quality emissions reductions. It also has control of the carbon projects themselves, launching with the trade of two million carbon credits produced by the Tamu Group, Kenya’s largest biomass company, which was founded seven years ago by Nils Razmilovic, who is also CYNK’s chairman and founder.
Tamu makes biomass briquettes from waste produced by sugar milling operations in Kenya. Each carbon credit sold on CYNK is equivalent to one tonne of carbon emissions saved, which would otherwise have been emitted had the sugar milling waste been left to rot.
CYNK trades the credits on a platform that uses blockchain to enable climate projects from the Global South to interact directly with investors and buyers in the Global North. The technology ensures that middlemen who may take a large cut or double-sell the credits are removed from the equation, and the journey of the credit from producer to buyer is fully traceable.
“What we are doing is extremely ambitious. We are not sitting in an office in London or San Francisco creating technology we think might help,” says Razmilovic. “We are covering the entire value chain, from the project and its social impact to the data collection necessary to effectively trade carbon credits.
“Transparency in the voluntary carbon market is generally very low, and there is very low trust. We want to simplify the whole process, increase transparency, and remove as many intermediaries as possible.”
Razmilovic adds that both the Tamu Corporation and CYNK have been developed with “social impact” at the heart of their strategy from the off. As an example, some 84% of Tamu’s now 400 staff are women and young people.
Cleaning up African cooking
Another company at the forefront of high-quality carbon credits in Africa is KOKO, which has put solving the widespread environmental and health problem of dirty cooking fuels at the heart of its business model. Some 900 million people use dirty cooking fuels in Africa, and the charcoal industry in Kenya alone is responsible for the loss of five million hectares of forest each year.
KOKO has developed a compact bioethanol cooking stove for the Kenyan market, which burns ethanol produced from sugarcane grown in the country. The fuel is supplied to households via a network of KOKO Fuel Points in residential areas in eight urban networks. The company now has some 925,000 customers, and is set to roll out its product in Rwanda.
KOKO’s business model generates carbon credits for the carbon saved through avoided deforestation, which the company sells “on both voluntary and compliance markets but mainly to compliance markets”, says Greg Murray, KOKO co-founder and CEO. An example of a compliance market where KOKO has sold credits is the Korean emissions trading scheme, a cap-and-trade scheme now accepting international carbon credits under Article 6.
The profits from the carbon credits are not only lining KOKO’s pockets: “We are mainlining carbon profits in the wallets of our customers in the form of high subsidies on the cost of the bioethanol that they purchase,” says Murray. “This has allowed us to supercharge the switch to bioethanol, with 10,000 new homes per week coming onto our platform.”
The impact of cleaning up Kenyan cooking on the natural environment, and the people who depend on it, is profound. “Charcoal production leads to mass-deforestation, which erodes soil and and changes rainfall patterns, which in turn drives food insecurity,” says Murray. “Burning charcoal releases carbon that would otherwise have been locked away, and is terrible from an emissions and pollution perspective.”
Restoring African landscapes
Beyond energy projects, it is also possible to design and implement nature-based carbon projects that can be traded on carbon markets. With effective design, due diligence and a social emphasis, these can banish the spectre of uncertain REDD+ projects.
The Melbourne-based Global Evergreening Alliance (GEA) works with governments, aid agencies and other organisations to oversee massive land restoration programmes, reverse land degradation, improve climate resilience and increase food production and biodiversity. Long-term, GEA aims to restore 500 million hectares of agricultural lands, 575 million hectares of degraded forest lands, and regenerate a healthy grass-tree balance on 650 million hectares of degraded pasturelands.
The current focus, though, is a project called Restore Africa, which aims to restore 1.9 million hectares of land and directly support 1.5 million smallholder farming families across six Africa countries: Ethiopia, Kenya, Malawi, Tanzania, Uganda and Zambia. The project is being overseen by governments of participating countries, NGOs and grassroots organisations.
“Currently there is a fragmented scattergun environment of thousands of small pilot-scale projects all over the developing world aiming to restore landscapes, the vast majority [of which] are never going to be taken to scale,” explains Chris Armitage, co-founder and CEO of the GEA. “What we have done is drawn together the largest, most capable NGOs around the world, to aim from the start for large-scale transformative impact, all the while using on-the-ground expertise to ensure everything is managed to the best possible degree.”
The GEA has begun working with farmers to restore land in three countries, with work set to begin in another three over the next few months. “We have created a model which we are hoping will demonstrate that by transforming landscapes, you can transform livelihoods in the long-term by improving farm productivity, and bringing in a new source of income through the carbon credits.”
Roughly 50% of the credits produced by GEA programmes go back to the communities to be traded, while the other 50% go back to GEA and its partners to cover costs. GEA is also selling at a relatively high carbon price on the voluntary markets to organisations that agree to retire credits straight away, to ensure credits are not sold, or double-sold, in the future.
“As an alliance, we do not want to control what we do, but we are wanting to maximise benefits to communities, environment and the climate,” says Armitage. “If we can provide visibility via this model, we hope it can be adopted by other organisations around the world to transform the planet.”
Filtering out the bad actors
Ethically minded organisations can work to ensure good-quality projects and regulated trade, but that does not mean other actors in the carbon market are doing the same.
“If you are in the business of carbon projects, and you are telling me you are selling a quality credit for $5 a tonne, it instantly tells me that this is not a real credit,” says KOKO’s Murray. “Unfortunately, with limited transparency and no fixed carbon price in the carbon market, there are a lot of subprime credits like this being sold.
“It is really down to the organisations purchasing the credits to ensure that what they are purchasing is good quality, and can contribute good financial benefits to the communities,” he adds.
If African carbon markets grow as rapidly as many now expect, and due diligence of processes remains insufficient, then there certainly remain significant grounds for concern. Nevertheless, the pains that certain organisations are taking to produce high-quality projects, new regulations in compliance markets, as well as the genuine interest many companies are showing in buying high-quality credits, provides grounds for hope.
“I hear again and again from CEOs that they are now only interested in carbon credits of the highest quality,” said US Special Presidential Envoy for Climate John Kerry to delegates gathered at the African Climate Summit.
“I certainly hope that as carbon markets mature, they will learn from old problems, and become more sophisticated in terms of monitoring and compliance requirements,” adds GEA’s Armitage. “Certainly major investors tend to be more interested in high-quality credits, and this should help drive markets away from problematic methodologies of the past.”
