Four innovations in African carbon markets

Governments are building stakeholder support

The hot topic in African carbon credits has been the issue of carbon taxation and what benefits should be guaranteed for local stakeholders. The Zimbabwe government initially proposed high benefit sharing requirements for project developers, before revising down their proposals. Several other governments are also actively discussing similar arrangements. The reaction to this has been fierce. Mainstream media outlets referred to the Zimbabwe measure as ‘appropriation’. 

Much of this criticism seems to miss the point. Government taxation is a sign that the market is maturing. After many decades during which carbon was treated only as an externality, it now has a value. This bigger trend is an essential ingredient to tackling climate change. 

As with any new asset class, governments are well within their rights to tax and regulate it. As with all forms of foreign direct investment, regulators must strike a balance between calibrating appropriate rules and attracting external finance. Carbon is a new asset class and tailoring the rules will take some work. There will be some disruption as we transition to this new market, but clear policy frameworks always provide a more stable investment environment in the medium term. 

And there is a bigger picture - the carbon market won’t exist without local support. The issue of benefit sharing also draws on the Sustainable Development Goals, a key principle of the Paris Agreement and essential to a sustainable and equitable climate transition. 

Benefit sharing is also crucial for carbon quality, as BeZero Carbon’s work shows. Benefit sharing feeds into our non-permanence assessment, since strong community relations and sustainable livelihoods increase the likelihood of community buy-in and cooperation. It also feeds into our assessment of additionality.

Policymakers are redesigning the carbon market

The taxation debate also crowds out wider developments in carbon markets policy. Catalysed by the Paris Agreement, regulators globally are turning their attention to carbon markets, as our previous research outlines. Carbon markets are undergoing a restructuring and regulatory frameworks can play a key role in building more robust markets. 

How will these markets develop? African policymakers are leading this work. Where Europe and the US are focusing on regulating the demand side, such as greater information disclosure (US Securities and Exchange Commission rules) and how companies make claims in the sector (EU Green Claims), Africa is generating policy frameworks to support supply. 

In Kenya, regulators are developing a comprehensive policy framework to support the sector, one of a host of countries examined in our recent report on government regulations. The head of the Financial Regulator in Egypt has emphasised the role of policy in supporting robust quality in the market, a key ingredient for the market to be sustainable.

Governments are also providing direct support. Egypt has committed to investing up to EGP 1 billion in low carbon projects that issue credits and many other African governments are  in the process of designing supportive policy frameworks.

Advanced market signals and programme-based approaches are being designed to unlock supply

More than any other region, Africa is coordinating its effort to support the creation of carbon credit supply. This is being spearheaded by the Africa Carbon Markets Initiative (ACMI). 

The initiative is a powerful alliance of African stakeholders bolstered by global corporate support, including from some major potential buyers. The initiative, launched at COP27, was set up to generate 300Mt credits by 2030. 

The ACMI is including a number of innovations as part of its approach, including:

• Advanced market signal: the initiative aims to leverage the powerful allies that are part of the coalition to signal demand and stimulate carbon credit generation, helping to overcome initial finance barriers. 

• Programme-based approaches: The ACMI aims to capitalise on the promise of new methods of generating carbon credits, including programme-based approaches to credit generation. This will aim to leverage the significant potential of Africa’s millions of small farmholders to generate emissions reductions.

• Establishment of a biodiversity credit: Alongside the work of the Africa Development Bank and the UN Environment Programme, the initiative aims to develop markets in wider environmental assets, including biodiversity, which can complement the goals of carbon markets and leverage the continent's immense natural assets. 

Africa is catalysing Article 6 markets

The UN-agreed international carbon markets - Article 6 - will enable governments to collaborate to meet their climate goals. For some countries, the cost of rapid emissions reduction is too high to accelerate ambition. As a provider of lower cost mitigation options, Africa has a crucial role to play in accelerating global climate ambition. 

Several African countries, including Kenya, Ghana, Morocco, and others, are taking a leading role in this, facilitating the development of projects and co-designing new finance and credit-sharing models. To date, approximately one quarter of emerging agreements involve an African country. 

Complementing this work, there are a number of initiatives that are supporting capacity building for Article 6 markets. This includes the Article 6 Implementation Partnership, which is being supported by several African countries. 

Concluding note

Our aim at BeZero is to better value environmental assets, starting with carbon markets. Our ratings approach provides an independent assessment of carbon quality, which will help the market to grow. Our tools are used by governments, regulators, project developers, and businesses alike. 

If you would like to know more, get in touch.