African countries could export carbon credits for new revenue using renewable energy, resources

Addis Ababa, May 11, 2024 (FBC) – African countries could leverage their vast renewable energy resources, tropical forests, peatlands, and marine ecosystems to export premium carbon credits, providing a new revenue stream, according to the 2024 Economic Report on Africa by the United Nations Economic Commission for Africa (ECA) launched at the recently concluded tenth Africa Regional Forum on Sustainable Development (ARFSD-10) in Addis Ababa, Ethiopia.

The report says, carbon markets could support Africa’s goals of resilience and prosperity, in line with Agenda 2063. They also present a potential path for achieving the Paris Agreement’s climate goals.

“A failure, however, to ensure credit additionality, appropriate governance, and high enough prices could lead to perverse market incentives that increase carbon emissions and slow the climate transition on the continent,” says the report.

Nassim Oulmane, Acting Director of ECA’s Technology Climate Change, and Natural Resource Management Division explains that there are two types of carbon markets that Africa could invest in: the regulatory compliance market and the voluntary carbon market (VCM). But so far, credits from the VCM, where many African countries participate, have been only a small fraction of those supplied by the overall regulatory compliance market.

“In the VCM, the trade of carbon credits is voluntary while the compliance market, is used by companies and governments required by law to account for their greenhouse gas emissions. It is regulated by mandatory national, regional, or international carbon reduction regimes,” he explained.

“Most of the credits in the VCM have come from nature-based solutions, including forest conservation, improved agricultural cultivation, and reforestation. Energy savings from fuel efficiency and fuel switching were additional sources.”

The report shows that in 2022, while the VCM value was approaching a mere $2 billion, the value of traded carbon permits in global markets reached a record EUR 850 billion ($909 billion). On a more positive note, estimates point to the VCM reaching $10–$40 billion by 2030. A third of the VCM’s traded volume were retiring credits (that is, buying credits to count towards a commitment), but Africa contributed only 11% of this type of VCM credits in 2016.

“Africa currently realizes only around 2% of its annual potential of carbon credits,” says the report.

Explaining Africa’s potential in carbon-credits, Mr. Oulmane said the continent should invest in its untapped renewable energy potential; youthful, rapidly growing workforce; available land and other natural assets; and low emissions.

“Proceeds from sales of carbon credits can provide additional revenue for climate-smart interventions,” said Mr. Oulmane.

“In addition to improving the climate, many of these interventions improve livelihoods, create jobs, spur new economic and sustainable industrial activity.”

The African Carbon Market Initiative (ACMI) estimates that 110–190 million African jobs can be created by 2050 if the carbon price per tonne reaches $80 and direct and indirect jobs are added beyond nature-based solutions. Evolving carbon markets also present challenges for African economies.

While the report shows that Cameroon, Democratic Republic of the Congo, Ethiopia, Ghana, Kenya, Nigeria, Tanzania, Uganda, Zambia, and many other African countries have participated in the VCM, five countries were selected for case studies on investing in a sustainability transition: Gabon, Kenya, South Africa, Senegal, and Morocco. Each case study reviews the national policy and strategic context and looks at the investment intervention in a sector important for promoting the transition.