Comment: How high-integrity carbon markets can finance climate-smart economic growth in Africa

August 29 - I can’t recall a moment in my life when Africa and its people haven’t been impacted by climate change. Data shows that in 2020, nine out of the 10 countries most affected by climate change were African. East Africa this year faced the worst drought it has faced in four decades, bringing catastrophic impacts to Kenya, Somalia and Ethiopia.

The conclusion is simple: without climate change, such events would not have happened.

African countries have historically contributed far less to climate change than others, yet Africa has been impacted more severely. It is on the cusp of its own rapid industrialisation, yet it must do so while reducing its emissions.

This is a very different kind of growth paradigm to contend with. But Africa has the potential to tap a new kind of growth, which is enshrined in what is being called green growth. This wholly new type of economic growth needs new approaches to infrastructure development, the adoption of new kinds of technologies and energy, and importantly, a new approach to finance that can stimulate economic growth without impacting the planet.

African countries are stepping up to the challenge and are willing to try new approaches. We’ve already seen healthy and ambitious pledges from various countries, but these countries also make it clear that they need support to fully fund these commitments from the international and multi-lateral communities.

For example, South Africa has set an emissions reduction target of 28% by 2030, as long as “adequate international support will be provided”. Similarly, Ghana has committed to a reduction of 15% by itself, or 30% if international support is made available.

The funding gap to achieve Africa’s commitments is vast. Estimates show that the continent needs $2.8 trillion by 2030 to fully fund the commitments that have already been announced.

This is why we need to see close partnership across different sources of funding – from the international community, African domestic capital sources and from the private sector – to deliver the required financial impact.

As co-chair of the Voluntary Carbon Markets Integrity Initiative (VCMI), I believe there is significant untapped potential within Africa to take the lead on deploying this finance to create a greener future for the continent, while helping tackle the global climate crisis.

One example is The African Carbon Markets Initiative (ACMI), which was launched last year at COP27.

Voluntary carbon markets (VCMs) can help to channel billions in investment that can build vibrant, green economies, while also contributing towards global climate action. Companies purchase carbon credits, which are issued by African developers, companies, communities and governments and finance carbon-removal or reduction projects such as forest regeneration and renewable energy. These projects also deliver additional co-benefits for local livelihoods and biodiversity.

Africa’s potential in the supply of high-quality carbon credits is vast. Ghana, Kenya and the Democratic Republic of Congo are just a handful of countries that have proactively sought to build and scale their domestic carbon markets.

We are also seeing coordination across the continent. ACMI is focused on driving growth in Africa’s voluntary carbon markets, fostering activity that reduces or removes substantial amounts of carbon dioxide equivalent (CO2e) by promoting African carbon credits, mobilising significant capital and creating millions of associated jobs in Africa by 2030.

Given that the Africa Climate Summit is being held in Nairobi this week, I want to reflect on what must fall into place so Africa can build a vibrant and well-capitalised VCM that supports green growth while meaningfully contributing to global climate action.

Integrity is the first pillar. We need to firmly root end-to-end integrity into the VCM system. The handshake between the buyers and the sellers of carbon credits is a key connection where responsibility, accountability and transparency can be forged. Guidance and frameworks for what governs integrity in the VCM are also critical.

There are tools to help with this. The Integrity Council’s Core Carbon Principles (CCPs) provide a standard for what high-quality credits should follow when they are created, and the Voluntary Carbon Markets Integrity Initiative’s (VCMI) Claims Code of Practice is a rulebook for companies purchasing carbon credits, providing guidance on when and how voluntary carbon credits can be used, and the “claims” buyers can make about their climate impact achievements while using these credits.

Critically, companies should only purchase carbon credits in addition to measurable, science-based emissions reduction pathways. In other words, they should not be used to continue business-as-usual emissions. Developers, sellers, and traders of carbon credits need to integrate governance, emissions impact and sustainable development outcomes for credits sold.

Everyone involved in the VCM must hold each other accountable. This will firmly root end-to-end integrity in the VCM, which will ultimately establish trust.

The second piece is action. We have already seen examples of countries and initiatives leading the way. But we must see more action across state and non-state actors in Africa and globally.

The international donor community needs to help encourage capacity, providing technical assistance for African countries and project developers, as well as technologies and systems to drive registration, verification and reporting.

Buyers should begin engaging with the guidance that exists and remain confident about the market. Corporate buyers making significant commitments will also drive countries and developers to shape high-quality supply.

The third piece is a favourable environment and investment framework at a country level, that sets the VCM up for success.

African countries also need to decide whether, why, how and when to engage with VCMs and other carbon finance mechanisms. The VCMI released a VCM Access Strategy Toolkit, in partnership with the United Nations Development Programme, highlighting the role of high-integrity VCMs in global climate mitigation efforts, and how countries can use VCM finance to benefit broader sustainable development, climate and nature policy priorities.

The final pillar is transparency and equity. There is a real opportunity for the African VCM to be truly fair and equitable, where the price of credits reflects the underlying value, and the proceeds are shared equitably to include local communities, indigenous peoples and other key stakeholders who have the most to gain and potentially lose from these projects. The VCM should be a market that works for people and the planet.

If we are to succeed in our global climate ambitions, we need a truly transformational way to finance these ambitions. The VCM is one such tool in an arsenal of financial interventions available to drive climate action. Let’s work together to fulfil its full potential.