The state of voluntary carbon markets in Africa
The state of voluntary carbon markets in Africa has been growing steadily, with a compound annual growth rate of 36 percent from 2016 to 2021, slightly faster than global markets. Despite this growth, the opportunity to deliver climate finance through carbon markets in Africa remains largely underutilized. According to recent data, just five countries, including Kenya, Zimbabwe, DRC, Ethiopia, and Uganda, account for around 65 percent of credits issued over the past five years.
One of the main issues is that there is a mismatch between project activity in different countries and their carbon credit potential. Many of the countries with high potential have seen low levels of activity. For instance, Madagascar, Angola, Nigeria, Sudan, and Tanzania, some of the highest-potential countries, have seen minimal carbon credit deal announcements. The Democratic Republic of the Congo is the only country among them that has announced significant carbon credit deals.
Voluntary carbon markets in Africa are also highly fragmented. Although there are a significant number of global players across the value chain, project developers are few and generally small-scale, with limited diversification. Over the past decade, around a hundred project developers have been active on the continent. The market is relatively fragmented, with an average carbon credit issuance of only around 140 ktCO2e in 2021 for project developers not in the top 15. Furthermore, developers have been focusing on similar types of projects, with about 97 percent of African carbon credits issued in forestry and land use, renewable energy, and household devices.
Another challenge is the lack of local validation/verification bodies (VVBs). Almost all credits from Africa are certified by global bodies, with over 80 percent from Verra, 20 percent from Gold Standard, and less than 1 percent from other players. Similarly, there have been almost no active African-based exchanges or marketplaces to date, although multiple initiatives are working on developing such platforms. These include a collaboration between AirCarbon and the Nairobi International Financial Center, an effort initiated by the Johannesburg Stock Exchange, and an announced effort by the Egyptian Government.
Despite these challenges, there is great potential for carbon markets to deliver climate finance to Africa. The use of carbon credits can incentivize investments in low-carbon technologies and support the transition to sustainable development pathways. Furthermore, carbon markets can create new opportunities for sustainable development and job creation. Governments, private sector players, and civil society organizations can work together to overcome the challenges and unlock the potential of voluntary carbon markets in Africa. By building a vibrant and inclusive carbon market, Africa can help to address climate change and support the transition to a low-carbon economy.