African Carbon Markets: Challenges and Opportunities

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Global climate change mitigation strategies have seen the introduction of carbon markets around the world – whereby high emitting countries or markets are able to trade greenhouse gas (GHG) emission rights with low-emitting countries or markets. Highly regulated and complex in nature, carbon markets have successfully enabled significant reductions in GHG emissions globally, while at the same serving as a vehicle for enhanced finance that can be directed towards renewable energy developments. Despite the implementation globally, Africa has been slow to adopt the model, with socio-political challenges impacting progress.

The United National Environmental Program suggests that carbon markets refer to a diverse set of systems that are regulated in different jurisdictions for trading GHG pollution rights. Despite being the lowest emitter globally, Africa remains committed to reducing emissions and mitigating climate change. Africa serves to significantly benefit from a carbon market, with its abundant renewable resources requiring significant capital injections for effective development. With the continent still relying heavily on its oil and gas, a carbon market will enable the continued exploitation of these resources while directing finance raised through the carbon market towards the renewable energy sector. Accordingly, the continent will be able to accelerate renewable energy growth while maximizing on the benefits associated with oil and gas.

Some of the primary challenges hindering the establishment and implementation of an African carbon market concerns lack of political will, ineffective regulatory oversight, and the complexity associated with carbon markets. Speaking at the Ninth Conference on Climate Change and Development in Africa in a panel discussion on carbon markets in Africa, Gareth Philips, Manager of the climate finance division, African Development Bank, Cote D’Ivoire, stated that “There is difficulty in creating carbon markets in Africa, and there are things that need to be considered to make it effective. The first is liquidity and scale, and the second concerns the complexity of markets and capacity that is required among participants and regulators.”

What’s more, unless implemented effectively and with transparent regulatory oversight, carbon markets could essentially create a loophole for high emitting markets. Effective and collaborative regulation is therefore, a critical component to the success of carbon markets in Africa, and remains one of the most significant challenges.

“Africa needs to have a market that is dependable, where there is trust regarding issues of verification and the following up of transactions. The continent needs a framework that is transparent and part of a larger framework, not operating in isolation. We need to deal with economic and non-economic obstacles that may block the application of a carbon market,” stated Nassim Oulmane, Senior Economist, United Nations Economic Commission for Africa.

However, despite the lack of carbon markets in Africa, some countries have made notable progress to reduce emissions through implemented policies and tax requirements. Notably, South Africa, through its implemented carbon tax – at a rate of R127 per CO₂ equivalent emitted – aims to reduce emissions by making it more expensive to emit GHG. Despite successfully reducing emissions, the carbon tax has created new challenges regarding the timing of taxation, policy certainty, as well as costs of electricity.

“The carbon tax approach is being used in South Africa. In Africa, there needs to be both political and administrative will. We have seen issues regarding the impact of carbon tax on electricity prices, issues to do with long-term policies and timing of tax, issues regarding the lack of policy certainty, and issues regarding revenue recycling. These issues represent the challenges that Africa faces in general and the reasons why carbon markets have not taken off across the continent,” stated Pemy Gasela, Director of International Climate Change, Department of Forestry, South Africa.

Similarly, Kenya has been making notable progress to implement policies aimed at reducing emissions across multiple sectors. Still in the deliberations and consultation stage with stakeholders, Kenya’s carbon tax has taken lessons from South Africa, with the concept comprising a major step towards a clean energy future.

“Kenya has brought the concept of a carbon tax forward and we are talking it through with stakeholders through consultations. What I have seen, however, is that the private sector has to play their role. We need to find a way in which to do business, a way that the private sector finds it worthwhile. There needs to be a business opportunity in climate change and an identified business motive,” stated Dr. Julius Muia, Principal Secretary, The National Treasury of Kenya.

Despite the notable benefits of a carbon market in Africa, the continent still has a long way to go before the concept can be effectively established and implemented. As stakeholders move towards a renewable energy future, and countries make significant progress to reduce emissions, an African carbon market could not only ensure cleaner energy processes, but help drive the creation of a sustainable renewable energy sector.

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Charné Hollands

Charné Hollands

Charné Hollands is the Deputy Editor at Energy Capital & Power. She holds a Higher Certificate in Professional Photography and Masters in Media Studies from the University of Cape Town. Charné writes content for ECP's website and events as well as co-authored African Energy Chamber: Road to Recovery.

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