Carbon Pricing in Africa
While Africa accounts for the smallest share of greenhouse-gas emissions globally, its fast-growing economies, bold development ambitions, and rapidly growing population mean that its energy use will drastically increase in the coming decades. This will be expensive. In Sub-Saharan Africa alone, the net-zero transition will cost an estimated $1.7 trillion by 2030. Official development assistance – which was in decline even before the COVID-19 pandemic put added pressure on donor-country budgets – cannot be expected to cover these costs. Innovative new climate finance is needed. Carbon markets are one potential source of funds, allowing African countries to tap into new revenue streams for their carbon sinks, for example.
However, the volatile price of carbon and lack of capacity and technical knowledge to participate in carbon market on fair terms are a significant barrier. For example, calculating the extensive worth of Africa’s carbon sinks is highly complex.
The only implemented carbon pricing initiative in Africa is South Africa’s carbon tax. Some states have planned emissions trading schemes, and there ae some collaborative efforts on carbon pricing, for example, between Sweden and Rwanda negotiating G2G climate-financing facilities. However, African leaders have been vocal about implementing a global carbon price. The Nairobi Declaration saw global carbon pricing as a method not only of reducing emissions, but also ensuring that the developing world receives a much-needed increase climate finance. To date, however, global carbon pricing has largely been pursued through the Clean Development Mechanism under the Kyoto Protocol, which has been replaced by a successor mechanism under Article 6 of the Paris Agreement. However, negotiators have struggled to finalise rules on the Article 6.
Although most African jurisdictions have yet to introduce carbon pricing, businesses operating in Africa may still be impacted by carbon border adjustments elsewhere. Businesses may also be able to capitalise on opportunities associated with carbon offsetting, as foreign businesses can finance projects in Africa to meet climate targets. The voluntary carbon market is predicted to scale rapidly, however there is also a trend to avoid carbon offsetting in compliance markets, and efforts to improve the integrity of voluntary markets may introduce more stringent requirements for carbon removal and emissions reduction projects.
The African Carbon Markets Initiative (ACMI) was established to scale carbon markets in Africa. The initiative aims to build capacity in both voluntary and compliance markets, supporting both public and private entities looking to establish or participate in emissions trading. Recognising many of the concerns listed above, the ACMI considers economic development central to the viability of carbon markets, advocating for carbon markets as an opportunity for new income sources across the continent.
