Will carbon markets enabled by COP29 really mean $80B for Africa?

Countries reached a milestone agreement around midnight on Saturday — the final day of the 29th U.N. Climate Change Conference in Baku, Azerbaijan — that formalizes the framework and rules for a global market to buy and sell carbon credits. The agreement, which supporters say will help countries reach their emissions targets while mobilizing billions of investment for clean energy projects, has been in the making for 10 years. It couldn’t fully launch until countries hashed out two aspects of the all-important Article 6 of the 2015 Paris Climate Agreement. The first, Article 6.2, agrees on additional rules that govern how countries trade carbon credits through bilateral or multilateral agreements. This allows for country-to-country trading of carbon credits, also known as internationally transferred mitigation outcomes, or ITMOs. The second, Article 6.4, allows for the launch of a centralized global carbon trading mechanism that will be overseen by the U.N. Framework Convention on Climate Change, or UNFCCC. Trading could begin as soon as next year. On the first day of COP29 two weeks ago, countries approved the methodologies for Article 6, which outlines the minimum standards that the mechanism’s supervisory board will assess when overseeing carbon credits for projects. Critics felt that the Azerbaijani COP29 presidency rushed the decision to secure an early win. Attempting to greenlight these important details launched governments, private companies, and civil society back into a heated debate about how a global carbon market should work — or whether it should exist at all. “While the final text is not perfect, it provides a degree of clarity that has long been absent from international efforts to coordinate emissions trading and carbon crediting,” said Rueban Manokara, carbon finance and markets expert at the World Wildlife Fund. Others are enraged: “With the gavelling of standards on methodologies and removals on the opening day of the COP, the Paris Agreement Crediting Mechanism has flung open its doors to removal activities that are nothing more than a dangerous distraction,” said Erika Lennon, a senior attorney at the Center for International Environmental Law. Carbon markets allow high-emitting countries, usually in the global north, to purchase carbon credits in other places, usually the global south, that fund activities such as planting trees that remove carbon from the atmosphere. These credits give countries and corporations the right to emit greenhouse gas equivalent to the units of carbon saved by forests, renewable energy, or carbon capture — allowing them to meet their climate targets. For countries in Africa, many of which contain vast forests and a burgeoning renewable energy market, experts say carbon trading could bring $80 billion in revenue to the continent — and that’s what the UNFCCC-regulated international market would help facilitate. But carbon markets have a long history as a controversial climate solution, with critics arguing that they allow emitting countries to keep functioning as normal and that the markets that do exist are far too underregulated to ensure effective offsetting, which also opens the door to corruption. Africa’s growing carbon markets Voluntary carbon markets, which are either privately regulated or unregulated, have grown rapidly since COP26 in 2021. That’s when delegates agreed on a framework for a new market where states and private entities could generate and trade cross-border carbon credits. This bolstered the use of carbon offsets and saw internal markets crop up across the European Union, California, and Kenya. But at COP26, delegates failed to agree on all aspects of Article 6 delaying the creation of a globally regulated market. The step forward encouraged the creation of state-regulated markets, however. Since 2021, six African governments have opened or begun the process of opening formal markets, creating a flurry of discussion among development institutions on how best to assist a growing marketplace. “We’ve had a lot of incremental adjustments,” said William Asiko, the Rockefeller Foundation’s vice president for the Africa region, of the last few years of carbon market negotiations. “I feel really happy about this one because it sets a basis to support countries to have compliance in the market.” Numerous sessions at COP29 in Baku were dedicated to carbon markets in Africa, with several countries announcing new bilateral partnerships: Zambia signed a carbon trading agreement with Singapore, while Norway inked carbon credit trading deals with Benin, Jordan, Senegal, and Zambia. Still, carbon markets remain one of the most contentious parts of climate finance. The new COP29 rules are an attempt to better regulate how countries can create, trade, and register emissions reductions and removals as carbon credits. Supporters, on the other hand, say that carbon markets are crucial for countries to reach their emissions reduction goals and can be a revolutionary tool for development in Africa. Meanwhile, the final COP29 decision for higher-income countries to commit $300 billion in annual global climate finance to lower-income countries by 2035 — called the New Collective Quantified Goal, or NCQG — removed mention of carbon markets as an instrument to scale up climate finance. Civil society groups were happy to see this even as many were angered by a NCQG that falls far below what lower-income countries need to address the worst effects of climate change. What does Article 6 mean for carbon markets? Numerous independent attempts at maintaining a global quality standard for carbon credits on the voluntary market already exist, and the Bezos Earth Fund is one of the biggest donors to such efforts. The voluntary market is currently valued at $2 billion per year. The fund has funneled at least $11 million into the Integrity Council for the Voluntary Carbon Market, or ICVCM, and its sister organization, the Voluntary Carbon Markets Integrity initiative, or VCMi, which set the standards for trustworthy credits on the voluntary market. While those standards will continue to exist, the agreement in Baku around a formalized international carbon market under the UNFCCC provides a potentially more trusted marketplace on which to trade across borders. Across the African continent, thousands of carbon credits are already traded on the voluntary market, with more than 230 certified under the former U.N.-run carbon offset scheme, the Clean Development Mechanism, or CDM, which expired in 2020. “It provides more clarity on the market of Article 6 and gives parties the confidence to utilize it as part of their Paris Agreement goals,” Manokara of WWF said. The $80 billion upside Despite the risks, experts say that the potential for African countries to benefit from a more formalized UNFCCC-overseen international market along with bilateral markets is huge. “We are talking over a potential $80 billion in revenue generation through carbon markets,” said Raphaël Danglade, manager for climate and development at the NGO Africa-Europe Foundation. As international interest in carbon credit mechanisms rises, global north countries are redirecting their focus from emerging economies such as India and Mexico and toward Africa because of the continent’s potential for renewable energy development and forest conservation. The African Carbon Market Initiative, which is a coalition of organizations working on expanding carbon markets in Africa, estimated that Africa could scale its carbon credit market nineteenfold by 2030, mobilizing more than $6 billion in revenue and creating or supporting 30 million jobs, in its 2022 Roadmap Report. To Danglade, the articles agreed in Baku represent an opportunity for the EU and Africa to enhance cooperation in carbon markets. Right now, the EU operates its own carbon trading program, which is open to EU countries only. The guidelines newly hammered out in Article 6 open a door for those countries to trade bilaterally outside the EU without relying on the voluntary market. Some African countries invited other nations to invest in carbon markets at COP29. Zambia’s pavilion in Baku had large signs reading “Zambia: a stable safe destination for green investments.” Speakers from Benin, Burkina Faso, Côte d’Ivoire, and Cameroon came together to do a panel on how African countries can take advantage of the carbon markets. “We really believe this will help countries put forward concrete projects which were not financially viable before, like renewable energy projects,” said Olola Vieyra-Mifsud, Côte d’Ivoire country representative for the Global Green Growth initiative, or GGGI. “Adding the layer of carbon finance mechanism can definitely help accelerate some of these investment decisions.” The downside However, experts are concerned about how the boom in carbon credit agreements could leave countries vulnerable to corruption. “When you talk about finance with anything, there’s always a risk of corruption,” Vieyra-Mifsud said. “It depends on the country’s vigilance and also the framework for an anti-corruption system.” Others say that carbon markets could pull attention away from the need for grant-based or grant-equivalent climate finance. There are also concerns that these countries could oversell credits and undermine their own climate targets. If they do sell more credits than they can fulfill and lax regulation allows them to overstate their total sequestration of carbon, that could create distrust in the marketplace. In the Democratic Republic of Congo, carbon credit projects have proliferated despite a lack of regulation, with projects covering more than a quarter of the DRC’s 200 million hectares (494 million acres) of forest. But the country’s government doesn’t have mechanisms in place to ensure these credits are legitimately avoiding deforestation, and little information on the outcome of these projects is available. The regulation requires officials who understand carbon markets and are trained on renewable energy issues. The Rockefeller Foundation has donated $3 million to the Africa School of Energy Regulation, an institution launched last year to train African officials about energy. “Today, most people have to go to global north countries to get either degrees or diplomas in carbon markets, the renewable energy transition, and so on,” Asiko said. Vieyra-Mifsud is also looking to invest in education and capacity building within countries to safeguard these markets, with GGGI working with countries to develop complex regulatory frameworks. “Once there’s a sense of readiness that a country is comfortable,” she said, “then we go into formalizing, or supporting the formalization of projects.”