By Yemi Osinbajo and Ivan Marquez

One of the key challenges for Africa in confronting the climate challenge is how to finance the necessary transformation of regional economies. Flows of climate finance from the Global North on the scale required remain more of a promise than a reality.

Part of the solution, as obtained in other climes, is to unlock the vast potential of carbon markets. The realisation is dawning across Africa that private-sector-led, voluntary carbon markets represent a major opportunity to accelerate economic development and simultaneously curb greenhouse gas emissions. But seizing this opportunity will take thoughtful and deliberate action, including by African governments.

That’s why we’re excited to be taking part in a new initiative to be launched at the COP27 Climate Summit at Sharm El Sheikh, Egypt. The African Carbon Markets Initiative seeks to support a dramatic increase in the production of African carbon credits while ensuring that carbon credit revenues are transparent, equitable, and create good jobs. Crucially, these must be high integrity credits that are used to supplement direct decarbonisation and which deliver real climate action.

Global demand in VCMs (as measured by retirements of carbon credits) has nearly quadrupled in the last five years, driven principally by companies buying credits to help meet their climate pledges. Demand for African credits is also increasing, but from a low base, and the continent currently produces only a small proportion of its potential. Boosting the supply of credits would enable much-needed sustainable investment in sectors ranging from renewable energy and clean cookstoves to agriculture and forestry.

Our experience(s) in government in Colombia and Nigeria show the potential of carbon markets, but also the hard work that will be required to realise it. The Colombian Voluntary Carbon Market Platform was launched in 2016 as part of a government effort to meet Colombia’s climate targets by stimulating demand for carbon credits.

Between 2016 and 2019, Colombian carbon credits grew more than four-fold to become a $20m market, leading to, among other impacts, the planting of over 180 million trees. But it didn’t happen by accident. It was a top presidential priority and required extensive coordination across society, including collaboration with the Colombia Stock Exchange to begin carbon trading and the launch of the first green taxonomy in Latin America.

In the same vein, Nigeria has its own ambitions to be a climate leader in Africa, set out in its 2021 Climate Change Act and commitment to net-zero by 2060. Last month, the President, Major General Muhammadu Buhari(retd.), inaugurated Nigeria’s National Council on Climate Change. The government is committed to using carbon credits as a tool for achieving Nigeria’s climate goals while financing sustainable economic development. We estimate Nigeria could produce between 25 and 30 million tons worth of carbon credits annually by 2030, generating over $500m per year.

The nascent carbon credit market faces numerous challenges to growth in many parts of Africa, including a lack of project developers capable of operating at scale, a complex regulatory landscape, inadequate methodologies for valuing and certifying credits, and concerns about integrity. The Africa Carbon Markets Initiative, where we sit on the steering committee alongside twelve other African leaders and carbon markets experts, will use COP27 to launch an initial road map for action to address these challenges that touch every part of the VCM ecosystem.

One key focus will be supporting African governments in establishing voluntary carbon market country plans — along the lines of the successful effort undertaken in Colombia in recent years. Nigeria will be one of the first countries to launch a plan, with the goal of rapidly increasing the development and sale of carbon credits. These plans will aim to support carbon credit production by clarifying government responsibilities, setting out market incentives and establishing transparent regulation of the sector within the context of each government’s commitments under the Paris Agreement on climate change.

This latter point is of central importance. There has been some confusion around Paris Agreement rules on carbon credits, which state that when two countries trade carbon credits, to avoid double counting, only one of these two countries can use the credit towards their Nationally Determined Contributions —their target for reducing emissions.

However, for sales to foreign corporations there is certainty: buyers can, with high integrity, use African credits without concerns around double counting. Our view is that this approach is fully in line with both the letter and the spirit of international climate agreements. This way, funding from foreign buyers in the VCM provides the resources to help African countries meet their NDCs, which they have made clear cannot be achieved without international financing. We recognise that some buyers may require a commitment that host countries will not use sold credits towards their NDCs, either to drive additional impact or to comply with regulations in their home countries. African countries can choose to make these commitments for a portion of credits produced, with an expected premium in price, but we do not believe they need to play a major role in corporate voluntary carbon credit use.

The ACMI steering committee has set the ambition that 300 megatons of African credits will be retired annually by 2030 — 19 times the 2020 level. This sounds daunting, but actually it merely requires demand and supply to continue growing at roughly the rate they have been growing in recent years. By 2050, the committee has set an even more impressive goal of 1.5 gigatons, mobilising $120bn in capital annually. At this level, carbon markets would have become a major industry for the continent and could support over 100 million jobs.

ACMI aims to eliminate the barriers to continuing growth, and we invite governments across the region to get behind its important mission.

Professor Osinbajo is the Vice President of Nigeria and Mr Marquez is former President of the Republic of Colombia

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