Voluntary carbon markets represent a significant opportunity for project development in Africa.
As the world grapples with the need to reduce greenhouse gas emissions to meet the goals of the Paris Agreement, voluntary carbon markets (VCMs) are emerging as a significant player in the fight against climate change. VCMs allow companies to offset their carbon emissions by purchasing carbon credits that reflect either the avoidance of CO2 equivalent (CO2e) emissions or the removal of CO2e from the atmosphere. While VCMs offer a vital tool for mitigating the effects of climate change, they also offer significant opportunities for project development in Africa.
Globally, VCMs have grown at a compound annual rate of over 30 percent from 2016 to 2021, with a 50 percent increase in real demand in the last year alone. The value of carbon credit retirements is estimated to be over US$700 million. Demand for African-origin carbon credits has been growing too, at a compound annual rate of 36 percent between 2016 and 2021. However, last year, the retirement value of African carbon credits was only $123 million, well below its potential level.
Out of total credits issued worldwide between 2016 and 2021, only about 11 percent stem from African countries, and the bulk of these come from a few large projects. It is estimated that Africa currently generates only ~2 percent of its maximum annual potential of carbon credits. However, this represents a transformational economic and development opportunity for Africa.
High integrity carbon credit projects could not only reduce emissions and remove CO2e from the atmosphere, driving on-the-ground climate impact, but they also offer an immense opportunity to drive development priorities such as expanding energy access, improving health through clean cooking, and creating jobs. They are also gaining traction as a crucial way of funneling finance to developing countries and have the potential to become a meaningful commodity in their own right. The emergence of carbon credits as a new product allows for the monetization of Africa’s large natural capital endowment, while enhancing it.
The potential for diverse development impact is the reason why a group of African leaders, CEOs, carbon market experts, and broader climate champions have come together to launch the Africa Carbon Markets Initiative. This initiative aims to support African countries in the development of high-quality carbon credit projects and the creation of a well-functioning carbon market.
Voluntary carbon markets represent a significant opportunity for project development in Africa. As demand for carbon credits continues to grow, African countries have the potential to monetize their natural capital and create projects that not only reduce emissions but also drive development priorities. With initiatives like the Africa Carbon Markets Initiative, there is a real possibility that Africa can realize its full potential in the carbon market and make a significant contribution to the fight against climate change.