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Banners at the COP28 Climate Conference in Dubai. Picture: SEAN GALLUP
Banners at the COP28 Climate Conference in Dubai. Picture: SEAN GALLUP

As the world turns its attention to the start of the UN Climate Change Conference this week (COP28), Africa’s common position at the conference will be guided by the Nairobi Declaration, signed at the African Climate Summit in September. One of the priority items listed in the declaration is Africa’s commitment to implementing a mix of measures that will elevate its share of the carbon markets.

The basic premise of carbon markets is that companies can reduce their global carbon footprints by purchasing carbon credits, which are then offset against activities that generate greenhouse gas emissions. Voluntary carbon markets allow entities to buy carbon credits at their discretion to offset their emissions.

One major challenge of voluntary carbon markets is the increasing focus on “greenwashing” and related low-priced or junk credits that have limited environmental impact.

A recent study led by the University of Cambridge and VU Amsterdam examined 26 carbon offset projects in six countries on three continents and found that most of the projects had not reduced deforestation significantly, and those that did had benefits that were substantially lower than claimed. The study further highlighted that voluntary carbon markets do not afford buyers any means of distinguishing the quality of the carbon project.

As with any exchange market it will take time for the markets to grow in sophistication and for methods of evaluation to be developed. In the meantime, the core requirements for carbon credits — that they are real, additional, measurable, verifiable, permanent and unique — should be closely scrutinised to enhance the market’s development.

Force of law

Given that Africa’s forests provide a significant carbon sink for the absorption of carbon dioxide from the atmosphere, many African carbon projects centre on the issuance of forest carbon credits, either in the form of afforestation/reforestation (restoration) or avoided deforestation (protection).

One of the key issues restricting the success of these projects is legislative and policy certainty. Following the collapse of the Clean Development Mechanism developed under the Kyoto Protocol, there is no independent international legal framework that stipulates the quality of credits or the claims that companies can make based on their purchases in the voluntary market.

There are numerous independent global initiatives, including most recently the ICVCM core carbon principles. These organisations, like the carbon registries themselves, are self-appointed and while striving to improve their methodologies and processes lack some of the checks and balances associated with instruments that bear the force of law.

Carbon projects must also be considered in conjunction with domestic legislation that exists to regulate carbon credits. In Sub-Saharan Africa, government regulation of carbon projects is still in its early stages, and it remains to be seen how carbon projects will be regulated in future.

SA has enacted a range of legislative measures to measure and monitor carbon or greenhouse gas emissions, including the Carbon Tax Act (2019) and the carbon offset regulations, which alongside the consolidated regulatory regime for climate change (such as the Climate Change Bill) promise to invigorate carbon emission reduction projects and trade in carbon in the country.

Further, the JSE launched its carbon market earlier in November in collaboration with Xpansiv, an infrastructure provider for global environmental markets operating under a separate entity, JSE Ventures. It is intended to allow local participants to buy or sell carbon credits and energy certificates held in either local or global registries.

Other legal developments in Africa include the Climate Change (Amendment) Act, in Kenya; the Environmental Management (Control and Management of Carbon Trading Mechanism) Regulations in Tanzania; and the Forest (Carbon Stock Management) Regulations in Zambia.

Political risk

Carbon projects also face significant political risk, particularly in developing countries where the nature and duration can be adversely affected by a government or sentiment change. While other developed products can mitigate this risk with adequate insurance, there are limited insurance policies available for carbon projects. The World Bank’s insurance arm, the Multilateral Investment Guarantee Agency, is developing insurance offerings to facilitate investment in countries perceived to be high risk, which should ease investor concerns.

There is also debate around how long carbon needs to be sequestered to qualify for credits, with some suggesting this should be as long as 100 years, and what quantum of “buffer pool” needs to be created. This is difficult to guarantee in respect of trees, for example, since they take time to grow but are situated on land that generally has a shorter tenure.

A further challenge is whether carbon programmes are jurisdictional, which operate at the national or large subnational level, or whether credits are issued at project level. Some argue that jurisdictional-scale programmes are better able to mitigate issues such as leakage, where an activity that causes emissions, such as deforestation, is displaced to another area outside the boundary of the project, thereby causing emissions elsewhere.


Further, larger-scale programmes may incentivise governments to assist through improved law enforcement, recognition of land tenure and incentives for private landowners. In practice, a purely jurisdictional approach may serve to disincentivise more nimble credible operators, including corporates, that are focused on project-level initiatives.

To be credible, carbon projects should also create a benefit that is “additional” to what would have existed in the absence of the project and its credit revenues. Many projects that have claimed credits have delivered no change, or the benefits have been exaggerated or distorted. Credits that are issued in respect of such projects do little or nothing to address climate change.

Carbon projects must be quantified and many of the traditional impact measurement methods are inaccurate, based on non-scientific formulas. This is being addressed through advances in automated data collection, including satellite imagery, artificial intelligence, machine learning and drones.

Notwithstanding the challenges, carbon markets offer great potential for Africa. If developed and operated properly, in addition to their climate change mitigation benefits they can result in community upliftment, increased employment and the generation of diversified income streams that will boost African economies.

There will no doubt be further developments regarding Africa’s carbon markets during COP28.

• Douglas is co-head of M&A at Bowmans.

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