African leaders want to develop a continental carbon market to diversify sources of climate financing and limit disproportionate dependency on western initiatives.

While speaking at the Africa Business Forum, on February 20, President Lazarus Chakwera of Malawi urged the UN Economic Commission for Africa (UNECA), African Union, and Afreximbank to explore the feasibility of a carbon market in Africa.

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The forum, held under the theme "making Carbon Markets work for Africa”, brought together different African leaders, climate experts in different organizations, private stakeholders, among others.

Carbon market is basically a scheme of trading carbon credits which an entity gets by reducing emissions extensively beyond the required levels and selling them to those unable to meet their reduction requirements.

The main goal for the creation of carbon credits is the reduction of emissions of carbon dioxide and other greenhouse gases from industrial activities to reduce the effects of global warming.

Now, while Africa contributes less than three per cent to global gas emissions, it has to adapt to climate change with limited access to funding including the unfair treatment on global carbon markets.

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Industrial carbon credit mainly from developed countries is sold for high prices amounting to over $40 per tonne, whereas, forest carbon credit that abounds in African and water ecosystems is consistently priced cheaply as low as $5 per tonne.

It is estimated that Africa will need around $438 billion in adaptation financing by 2030. This is while carbon markets could unleash an estimated annual $82 billion in value, at $120 per tonne of carbon emissions concealed, as well as create 167 million additional jobs.

President Chakwera said: "We strongly encourage the innovative instruments developed by ECA to support African regional carbon markets. We also urge ECA, AU, Afreximbank to accelerate plans to develop an African carbon market building from the regional carbon registry.”

"They should also explore the feasibility of building a compliant carbon market in certain African countries, particularly, those which have the potential to generate carbon emissions from the extractive industries,” he added.

Broadly, there are two types of carbon markets; Compliance markets –created as a result of any national, regional or international regulatory requirement and Voluntary carbon markets –referred to as the issuance, buying and selling of carbon credits on a voluntary basis at a national or international level.

In August 2022, Rwanda announced plans to debut on global carbon market with more than 16 projects available as they embrace market mechanisms agreed on by countries during the COP26 (Conference of Parties).

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Carlijn Nouwen, Co-founder of Climate Action Platform for Africa (CAP-A), emphasized that carbon markets could help drive socio-economic development and Africa is only scratching the surface.

In 2022, global trade in carbon amounted to $865 billion in compliance markets and $2 billion in voluntary markets. Only about 11 percent of all credits that were retired in voluntary Carbon Markets between 2011 and 2016 were African credits.

"That’s really missed opportunities because many African countries are considered to be really cost competitive locations for interventions that create carbon credits, thanks to low existing machine levels, and massive energy potential, young and fastest growing workforce, and relevant natural resources,” she said.

According to her, carbon markets can unlock finances for climate matter interventions but beyond that, such interventions can create new economic sectors and jobs, improve livelihoods, and solve intractable social problems such as energy poverty, pollution, among others.