Africa contributes less than three per cent to global gas emissions, yet, it has to adapt to climate change with limited access to funding.

However, Rwanda, like some few African countries, is preparing to leverage a market 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.

The government or any other authorized agency can specify a carbon credit trading scheme as well as issue tradable certificates among entities registered for the scheme.

Carbon credits can be traded on both private and public markets. Current rules of trading allow the international transfer of credits.

By purchasing carbon credits, businesses essentially invest in other projects that help reduce greenhouse gas emissions.

Faustin Munyazikwiye, Deputy Director General of Rwanda Environment Management Authority (REMA), said that currently, there are 16 projects available as they embrace market mechanisms agreed on by countries during the COP26 (Conference of Parties).

These mechanisms essentially involve supporting the transfer of emission reductions between countries while also incentivizing the private sector to invest in climate-friendly solutions.

"It’s one of the innovative ways of raising climate finance. We have been using the traditional ways, including grants and loans but you can partner with other countries or a private company can come and apply for carbon credit,” he noted.

"It is additional money that can help you advance what you are doing at country or company level. Our economy is growing but we don’t want it to be in the same way as developed countries have done, we want to grow sustainably.”

Faustin Vuningoma, Coordinator of Rwanda Climate Change and Development Network in Rwanda, emphasized that Rwanda should stand her ground and make better negotiations when it comes to carbon pricing.

This is because the market suffers from price volatility where you find a forest owner in the US receiving $200 per ton of carbon dioxide while another one in a developing country can only get $5 or $10, according to him.

"There needs to be a strong carbon market that has considerations to benefit even the developing countries. Once it takes shape in Rwanda, we will benefit from forests and other protected areas.”

However, another challenge he noted is the fact that sometimes the cost of computing carbon is more expensive than what you get out of the sale. "If the value is increased and becomes quite meaningful, then we would benefit from resources of selling carbon credits.”

Klaas Jan Jonkmana, Chief Executive of Sawmill East Africa Ltd, a Kigali-based company involved in producing timber and wooden products, said that Rwanda can create new forests or use the existing ones less intensively with a change of species of trees to get carbon rights (credits).

"It’s not an easy exercise, it’s something you have to create and it takes a lot of time,” he noted, however, "slowly but surely it is getting there.”

"We need people who want to go into carbon [trading] to invest upfront into those forests.”

So far, forest coverage in Rwanda stands at 30.4 per cent.

Carbon credit trading is regulated at a global level through the United Nations framework convention on climate change and there are some voluntary carbon markets that are regulated depending on the methodology used.

At a country level, REMA is the institution in charge of regulating and promoting the carbon market, registering and monitoring all projects claiming to reduce emissions.

Companies that achieve the carbon offsets (reducing the emissions of greenhouse gases) are usually rewarded with additional carbon credits. The sale of credit surpluses may be used to subsidize future projects for the reduction of emissions.

According to the most recent Carbon Credit report by D&B, the global market for compliance carbon credit is estimated to be worth $237.3 billion, with annual trading volume estimated to be 10.7 billion giga tons.

The global volume of carbon credits traded reached 188 Million tons of carbon dioxide equivalent) in 2020, taking the annual traded value to $473 million.

According to the report, during the first eight months of 2021, a total of 239 credits were traded, valued at $748 Million, touching record highs.

The origins of carbon trading can be traced to 1997, when the Kyoto Protocol established carbon as an internationally tradable commodity and developed countries (except economies in transition) were mandated to have carbon markets. This changed with the Paris Agreement making it voluntary for countries.

Rwanda has an ambitious target to reduce greenhouse gas emissions by 38 per cent by 2030.