How Kenya could lose out on billions in rushed climate deals

Vice President of The Rockefeller Africa Regional Office, William Asiko chats with Chief Executive Officer, Africa Carbon Markets Initiative, Paul Muthaura and Chief Executive Officer and Founder, Burn Manufacturing, Peter Scott during the Africa Carbon Markets Initiative round table session at the Africa Development Bank meeting held on 27th May 2024 at Serena Hotel in Nairobi. [Edward Kiplimo, Standard]

Kenya and many African countries could be shortchanging themselves in rushing to sign carbon deals.

Many governments on the continent have entered into carbon offset contracts with different firms, which observers say could be rushed moves.

They warn that the firms taking large tracts of land today to reclaim and generate carbon credits could be making billions in the coming years with the host communities and governments making peanuts when the real value is unlocked. 

A new report by the Africa Carbon Markets Initiative (ACMI) shows that while Africa produces more credits than the global average from categories that command high prices, “anecdotal evidence indicates that, for the same project type, African carbon credits may command lower prices than the global average”.

The report notes that currently African carbon markets comprise only about 16 per cent of the global credits market and face challenges that can hinder future growth potential.

Locking in prices

Among the challenges include determining the value of the carbon credits today and in the future going by how the market will likely move in the coming years.

ACMI chief executive Paul Muthaura said there are concerns about the level of understanding of the contracts that governments and communities are signing. 

“If, for instance, you are signing a 50-year lease on land, how have you factored in the likely change in value and change for those carbon credits over that time? Are you locking in poor prices right now for that long term?” he posed during a roundtable in Nairobi yesterday.

“And how do you make sure that people are aware and empowered to make sure effective deals are being negotiated?”.

He said capacity building is critical to ensure that local communities and even governments are able to reach the best possible decisions when getting into agreements.

“There is a need for capacity building and education so that governments and communities have an understanding of the specifics of a contract and the opportunities when negotiating. This will enable them to make well informed free, prior and informed consent to what is being put in place,” Mr Muthaura said. 

“We should have clarity on what our national goals are and how this negotiation fits into a country’s goals. We should negotiate within this context and understanding and not on a deal. A deal will always work against our best interests.”

ACMI and the African Union Commission are currently working to have a continental framework in place that should then guide countries when negotiating the deals. 

“We are already in discussions with AUC to work towards some level of coordination of legal frameworks on the continent. We can then start talking about African credits rather than project credits.

“As long as you are discussing project to project, you will always be squeezed. We should be discussing at a jurisdictional level but ideally at a regional level,” said Muthaura.

The value of carbon sinks is something that Shiftings Ltd, owned by Cyrus Jirongo, is trying to unlock, working with different African governments.

The firm has partnered with China’s Luokung Technology in working with to determine the value of these assets, which would help countries make more informed choices when getting into carbon deals with both private sector firms and other government agencies. 

Mr Jirongo said the problem with most of the African countries was them getting into carbon trading without knowing their worth thus getting prone to poor negotiations.

The former Kenyan cabinet minister has made inroads in the region, with his firm mapping out the carbon assets that different countries in an effort to ensure that African countries are getting into carbon agreements from a point of knowledge.

Shiftings Ltd uses technology to quantify carbon assets over a geographical location while hand-holding them to set up platforms such as carbon exchanges and carbon accounting standards.

The company in February this year signed an agreement with Uganda that was witnessed by President Yoweri Kaguta Museveni. Shiftings, together with Luokong Technologies, will deploy a cutting-edge Digital Measuring, Reporting, and Verification (DMRV) platform that will be used to arrive at the value of carbon credits that different carbon assets can generate. This will cover Uganda’s Lakes, Forests and Parks that are under the Ministry of Environment.

The firm will also help Uganda set up a carbon exchange in Kampala.

“What we have are advanced tools that ensure standardised, digitally-driven carbon accounting for nature-based projects at a fraction of traditional costs and time,” said Jirongo.

“In Uganda, the Democratic Republic of Congo, and a number of the countries we are in talks with, we will help them know their potential so that they can trade from a point of knowledge.”

Jirongo said that through the use of state-of-the-art satellite imagery, remote sensing, and machine learning technologies, his firm would provide Carbon Neutrality Data Services and Natural Resources Asset Management to assess and monitor a country’s carbon reserves. 

NasDaq traded, a Chinese firm, Luokung Technology Corp is a leading provider of, full services in the entire life cycle of the carbon economy, remote sensing data processing and application services, and spatial-temporal intelligent big data services.

Prominent deals

African countries have been getting into carbon deals with different firms, many of them foreign-owned.

Among the prominent deals include those signed with Blue Carbon Initiative, owned by Sheikh Ahmed Dalmook al-Maktoum of Dubai’s ruling royal family.

Among the deals that Blue Carbon has signed include a Framework of Collaboration (FOC) with Kenya’s Ministry of Environment signed last November. In the agreement, Kenya will cede millions of hectares to Blue Carbon which is then expected to restore and protect the area, with the goal of earning carbon credits.

The credits will then be sold to major polluters.

The Dubai-based firm has signed similar carbon offsetting deals with other African countries, covering large tracts of land. Some of these have attracted criticism, which include a deal with Zimbabwe covering as much as 20 percent of its and mass, 10 percent of Liberia and Zambia and eight percent of Tanzania.

The large chunks of land position the Sheikh to become one of the biggest players in the emerging African carbon markets.

Analysts noted that this could one day be worth billions.

His private office has a portfolio of privately held group companies that focus mainly on infrastructure development, energy projects, LNG terminal development, and commodity and oil trading, among others.

Blue Carbon itself is relatively young, founded about one year ago and still getting its footing in the management of carbon offset projects. T

There has also been speculation as to whether the firm is part of a bigger plan by UAE to offset its own emissions.

According to the World Bank, Africa represents only five per cent of carbon credits generated under the Kyoto Protocol’s Clean Development Mechanism while China and India accounted for 67 percent.

Carbon credits are traded at the Kyoto Protocol’s Clean Development Mechanism (CDM) as well as Voluntary Carbon Markets (VCM).  Both markets are dominated by large economies, and only a handful of African countries and companies have benefited. 

Expand projects

The global carbon credit market stood at around $950 billion (Sh118 trillion) in 2023, according to Kenya Institute of Public Policy Research and Analsys (Kippra) with the whole of Africa accounting for just 11 per cent in the five years to 2021. The share for Africa has gone up to 16 percent last year, according to ACMI.

“Between 2016 and 2021, African countries accounted for only approximately 11 per cent of the total global carbon credits issued, with only two percent of its maximum annual capacity for carbon credits tapped,” said Kippra.

According to ACMI, to full benefit from the global carbon credits market, Africa needs to expand the kind of projects being undertaken on the continent. This would mean going beyond cookstoves and planting trees, projects which ACMI noted that are facing global integrity challenges.

“Global integrity challenges have particularly strong implications for Africa. These concerns are particularly important in Africa, where REDD+(Reducing Emissions from Forest and Forest Degradation) and cookstove projects comprise almost 90 percent of the past two years’ credit supply,” said the ACMI report.

“Both REDD+ and cookstove carbon projects have seen intense global scrutiny over the past year, and together these comprise almost 90 per cent of African credit supply in the past two years.

“Numerous specific African projects have come under the spotlight as part of the past year’s intensified scrutiny of credits’ integrity.”

It further added that some REDD+ projects have been scrutinised for over stating emission reductions.

“Beyond these global issues, Africa also faces unique challenges spanning the carbon market value chain. These include a high investment risk, high upfront costs for project development, and regulatory complexity,” said ACMI.

“Some recent trends have sharpened these challenges, such as regulatory decisions that have increased political risk. For example, Zimbabwe’s recent regulatory developments intensified investor speculation that other countries could follow suit and highlighted potential political risk.”