New players crash Africa's carbon credits mega party

Will the emergence of new players unlock the billions from the lucrative carbon credits market for Kenya and the rest of Africa?

Despite the enormous potential, Kenya and other African countries have been missing out on carbon markets. 

The tide could, however, be turning with increased interest from several players, both local and foreign, making inroads in the industry, putting pressure on polluters while rewarding those investing in cleaning up the environment.

This is amidst concerns that foreign firms could upstage local companies and end up sealing more lucrative deals, leaving only crumbs for the region. 

Estimates by the Africa Carbon Markets Initiative (ACMI) suggest that the region’s participation in carbon markets is well below its technical potential, representing only two per cent of Africa’s maximum annual potential for carbon credit generation

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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 per cent.

Other than the Clean Development Mechanism (CDM), carbon credits are also traded in Voluntary Carbon Markets (VCM), which are also dominated by large economies, and only a handful of African countries and companies have been able to benefit from voluntary carbon markets to date. 

The global carbon credit market stood at around $950 billion (Sh118 trillion) in 2023, with the whole of Africa accounting for just 11 per cent.

“Between 2016 and 2021, African countries accounted for only approximately 11 per cent of the total global carbon credits issued, with only two per cent of its maximum annual capacity for carbon credits tapped,” said the Kenya Institute of Public Policy Research and Analysis (Kippra) in a February analysis.

The Kenya Private Sector Association (Kepsa) notes some of the factors holding back local firms from tapping into the carbon credits despite the enormous potential to change their fortunes include lack of awareness, access to finance to build projects, policy uncertainty, fluctuating carbon credit prices and lack of local service providers.

Kepsa noted that while African countries have historically missed out on carbon markets, there is a growing interest in scaling their engagement in carbon markets in the coming years. This is seen in the growth in carbon credits generated by different African projects that have been growing by 36 per cent over the last eight years.

“In the voluntary carbon market, demand for African-originated carbon credits has been growing, at a compound annual rate of 36 per cent between 2016 and 2021, but the value of these credits remains low, with the retirement value of African carbon credits standing at only $123 million (Sh15.6 trillion) in 2021,” said Kepsa when it published a Carbon Market Guidebook for Kenyan Enterprises last week.

Demand for African credits is largely driven by major international companies, according to Kepsa, which noted that the primary buyers of VCM credits generated in Kenya have been corporations such as Air France-KLM, Apple, BHP, Delta Air Lines, Kering, Nedbank, Nespresso, Netflix, Shell and Zenlen Inc.

A small portion of credits generated in Kenya have also been sold in compliance markets, issued through the Clean Development Mechanism. Kengen sells the carbon credits generated through its renewable energy projects that span geothermal, hydro and wind power plants. 

In 2022, Kenya was the second largest VCM (Voluntary Carbon Markets) carbon credits issuer in Africa, after the Democratic Republic of the Congo. 

“Since 2011, over 59 metric tonnes of carbon credits have been issued to projects in Kenya, 83 per cent of which have been issued in voluntary markets. To date, most voluntary carbon credits issued in Kenya come from nature-based projects,” said Kepsa.

“Tech-based projects are nascent but emerging in the market. Most credits generated from Kenya in voluntary markets have been issued for forestry and land use projects.”