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What’s the role of the state in carbon markets?

African governments want to avoid going from one damaging extreme (too little oversight) to the other when it comes to climate finance

Hello! After three very full days in a row, we’re keeping our newsletter for professionals in Africa’s green economy a little shorter today. Still, we hope our content helps your organisation and career as well as our planet.

⏳ Today’s reading time: 4 mins

1.🚁 Heli view: Climate businesses nervously eye new regulation

State machinery has a critical role to play in Africa’s green economy and especially in the carbon markets. That much everyone can agree on.

  • At the Africa Climate Summit this week, few discussions did not involve governments.

  • Speaking at plenaries and panels, officials made clear they’re engaged and ready.

The crux: Successful carbon markets rely on creating high-quality credits. Factors at play:

  • Government support is needed for market integrity.

  • Regulations impact how credits are created, certified, priced and traded.

  • Rules also determine the benefits going to local communities.

The upside: Africa has immense potential for nature-based carbon removal solutions, says industry leader Cap-A.

  • If priced at $50 per tonne, carbon finance could generate $15 billion annually.

  • And create 67 million new jobs, and transform the lives of millions more.

  • As well as contributing to the attainment of agreed emission targets.

The downside: Badly done, regulations can undermine or hinder markets. New laws across the continent point to various pitfalls:

  • Pricing: Lacking a price floor, African markets struggle to make carbon markets viable. Last month, Rwanda’s government set a minimum carbon price of $30 per tonne.

  • Dedicated regulation: Zambia currently addresses carbon trading in its Forest Act. This fails to cover all necessary aspects. The government is now planning a dedicated law.

Who gets what: Among the most widely watched details are regulations on benefit sharing. No consensus has emerged yet on what works best.

  • A new Zimbabwean law assigns 30% of carbon credit revenue to an environmental fund. At least 25% of the developer’s share must be invested in the community in consultation with local authorities.

  • A 2022 Tanzanian law assigns 61% of land-based carbon credit gross revenue to local communities and authorities, while 30% goes to project developers and 9% to the central government. For non land-based projects, the split can be negotiated.

The latest: Kenya announced its carbon market legislation earlier this week mandating general community sharing of 25% (but 40% for land use projects).

  • Critics say it fails to consider previous community investments.

  • They also raise concerns about excessive government involvement.

  • Bianca Gichangi at Kenya’s climate envoy’s office countered, "It's not over after legislation. Regulation will follow."

Nowhere to hide: Governments will likely see a swift market reaction to flawed regulation.

  • Carbon website Abatable yesterday launched an Investment Attractiveness Index, for voluntary carbon markets.

  • Kenya currently takes the top spot out of 40 countries.

Both ways: Operators and investors too face growing scrutiny.

  • Recent investigations, such as Survival International’s Blood Carbon report, raise concerns about credit integrity and equitable distribution to local communities.

Bottom line: The race to lead carbon markets in Africa is still wide open. Most countries have a chance to compete – if they get the regulation right. More is not necessarily more.

  • Balance the interests of nature, communities, traders, business and government.

  • Avoid swinging from too little oversight to too much or cripple the nascent sector.

💬 SPONSOR MESSAGE

The bankability of grid-connected power projects historically relied on sovereign guarantees. However with increasing debt burdens many countries are increasingly reluctant to offer sovereign guarantees for power projects. So where to from here?

  • CrossBoundary's Kirtika Challa sees an opening for intermediaries to facilitate access to power pools and balance the supply and demand for energy

  • Challa says Development Finance Institutions are well positioned to increase their risk appetite and have the opportunity to enable private capital critical to closing a vast financing gap

Read more in Challa's Medium post, or for more on CrossBoundary click below.

2. What’s in the innovation pipeline

Africa needs investable climate solutions. Long before capital can be deployed, innovation must lead the way.

Embrace the unconventional: Anyone eager to delve into the world of new ideas, please see our listing of pioneering companies and initiatives:

  • Kubik creates sustainable building materials in Ethiopia to reduce the carbon footprint of urban development.

  • Coliba is rethinking plastic waste management in Côte d'Ivoire.

  • The Healthy Seaweed Company in Tanzania is innovating in carbon sequestration.

  • Reef Pulse from Réunion is deploying technology to assist coral reef conservation.

  • UNDO uses enhanced rock weathering as a nature-based carbon removal technology that locks away CO2.

  • OceanHub has eight companies focused on marine protection in their last cohort.

  • Conservancy International and Peace Parks Foundation announced the scaling of the Herding for Health model with an extra $150 million this week. Their smart grazing approach will help restore 20 million hectares of grassland, shrubland and savannah.

3. Q&A: Climate leaders with answers

Maria Nkhonjera is a senior programme officer at the African Climate Foundation and a climate finance specialist at the Office of the Special Climate Envoy for Kenya.

Q: What book do you think is best to understand Africa’s climate crisis? A: “A Bigger Picture: My Fight to Bring a New African Voice to the Climate Crisis” by Vanesa Nakate. Rooted in the lived experience of one community in Uganda, it serves as a representation of what many communities across the continent are experiencing as a result of the climate crisis.

Q: What country in Africa should outsiders visit to learn about its climate? A: Malawi. It has among the lowest GDP per capita globally, and in recent years experienced the catastrophic impact of extreme weather, including droughts, heavy rains and flash floods, causing thousands of deaths.

Q: What have you done recently for climate action? A: I contributed to a report on reforming the international financial and debt architecture in order to make it more conducive for responding to climate change.

Q: What is your earliest conscious memory of the climate crisis? A: During my childhood in Mozambique a woman gave birth in a tree, while clinging to its branches due to torrential floods.

4. Media monitoring

The world is paying attention: Media from Europe to America reported on the Africa Climate Summit. They picked up many of its main topics.

  • Debt relief: The Financial Times reported that Kenya’s president William Ruto calls for African debt relief to fight climate change, while America's Associated Press focused on the linking of debt burdens and climate action.

  • New investments: France24 trumpeted "billions pledged for green development".

  • Climate justice. Bloomberg looked at loss & damage as well as adaption plans.

  • Global taxation: The BBC reported on calls to raise funds for climate action and investments from the aviation and shipping sectors.

  • Carbon markets: Reuters reflected the many conversations around integrity and new pledges.

Don’t have time to read 100+ media sources daily? We’ve done it for you ➡️ Check out our full media monitoring here

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