In his remarks at the launch of the Africa Carbon Markets Initiative at COP 27, President William Ruto described carbon credits as Kenya’s “next significant export”.
The President believes that a robust mechanism, through which a carbon credit market can yield attractive income and development opportunities for communities at the frontlines in the fight against climate change, is necessary.
For Kenya, which needs $64billion to implement its climate actions by 2030, exploring carbon markets as part of the broader climate finance strategy, is highly crucial. With the promise of potentially creating millions of jobs, supporting local economies, providing access to clean energy, protecting nature, and enhancing adaptation to climate change, carbon credits may arguably be the new ‘oil’ for Africa.
In 2021, about 15 percent of all carbon credits supplied in the $2 billion voluntary carbon markets were from Africa.
This market is expected to reach at least $30 billion by 2030, according to McKinsey. Kenya alone generated 20 percent of all Africa’s carbon credits – more than any other country on the continent.
If Kenya explored its huge carbon credit revenue potentials, revenue forecast for 2030 is about $600 million annually. To put this into context, revenues from coffee, one of Kenya’s biggest exports, for the 10 months to October 2022, stood at Sh33.8 billion ($273 million).
The market for trading these certified credits would either take place in a compliance (mandatory) or voluntary market. The compliance markets, for example, the EU Emissions Trading Scheme, are based on allocations of allowed emissions under a cap.
The voluntary markets, on the other hand, are driven by private initiatives to achieve voluntary net-zero and climate neutrality commitments made by about 1,700 companies globally. Under the Article 6 of the Paris Agreement in 2015, there is a continuation of the carbon markets as part of the financing instruments for achieving a low-carbon future.
Many stakeholders consider this “second wave of carbon economy” as a huge opportunity for Africa. The question is, can Kenya maximise its huge potentials in the markets?
A few carbon projects in Kenya are currently supplying credits for the voluntary markets. A case in point is the Northern Rangelands Trust project, with 14 conservancies across the country’s 11 counties.
The project is generating carbon credits by changing grazing practices and improving soil health on 1.9 million hectares of rangelands. The project generated its first credits in 2013, sold into the voluntary market, generating $14.6 million for local beneficiaries.
Ms Kotut-sang is a Climate Finance Consultant.
Dr Somorin is a regional principal officer with the African Development Bank.