AfDB to launch carbon support facility for Africa

From the newsletter

The African Development Bank has announced plans to establish the Africa Carbon Support Facility. This initiative aims to enable conservation projects to generate carbon credits, thereby attracting finance and supporting long-term environmental protection. Currently, the facility is in the design phase, with implementation details still under discussion.

• The facility will assist governments in creating carbon trading policies and regulations. It will also develop market infrastructure, including verification systems, trading platforms and reporting tools, to enhance the supply and demand for carbon credits across the continent.

• Experts suggest that Africa requires regulated carbon markets to ensure transparency, fair compensation, and consistent standards. Strong policies can attract investment, reduce the risks of greenwashing, support sustainable development and align with national objectives. 

More details

• The African Development Bank aims to transition Africa’s carbon credits from voluntary markets to regulated exchanges. Currently, most African carbon credits, primarily from forestry, land use and agriculture, are traded voluntarily. Integrating these credits into formal exchanges could enhance market prices, which are generally lower in Africa compared to other regions with stricter environmental regulations.

• The bank envisions a future where carbon credits are traded on African stock exchanges. This shift could increase investor confidence and yield higher returns for climate-related projects. "Carbon market development is an imperative for the continent," stated Kevin Kariuki, Vice President for Power, Energy, Climate Change and Green Growth at the AfDB.

• Anthony Nyong, Director for Climate Change and Green Growth, noted that this initiative could enable Africa to access higher-priced compliance markets, where prices can be up to ten times greater than those on voluntary platforms. The facility will focus on building capacity so that African credits can meet compliance standards.

• During the 2022 United Nations COP27 summit, five African countries; Kenya, Gabon, Nigeria, Malawi and Togo launched the African Carbon Market Initiative, which aims to produce 300 million credits annually by 2030 and 1.5 billion by 2050.

• Harmonised carbon market regulation across Africa is crucial for providing clarity and ensuring alignment with national climate and development goals. Clear regulations help define how carbon market activities are conducted and instil confidence in the regulatory environment for project developers and investors. This alignment supports national strategies and ensures that market mechanisms contribute directly to countries' emissions reduction and sustainable development plans.

• A unified regulatory approach facilitates the expansion of carbon market operations by promoting shared infrastructure and reducing market fragmentation. Regional coordination under frameworks like the African Continental Free Trade Agreement, can unlock Africa’s carbon market potential by enhancing trade and collaboration across borders. Countries with similar regulatory standards can jointly develop and sell credits, improving economies of scale and market access.

• Increasing the participation of domestic actors, such as local businesses and communities, is essential for making carbon markets more inclusive and impactful. However, successful implementation relies on adequate resources and institutional capacity. National governments must lead in establishing the necessary policies and institutions to operationalise them, ensuring local benefits and the long-term sustainability of carbon market participation.

Our take

• If African nations do not establish clear regulations for carbon markets and the flow of finance, there is a risk that carbon trading will replicate historical patterns of exploitation.

• Similar to previous extractive models, where resources were extracted without fair compensation or local involvement, poorly designed carbon markets could marginalise communities and governments, reinforcing existing power imbalances.

• It is essential that regulations are led by Africans to ensure that carbon markets empower local actors, provide community benefits, and align with broader objectives of environmental resilience, economic inclusion, and intergenerational climate justice.