Photograph — Mastercard

The shift towards a more environmentally sustainable global economy offers fresh opportunities for African economies. Countries, companies, and communities around the world are actively pursuing the implementation of policies required to expedite the transformation into a Green Economy. This transition aims to achieve inclusive development while respecting environmental limits and providing social benefits, such as poverty eradication and wealth creation.

Africa is arguably the most affected by climate change but it is encouraging to see the opportunity for the continent to harness its rich reserves of natural and renewable resources for sustainable energy. The carbon market offers economic value to activities driven toward reducing greenhouse gas emissions, Africa can gain economic benefits from the global factors driving this transition.

The carbon market is a multifaceted system designed to facilitate the trade of greenhouse gas pollution rights. These rights, often known as allowances or permits, serve as the globally traded commodities that grant the holder the permission to release an equivalent volume of CO2 emissions. Carbon credits are accrued steadily, generated as a project is implemented and its emissions reductions are verified. In many markets, these carbon credits can be deployed as an alternative to allowances to meet compliance targets established for industrial facilities.

The carbon market in Africa is still nascent as it accounts for just 2 percent of the trading activity on the global carbon markets, which is valued at more than $2 billion.

In 2022, the United Nations Climate Summit (COP27) offered a boost to climate finance for the continent through the unveiling of the African Carbon Markets Initiative. This initiative is committed to making climate finance available for African nations, broadening their access to clean energy, and promoting sustainable economic development. The initiative pledges to improve Africa’s involvement in voluntary carbon markets. The goal of the African Carbon Market Initiative is to produce 300 million new carbon credits annually by 2030, a figure on par with the total credits issued globally in voluntary carbon offset markets in 2021.

Rwanda is set to launch its carbon market scheme at the UN Climate Summit (COP28) slated from November 30 to December 12 in Dubai. Herman Hakuzimana, the Climate Change Programme Manager at the Rwanda Environment Management Authority (REMA), believes that the country has a lot to offer. The cabinet has received a comprehensive briefing on the country’s carbon emission trading framework, which aligns with Article 6 of the Paris Agreement.

Hakuzimana shared that the carbon market initiative provides a clear roadmap for investors to purchase carbon credits in Rwanda. The initiative will also showcase the wide range of projects available in the country’s carbon market, including innovative cooking technologies designed to ease the strain on the forests.

“The carbon market framework serves as a tool to attract investors to Rwanda’s carbon market, and these projects are all part of Rwanda’s 10-year climate action plan, which requires $11 billion for implementation through 2030,” said Hakuzimana.

Rwanda is dedicated to a 38 percent reduction in its greenhouse gas emissions by 2030. To achieve this goal, they plan to secure $4.155 billion from domestic sources, leading to a 16 percent reduction in emissions. While, $6.885 billion in external financing will be secured, resulting in a further 22 percent reduction in emissions.

It is important to highlight that Rwanda is one of the most climate-impacted countries in the world. In May, it experienced devastating flooding and landslides, which led to the tragic loss of over 130 lives. Thousands of people were forced to evacuate as the deluge submerged villages. The destructive impact of the flood resulted in the destruction of 5,000 homes, 17 roads, and 26 bridges.

However, there are doubts about the efficacy of carbon offset credits in tackling the issue of climate change. When evaluating the effectiveness of carbon credits, one major concern is how long carbon offsets last. Carbon emissions can be in the atmosphere for hundreds of years, so these offsets have to be permanent. But it’s quite a challenge to guarantee the emissions will be offset for that length of time. However, Rwanda’s carbon market has garnered interest from investors who are positive about the quality of the carbon credits and the high prices that it would attract. Paul Foster, the CEO and Founder of CSG Holding believes that the country’s framework and governance are poised to yield the most competitive carbon credit prices possible.

Rwanda is considered a premier investment hub because of its comprehensive environmental protection policies. The country’s leadership has prioritized peace and security, creating an environment conducive to business growth. It is also at the forefront of leading creative financial mechanisms to fund sustainable projects, such as the introduction of green bonds. These instruments have attracted both domestic and international investors who are driven toward supporting eco-friendly initiatives.

Elsewhere on Ventures

Triangle arrow