Africa Takes Aim at VCM Integrity Concerns
ACMI seeks to address risks through new alliances, as industry participants cite carbon markets’ ability to channel climate finance and support sustainable development.
Africa’s climate transition is set to be bolstered by a new partnership focused on heightening integrity and transparency in the continent’s burgeoning voluntary carbon markets (VCMs), addressing stumbling blocks which have unsettled investors.
At Climate Week NYC, the Africa Carbon Markets Initiative (ACMI) announced strategic partnerships with the Voluntary Carbon Markets Integrity Initiative (VCMI), the Integrity Council for the Voluntary Carbon Market (ICVCM), and the International Emissions Trading Association (IETA) to install greater trust and confidence in African carbon markets.
VCM projects have the potential to support climate-related resilience in nature-rich regions, as well as support a just transition, and enhancing food security. African VCMs in particular could support 30 million jobs by 2030 and more than 110 million jobs by 2050, distributing revenue equitably and transparently amongst local communities.
However, carbon markets participants have recently had to develop more rigorous practices following widespread accusations of greenwashing and limited positive environmental impact. VCMs have faced criticism from the media over a lack of transparency, miscalculations, and inconsistencies in credit quality.
“The sentiments and narrative around carbon markets have fundamentally shifted to a lot of caution, anxiety and distrust,” Paul Muthaura, CEO of the ACMI, told ESG Investor. “The absence of integrity is not everywhere, and it should not be used as an excuse for inaction.”
Inaugurated at COP27 in 2022, the supply side-focused ACMI has the objective of producing 300 million carbon credits a year by 2030, and 1.5 billion credits a year by 2050, potentially unlocking US$6 billion in revenue by 2030 and over US$120 billion by 2050.
The collaboration with the ICVCM, VCMI and IETA will centre on three key areas to bolster transparency, inclusivity, and equity within respective African carbon markets and projects. The ICVCM is focused on providing a governance framework for the supply side of carbon credit generation, while the VCMI looks at demand-side rules.
The new partnership aims to harmonise tools and frameworks, including providing practical guidance for African governments on developing robust carbon market policies. It also intends to improve education and training and raise awareness and knowledge sharing.
The collaboration will see ACMI use ICVCM’s Core Carbon Principles (CCPs) and Assessment Framework to build confidence in VCMs and support African countries in the development of high-integrity carbon market frameworks.
Amy Merrill, CEO of the ICVCM, said it was an “exciting time” for carbon markets in Africa, with “more governments in the region thinking about how they can integrate high-integrity carbon market frameworks into their decarbonisation strategies”.
Carbon credit integrity is a key concern for VCMs globally, and the ICVCM has looked to address it with the recent launch of seven carbon-crediting methodologies that meet its high-integrity core CCPs.
This means that its CCP label can be used on an estimated 27 million carbon credits. A further 27 categories of carbon credits are under active assessment, representing more than 50% of the market.
“If done right, VCMs can channel climate finance at scale to reduce and remove greenhouse emissions, support sustainable development and protect biodiversity directly at the local level,” said Merrill. “There are only cons if the projects are low integrity.”
The ICVCM recently announced that a third of carbon credits issued under existing renewable energy methodologies failed to meet the criteria of its CCPs Assessment Framework. The initiative said the methodologies in question were “insufficiently rigorous” in assessing whether projects would have gone ahead without the incentive of carbon credit revenues, but that it is prepared to review more exhaustive renewable energy methodologies once developed.
Geographical imbalance
The global VCM quadrupled in value between 2020 and 2021, reaching US$2 billion, but Africa’s share is relatively small. This year, the global market could reach US$3 billion, rising to US$50 billion by 2030. But while the majority of the carbon credits purchased from VCMs in 2019 were from projects in developing countries, Africa currently only realises an estimated 2% of its carbon credit potential.
In June 2023, the Regional Voluntary Carbon Market Company hosted the world’s largest carbon market auction to date in Kenya, which saw the sale of more than 2.2 million tonnes of carbon credits. At Kenya’s African Climate Summit in September 2023, the United Arab Emirates Carbon Alliance pledged to purchase of US$450 million in African carbon credits from ACMI by 2030.
Ed Hewitt, Natural Climate Solutions Lead at carbon finance specialist Respira, flagged that the current size of the market in Africa, and globally, remains significantly less than its full potential.
The ACMI’s Muthaura said it was imperative that firms from industrialised and carbon-intensive economies financed the climate mitigation and adaptation journeys of low-emitting countries through the carbon markets.
“Entities must reduce their emissions first and foremost, but in areas where there are challenges in the speed of that reduction, it’s critical for credit acquisition to allow for meaningful reallocation of capital from Global North to Global South,” said Muthaura. “The Global South is not the driver of climate change, but the African continent is potentially the most adversely affected.”
Earlier this year, ACMI supported Nigeria in launching a Carbon Market Activation Plan to create a carbon market worth US$2.5 billion. The initiative has been working on similar plans with countries including Botswana, Rwanda and Ghana.
Muthaura added that the ACMI hopes to be in the position to make some “substantive announcements” on the completion or activation of its plans at COP29, which begins next month in Azerbaijan.
Hundreds of organisations from the Global South – including from Ivory Coast, Kenya, Sierra Leone and South Africa – recently called on the Science Based Targets initiative (SBTi) to permit the usage of corporate carbon credits in order for corporates to meet net zero goals.
Earlier this year, the SBTi faced internal and external scrutiny over its plans to extend the use of carbon credits to tackle companies’ Scope 3 emissions in the Corporate Net Zero Standard, which the organisation has since rowed back on. It’s consultation on changes to the standard is due to complete by the end of 2025.
“It’s going to be good for carbon markets if it allows more carbon credits to be used for corporates on their pathway to net zero,” said Hewitt. “That should be good for African countries, who stand to benefit a lot from thriving carbon markets globally.”
In May, three US government departments issued a Joint Statement of Policy and new Principles for Responsible Participation which outlined practices to support supply, demand and market integrity to increase trust in VCMs. It had been reported that the US State Department asked SBTi to make the purchase of carbon credits compulsory for companies taking part in the initiative’s net zero verification process.
Last week, Respira launched two new funds aiming to accelerate climate action and improve the quality and monitoring of nature-based carbon projects, with both funds having a 30% target allocation to Africa. More than half of the projects backed by the firm’s Respira Carbon 1 fund have been in Africa.
“We have found some great projects in Africa and have good relationships with developers on that continent,” said Hewitt. “We are very supportive of investing in Africa and it will continue to be an important part of our strategy going forward.”
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