{"id":5220,"date":"2022-04-18T21:29:53","date_gmt":"2022-04-18T15:59:53","guid":{"rendered":"https:\/\/ijpiel.com\/?p=5220"},"modified":"2022-04-23T14:06:17","modified_gmt":"2022-04-23T08:36:17","slug":"carbon-financing-and-its-potential-to-foster-economic-development-in-africa","status":"publish","type":"post","link":"https:\/\/ijpiel.com\/index.php\/2022\/04\/18\/carbon-financing-and-its-potential-to-foster-economic-development-in-africa\/","title":{"rendered":"Carbon Financing and its Potential to foster Economic Development in Africa"},"content":{"rendered":"

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Abstract<\/span><\/strong><\/span><\/p>\n

The upcoming and promising concept of carbon trading or financing looks like a hopeful developmental option for a lot of developing countries which can create appropriate green ecosystems. Africa is one of these counties. It is seen that through proper policies and favourable negotiations, carbon trading can give a great boost to the economy of Africa. The blog post explores the concept of carbon trading itself, in details, and suggests ways for Africa to make the best out of it.<\/span><\/p>\n

<\/strong><\/p>\n

Introduction<\/strong><\/span><\/p>\n

Originally formulated in the 2015 Paris<\/span>Convention<\/a>, the concepts of carbon markets and carbon finance are now a source of hope for many developing regions in the world. Before getting into the technical realm, for a layman, the carbon market can be simply described as a trading system of carbon emission rights and permits that allows corporations to expand commercially and the host nations<\/span>economically<\/a>. Experts have been incredibly optimistic about the success of the whole framework, from an environmental perspective. Analysts working for the Environmental Defence fund claim that it has the potential to \u201cnearly double the emissions reductions that would be achieved using only current<\/span>policies<\/a>\u201d.\u00a0<\/span><\/span><\/p>\n

The potential is even more immense for places like Africa, where the conditions are highly suitable for a host country in a carbon trading setting. Africa accounts for a minimal 2% of the carbon share in the<\/span>world.<\/span><\/a> Moreover, with large proportions of its lands untouched by industrialisation, it can be a great business opportunity for the African continent, something which has been stressed upon by its leaders. The Kenyan President, for that matter, encouraged corporations to make use of the continent as a natural carbon sink and<\/span>invest<\/a>.<\/span><\/span><\/p>\n

The paper seeks to run the reader through the different concepts of carbon trading and focus particularly on Africa\u2019s potential to make use of the same to prosper in terms of development. The legal aspect of the process is also discussed.<\/span><\/p>\n

<\/strong><\/p>\n

What are Carbon Credits<\/strong><\/span><\/p>\n

Carbon credit refers to a tradable permit or certificate that provides the holder of the credit the right to emit one ton of carbon dioxide or an equivalent of another gas. These credits act as compensation for emissions made by entities that in their nature are bound to emit harmful or illegal<\/span>gases.<\/span><\/a><\/span><\/p>\n

The main purpose of these carbon credits is to ensure a reduction of emissions of carbon dioxide and other greenhouse gases from industrial activities to reduce the effects of global warming and harm to the environment.<\/span><\/p>\n

Greenhouse gas refers to carbon dioxide, methane and nitrous oxide which collectively have a huge impact on our ecosystem once released into the upper atmosphere.<\/span><\/p>\n

<\/strong><\/p>\n

Carbon Market<\/strong><\/span><\/p>\n

The<\/span>global carbon market<\/a> may be described as a diverse set of systems that are regulated in different countries for trading greenhouse gas emission rights. These rights are categorised into either allowances or permits and they are the commodities that are globally traded and give the bearer the right to emit an equivalent amount of greenhouse<\/span>gases<\/a>.<\/span><\/span><\/p>\n

In addition to the permits and allowances, the carbon market ecosystem also encompasses carbon credits which are similar to permits but with a slight difference in that carbon credits are generated over time while permits precede the actual emissions.<\/span><\/p>\n

<\/strong><\/p>\n

Classes of the Carbon Market<\/strong><\/span><\/p>\n

The global carbon market is classified into four broad categories:<\/span><\/p>\n

a. Emission trading<\/span><\/p>\n

Relates to the trading of allowance rights to emit the Greenhouse gases and only happens between industrialised countries, which buy and sell their rights to pollute up to their designated limits.<\/span><\/p>\n

b. Clean Development Mechanism<\/span><\/p>\n

This is a project-based offset system that was introduced by the Kyoto Protocol and its main objective is to mitigate the global cost of Greenhouse gases by opening up the market for countries with legally binding emission reduction targets to gain from countries that do not have any legally binding targets. In this model, carbon credits are purchased from projects undertaken in non-industrialized nations for the benefit of industrialised countries.<\/span><\/p>\n

c. Joint implementation<\/span><\/p>\n

For this model, carbon credits or rights to emit Greenhouse gases are only developed and traded between industrialised nations. The structure of this particular model is similar to that of a clean development mechanism with a major difference being on the parties trading the rights, this model prohibits industrialised nations from trading with<\/span>non-industrialized nations<\/a>.<\/span><\/span><\/p>\n

d. The voluntary carbon markets<\/span><\/p>\n

This segment greatly borrows from the 2 previous models as the rights traded are developed by various countries and traded to offset emission limits to be met by the countries purchasing the rights, however, this model ideally works for retail clients who seek a smaller number of reductions to offset their footprints.<\/span><\/p>\n

In addition, the rights issued under this model are not uniformly issued due to their fairly small sizes and are also not regulated by the United Nations as is the case for the other two market segments.<\/span><\/p>\n

<\/strong><\/p>\n

Carbon Credits in Africa<\/strong><\/span><\/p>\n

The continued promotion of the movement to a green economy presents immense opportunities for African economies and various African countries have been poised to take up the growth opportunity offered by this<\/span>new green economy movement<\/a>.<\/span><\/span><\/p>\n

Countries, companies and the global community are all looking to put in place the policies and legislation needed to catalyse a transition towards a Green Economy which would realise development for all but also keep humanity’s footprint within planetary boundaries while delivering significant social benefits from eradicating poverty to improve local infrastructure.<\/span><\/p>\n

<\/strong><\/p>\n

Laws Related to Carbon Financing in Africa<\/strong><\/span><\/p>\n

To understand the Laws related to carbon credits in Africa, it is first important to note that Africa, being a continent, is a huge collection of legal jurisdictions, which means that laws vary from country to<\/span>country<\/a>.<\/span><\/span><\/p>\n

The general trends promoting carbon trade can be fairly observed in most of the significant countries. This includes Gabon\u2019s recently passed climate law that encourages carbon trading and mandates registering of credits with the United Nations Framework Convention on Climate Change, thereby making the process more regulated.<\/span><\/p>\n

Kenya\u2019s Finance Minister hinted at putting a legal framework for emissions trading in place soon. Other countries, like South Africa, have also provided allowances for carbon offset<\/span>companies<\/a>.<\/span><\/span><\/p>\n

<\/strong><\/p>\n

International Overview of Policies relevant to Carbon Credits<\/strong><\/span><\/p>\n

The UNFCCC (United Nations Framework Convention on Climate Change) acts as the nodal body in determining the carbon credit policies, although regional law of the countries to apply.<\/span><\/p>\n

As said before, since the 2015 Paris agreement, Carbon credits have been attracting attention from all over the world. The recent years have seen many carbon trade-related cooperative agreements. This includes China, Korea, Switzerland and, even the European<\/span>Union<\/a>.<\/span><\/span><\/p>\n

Under the market components of Article 6 [Paris Agreement], the nations who have yet to meet their allowance of carbon emissions would have the option to offer their overabundance as credits to different nations that surpass their carbon emissions. In principle, this would make a financial motivator for nations to cut their emissions quicker, and then channel that savings into money to invest in cheaper and quicker projects for cutting even more emissions.<\/span><\/p>\n

Amidst this, there are still those who are suspicious of the whole arrangement. The contention is that these carbon credits mechanisms divert the issue from the real threat, that is the climate change that is being masked. Moreover, some have reservations about the transparency in the system, fearing that this is an opportunity for the exploitation of developing countries in the hands of<\/span>rich ones<\/a>.<\/span><\/span><\/p>\n

There is no doubt that these concerns must be addressed moving forward. An ecosystem of trust has to be created and the roles and expectations coming out of any carbon credit must be cleared out and well-defined beforehand. On the question of climate change, the long-term repercussions of the credit system must be analysed by all the stakeholders and the best course of action for the host country must be<\/span>settled<\/a>.<\/span><\/span><\/p>\n

<\/strong><\/p>\n

Recommendations on how Africa should utilise Carbon Financing to foster Economic Growth<\/strong><\/span><\/p>\n

As promising as Africa is in terms of its carbon credit capabilities, there are still some ways to preserve and improve its scope and prospect. These could include:<\/span><\/p>\n