African Energy Week (AEW) 2021 in Cape Town is committed to providing a real conversation on the issues facing African people and African businesses, offering attainable solutions through which the oil and gas industry can help drive. With global stakeholders pledging net-zero emissions by 2050, and the move to renewable energy holding significant financial challenges for African countries, the role of the oil and gas industry has been brought to light, with the idea of an African carbon market both deliberated and debated among key industry leaders and global stakeholders.

With a panel discussion taking place at the Ninth Conference on Climate Change and Development in Africa (CCDA-IX) under the theme, ‘Can carbon markets work for Africa?’ key insights were provided into whether or not a carbon market could work in Africa, with speakers introducing current national strategies to address carbon emissions. AEW 2021 will extend on this discussion, providing an in-depth analysis of the opportunities and challenges associated with an African carbon market. As the world accelerates its drive towards a net-zero future, concepts such as an African carbon market will be critical for ensuring a continent-wide approach to reducing emissions.

The Carbon Market Approach to Reducing Emissions

According to a report by the United National Environmental Program, carbon markets typically refer to a diverse set of systems that are regulated in different jurisdictions for trading greenhouse gas (GHG) pollution rights. Notwithstanding the benefits for reducing GHG emissions globally, a carbon market could be particularly valuable for Africa, as it can serve as a vehicle to channel new investment into energy security and renewable energy developments. With renewable uptake being relatively slow in Africa, despite its abundant resources, carbon markets could facilitate the much-needed finance to accelerate the move to a green energy future. Enabling the trade of emissions will not only enable the continent to benefit from its oil and gas resources, but will enhance the renewable energy sector, driving the energy transition while ensuring adequate supply.

“There needs to be national policy on the reduction of CO₂ emissions. The energy sector is known as one of the sectors that contributes the most to pollution. Due to the measures and good political will in Cape Verde, we have been able to invest more in renewable energies. Engagement, interest and political will have helped us achieve this result,” stated Antão Fortes, CEO of Cabeolica, Cabo Verde.

Challenges for Africa

Despite carbon markets apparent in over 50 jurisdictions all over the world, Africa has been slow to adopt the concept. This can be attributed to a number of challenges including lack of political will, ineffective regulatory oversight, and the complexity of the approach.

“There is difficulty in creating carbon markets in Africa, and there are things that need to be considered to make it effective. The first is liquidity and scale, and the second concerns the complexity of markets and capacity that is required among participants and regulators. There are major barriers to consider before carbon markets can work in Africa,” stated Gareth Philips, Manager of the climate finance division, African Development Bank, Cote D’Ivoire.

Unless implemented cooperatively, and with the right government support, carbon markets could not only be ineffective in Africa, but actually provide a form of loophole for high-emitting industries. Therefore, challenges need to be addressed before a carbon market could work in Africa.

“Africa needs to have a market that is dependable, where there is trust regarding issues of verification and the following up of transactions. The continent needs a framework that is transparent and part of a larger framework, not operating in isolation. We need to deal with economic and non-economic obstacles that may block the application of a carbon market,” stated Nassim Oulmane, Senior Economist, United Nations Economic Commission for Africa.

Current Progress Towards a Low-Carbon Future

With the reduction in GHG emissions a primary target for African countries and stakeholders, there has been notable progress made, specifically, through the utilization and implementation of a carbon tax. South Africa, for example, aims to reduce emissions by making it more expensive for sectors to emit GHG emissions. With a tax rate of R127 per CO₂ equivalent emitted, South Africa is leading the way towards a cleaner energy future in Africa.

“The carbon tax approach is being used in South Africa. In Africa, there needs to be both political and administrative will. We have seen issues regarding the impact of carbon tax on electricity prices, issues to do with long-term policies and timing of tax, issues regarding the lack of policy certainty, and issues regarding revenue recycling. These issues represent the challenges that Africa faces in general and the reasons why carbon markets have not taken off across the continent,” stated Pemy Gasela, Director of International Climate Change, Department of Forestry, South Africa.

Similarly, Kenya is making moves to introduce a carbon tax, with the concept currently under deliberation with key stakeholders. Despite the challenges associated with carbon tax, it has proved effective in motivating sectors and companies to reduce emissions.

“There is need for political will or a lot of these initiatives will fail. Kenya has brought the concept of a carbon tax forward and we are talking it through with stakeholders through consultations. What I have seen, however, is that the private sector has to play their role. We need to find a way in which to do business, a way that the private sector finds it worthwhile. There needs to be a business opportunity in climate change and an identified business motive,” stated Dr. Julius Muia, Principal Secretary, The National Treasury of Kenya.

At AEW 2021 in Cape Town, African energy leaders, private sector executives, and global financiers will provide a valuable discussion on strategies to reduce emissions and mitigate climate change. With the oil and gas industry being critical for Africa’s socio-economic development, and the renewable energy sector still lacking the critical capital to accelerate progress, carbon markets could be the best solution to driving the energy transition whilst ensuring the benefits of fossil fuels are maintained in Africa.