DailySun
Amid the discussions on its climate finance agreement (see page 28), COP29 marked an important achievement concerning carbon markets. Supporters believe that this agreement will greatly bolster projects focused on addressing climate change by either capturing carbon from the atmosphere or stopping its release entirely.
“Once these carbon markets are up and running, they will enable countries to implement their climate strategies more efficiently and economically, thus lowering emissions,” remarked UN climate chief Simon Stiell. “Although we have a long journey ahead to halve emissions this decade, advancements in carbon markets at COP29 will help steer us back on course.”
Article 6 of the Paris Agreement has been a divisive issue in climate discussions for nearly a decade. The concept of countries voluntarily collaborating through carbon credits to achieve climate goals was introduced in 2015. However, finalizing practical implementation mechanisms has proven to be a challenging process.
Nonetheless, COP29 managed to announce a significant breakthrough on the summit’s inaugural day, with an agreement on operationalizing a key component, Article 6.4. This initiative involves setting standards for methodologies that measure emissions reductions or removals from carbon credit projects, ensuring that these projects adhere to methods that produce verifiable results.
Shortly after, an agreement on Article 6.2 was reached, which facilitates the exchange of carbon credits between countries. For example, Norway could purchase carbon credits from a project in Kenya, contributing to Norway’s climate target goals—known as the Nationally Determined Contribution—that it submits to the UN.
Africa stands to benefit immensely. The continent has substantial potential to scale up carbon removal projects, particularly through tree planting and efforts that protect carbon-sequestering ecosystems.
The African Carbon Markets Initiative predicts that Africa could generate $120 billion annually by 2050 through the sale of carbon credits. However, despite overcoming the Article 6 obstacle, challenges remain in translating this potential into real progress.
‘Fundamental transformation’
The agreement is hailed as a “complete game changer,” according to Luke Leslie, CEO of carbon markets investor Key Carbon. He explains to African Business that this deal lays the foundation for a fundamental transformation in the voluntary carbon market. Currently, this market relies exclusively on voluntary credit purchases by corporations, which have been affected by fluctuating demand driven by various scandals that have diminished confidence.
With the creation of an international framework to regulate carbon credit standards, Leslie anticipates a shift towards a compliance-based market. For instance, companies might be incentivized to acquire credits to mitigate their risk of incurring carbon taxes in different regions.
Leslie suggests that the Article 6 agreement sends a “huge demand signal” that is likely to cause a surge in credit purchases, similar to how physical commodity buyers secure contracts in advance.
He asserts that this presents a “once-in-a-generation opportunity” for countries like Madagascar. Despite facing widespread deforestation recently, he notes that Madagascar ranks among the most cost-effective locations globally to launch a reforestation initiative, positioning it attractively for investments from carbon credit developers.
A silver bullet?
While nearly all stakeholders in the carbon market have welcomed the Article 6 agreement, many remain hesitant to predict an immediate market surge.
Nick Marshall, co-founder and head of carbon at TASC, an Africa-focused carbon project developer, acknowledges that the Article 6 agreement is a “fantastic signal” that will eventually boost credit demand. He points out that the aviation sector has largely stayed away from the voluntary carbon marketplace until now.
However, with the frameworks and mechanisms now in place, he feels “quite optimistic” about airlines being encouraged to buy credits from proactive nations like Zambia, which has made significant progress in establishing frameworks for carbon credit sales.
Storm Patel, TASC’s commercial director, indicates that the company could increase its project scale in Zambia two to three times “if there were established policy certainty and clear guidelines and offtakers through these 6.2 mechanisms.”
Yet, Marshall cautions that the Article 6 deal will not result in instantaneous changes “overnight.”
He emphasizes that there is still a “long way” to go in implementing the Article 6.4 mechanism. While the Article 6.4 agreement outlines requirements for carbon credit methodologies, the actual approval process for methodologies that meet these requirements is still pending. The timeline for establishing a “Paris Agreement Crediting Mechanism,” which would enable emissions reductions to be credited for sale to companies in other countries, remains unclear.
Johnson Penn, CEO of EcoLinks, which seeks to develop carbon credit projects in countries such as Rwanda and Ghana, also believes the Article 6 agreement is not a “silver bullet” for the carbon market. While he considers the finalization of the agreement in Baku to be a “very good” development, he stresses that further efforts are needed before Africa can capitalize on a surge in demand.
In fact, Penn mentions that preparations for bilateral agreements on carbon credit transfers were already in motion prior to COP29. Although he is “cautiously optimistic” about the potential positive impacts of the deal, he admits that it remains uncertain whether or when a wave of Article 6.2 agreements will materialize.
Easier in Asia
During COP29, Singapore announced several Article 6.2 agreements, including one with Zambia. However, Penn notes that only a handful of other countries have shown a strong eagerness to purchase credits through this mechanism. The pattern in the carbon markets thus far has been “more talk than action,” in his perspective. For example, South Korea, where EcoLinks is based, has signed numerous memoranda of understanding with other governments about carbon credit purchases but has been slow to convert these MoUs into actual agreements.
Penn warns that African governments must take proactive measures to ensure they benefit from upcoming market advancements. He claims that, at present, “larger projects” are far more feasible in Southeast Asian markets compared to most African nations.
He highlights Rwanda as a prime example in Africa for providing a “very supportive” environment for securing credit agreements. However, due to its limited size and high population density, the country struggles to accommodate extensive carbon removal initiatives.
Conversely, in Ghana, Penn indicates that the process of obtaining letters of authorization for carbon projects has been arduous, marked by “lengthy and unnecessary procedures.” His message to governments is to enhance competitiveness to attract investment.
“If you want the carbon markets to scale as rapidly as you hope, it is crucial to have efficient processes in place for when you establish all the enabling mechanisms for growth in this market,” Penn advises.
