Africa yet to benefit from carbon finance

The global value of the carbon market doubled between 2007 and 2008 growing from US$ 63 million to US$ 123.4 million. However, Africa’s participation in this market is very limited. Only 1% of the projects in both mandatory and voluntary markets are implemented in Africa.

Indian and China posses large share of mandatory market projects. Unlike in Africa, India and China have developed infrastructure and institutional capacity to develop carbon credit projects. Furthermore, Africa is faced by limited human resource capacity to plan, prepare and implement carbon credit projects and small size of the projects which makes them less attractive for financing. The most common type of projects in these countries is renewable energy projects from hydro power and energy efficiency.

Even with voluntary markets, India and China are enjoying long term experience with CDM projects to develop and implement carbon credit projects.

Voluntary markets were developed to function parallel to Kyoto protocol mechanism with simpler, quick and low transaction costs. Over the years the voluntary markets have gained integrity and grew interms of both number of projects and value. The initial rapid growth of the carbon market has triggered various associated service providers and financial mechanisms such as offset retailers, carbon fund, trading platforms and registers.

The largest market for the carbon credit is the European countries which has set the target of reducing 8% of the emission under the framework of the Kyoto protocol adopted in 1997. Countries under the Annex 1, industrialized countries and those with economies in transition, are set to reduce 5.2% of their emissions compared to the 1990 levels by 2008-2012.

Under the 2008-2012 timeframe Kyoto protocol operates through three mechanisms namely Clean Development Mechanism (CDM), Joint Implementation and Emission Trading. Despite good intentions of the Kyoto Protocol, still it is haunted with a number of problems including non-ratification of some key countries including the United States and the fate of the protocol after 2012 when it will come to end. Canada and New Zealand are reported to have abandoned the Kyoto protocol because of changes in the economic strategies which has force them to increase dependency on fossil fuels.

Constraining carbon emission if associated with constraining economy for which some countries are not ready to accept. These countries also argue that the Kyoto Protocol would be appropriate if India and China would have commitment in emission reduction targets.

There are a number of questions on the effectiveness of the Kyoto protocol framework in addressing climate challenge. The reduction in emission of greenhouse gases (GHG) has already reached around 6% although other sources estimate the reduction at 11%. However, this rate seems little if the reductions have to decrease to 60% as required by the protocol.

Many practitioner in the carbon trading are looking at the upcoming Conference of Parties (COP) 15 meeting in Copenhagen to resolve some of the major current issues including the Kyoto protocol post 2012, support to increase participation of African countries in carbon markets and acceptance of the projects related to reducing emission through deforestation and degradation (REDD).