Unlocking Africa’s potential in the global carbon market: Accelerating emissions trading in a shifting energy paradigm

The challenge for African nations is to harness this opportunity, attract investments in renewable energy, and assert their role in shaping global climate outcomes.

As the global shift towards clean energy accelerates, the carbon market has emerged as a vital mechanism for reducing emissions. Beyond the Paris Agreement signed in 2016, which established a framework for international emissions trading, many countries—such as Canada, Japan, New Zealand, and the United States—have developed national and sub-national carbon markets, further expanding the reach of emissions trading. These mechanisms not only help reduce greenhouse gases but also provide a scalable solution for mitigating climate change globally.

In addition to environmental benefits, emissions trading can serve as a significant economic driver. For Africa, which has a relatively low carbon footprint, there exists an untapped opportunity to capitalise on carbon credits by selling emission allowances to higher-emitting international companies. However, Africa’s potential in this market remains largely underutilised, resulting in millions of dollars in unrealised revenue each year. The challenge for African nations is to harness this opportunity, attract investments in renewable energy, and assert their role in shaping global climate outcomes.

Emissions trading, often referred to as “cap and trade,” is a system where a limit is placed on the quantity of pollution that companies are permitted to emit. These companies are issued tradable emissions allowances equivalent to the set limit and can choose to trade these allowances with other companies governed by the same system. This market-based approach to controlling pollution has led to significant reductions in emission rates in many regions that adopt it.

With examples such as the European Union Emissions Trading System (EU ETS) and the California Cap-and-Trade Program, the carbon market demonstrates its dual role: not only in reducing greenhouse gas emissions but also in generating revenue. This revenue can be reinvested in green energy projects, energy efficiency improvements, and low-income community development, creating jobs and supporting economic growth while advancing environmental goals.

African countries are uniquely positioned to participate in the global carbon market in various ways. In the absence of a formal cap-and-trade system, companies can still generate emissions credits through initiatives that reduce emissions. Under international agreements like the Kyoto Protocol and the Paris Agreement, carbon credits represent a specific amount of greenhouse gases removed from the atmosphere.

Through investments in clean energy projects, afforestation, and reforestation, Africa can generate credits to be sold in the international carbon market. As of 2020, Africa contributed only 3.8% of global greenhouse gas emissions, the smallest share. This relatively low figure allows the continent to focus on generating credits rather than significantly reducing its own emissions, which can attract foreign investment and increase revenue.

Unfortunately, Africa’s participation in the carbon market faces several key challenges that limit its ability to fully benefit from trading carbon credits. One significant obstacle is the lack of robust policy frameworks and regulatory mechanisms to support carbon trading at both national and regional levels.

Without clear legislation and enforcement, potential investors may hesitate to commit to clean energy or carbon sequestration projects.

Additionally, many African countries lack the technical expertise and institutional capacity to effectively measure, verify, and certify carbon credits—skills critical for participation in the global market. Financing presents another barrier; many projects require substantial upfront investment, and without financial support or incentives, implementing large-scale initiatives becomes challenging.

International cooperation, capacity building, and financial assistance from developed nations will be vital to overcoming these challenges and unlocking Africa’s potential in the global carbon market. International cooperation and support are essential for Africa to address the challenges it faces in the carbon market.

Developed nations can play a pivotal role by providing financial aid, capacity-building efforts, and technological investments to help African countries establish effective carbon trading systems. Knowledge transfer is crucial, enabling African nations to develop the technical expertise necessary for measuring, verifying, and certifying carbon credits.

It is these barriers and potential solutions that will form some of the critical discourse at the Nigeria Energy Leadership Summit. The event organised by Informa Markets, serves as a vital platform for discussing Africa’s role in the global carbon market. Scheduled for 15 – 17 October, this conference will bring together government officials, industry experts, and investors to explore potential solutions and strategies to address the continent’s unique challenges in carbon trading.

Key topics will include policy reform aimed at enhancing market access, creating incentives for investment in clean energy projects, and exploring regional collaborations to establish a unified African carbon trading platform. By facilitating dialogue among stakeholders, the conference aims to generate actionable insights and foster partnerships that can propel Africa forward in its efforts to meaningfully participate in the global carbon market while achieving its sustainability goals.

Africa’s potential in the global carbon market is significant yet largely untapped, presenting a unique opportunity for the continent to enhance its role in the fight against climate change. By implementing strategic policies, fostering investments in clean energy, and promoting international collaboration, African nations can unlock their vast resources and capabilities.

The Nigeria Energy Conference will be instrumental in this endeavour, serving as a crucial platform for dialogue and innovation. Through collaborative efforts, Africa can not only increase its participation in the global carbon market but also position itself as a leader in sustainable energy practices, paving the way for economic growth and environmental sustainability for generations to come.