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African Carbon Credits – An Unexploited Commodity

by Storm Steenkamp, Senior Associate, and Sean Buchanan, Projects Director, EcoMetrix Africa

In 2010 the global carbon market was valued at approximately $142bn. This represents a slight decrease in value on the previous year ($143.7bn, 2009) and a reverse in the trend after five years of consecutive, robust growth. The global carbon market comprises both compliance markets and voluntary markets but the large majority of transactions occur within the compliance markets with the voluntary markets accounting for only 0.3% of total global carbon market volumes.

The CDM market represents an opportunity for the developing continent to engage in the carbon market by implementing project activities which reduce carbon emissions.

Within the compliance markets the European Union Emissions Trading Scheme (EU ETS) accounts for 84% of the global carbon market and therefore the major trends within the global market are dominated by the rules and regulations promulgated by the European Commission (EC) with respect to the EU ETS. Certified Emission Reductions (CERs) generated by CDM projects in developing countries, more commonly referred to as ‘carbon credits’, can be used for compliance purposes within the EU ETS and together with the EU ETS allowances, secondary CDM transactions comprise 97% of the current global carbon market. This article examines the state and trends of both the EU ETS and CDM market in detail before taking a brief look at other international compliance schemes and the voluntary market.

Of most interest, from an African perspective, is the CDM market as this represents an opportunity for the developing continent to engage in the carbon market by implementing project activities which reduce carbon emissions from the ‘business as usual’ or baseline scenario. These projects, upon registration with the UNFCCC, are compensated for their efforts (and adoption of higher cost technology) by developed countries in the form of carbon credit revenue and technology transfer.