Africa Climate Summit 2023: African Carbon Markets Initiative to benefit fossil fuel companies, financial brokers, says report

Fossil fuel companies and financial brokers are likely to emerge as the biggest winners of the African Carbon Market Initiative (ACMI), according to a new report.

ACMI, which was launched at the 27th Conference of Parties (COP27) to the United Nations Framework Convention on Climate Change in Egypt in 2022, aims to unlock $6 billion in revenue and support 30 million jobs by 2030.

The report by Power Shift Africa, a climate and energy think tank, was launched on the sidelines of the ongoing African Climate Summit being held in Nairobi, Kenya. 

ACMI has already attracted investors from the United Arab Emirates which has committed to buy $450 million of carbon credits, news agency Reuters reported.

One carbon credit refers to every tonne of carbon emission that is avoided or sequestered. A carbon market will allow countries and companies to buy credits from projects such as tree plantations, distribution of clean cooking stoves and renewable energy to offset their own emissions.

The new report highlighted the issues with voluntary carbon markets like ACMI, which are not regulated. This initiative, it warned, will help fossil fuel companies across the world to continue polluting “with impunity”.

“The ACMI growth target would allow big private companies to emit an additional 1.5-2.5 gigatonnes carbon dioxide equivalent (CO2e) per year by 2050,” the report read.

This, it added, is more than the total emissions from fossil fuels from all of Africa in 2021 and double the entire annual CO2 emissions from sub-Saharan Africa.

Further, there is also a concern about projects such as new hydro-power projects and tree plantations, which could lead to land grabs and human rights issues.

There are also concerns about ineffective methodologies that calculate emission reductions from carbon credit-producing projects. “At best they add no new emissions to the atmosphere, but they do not remove any carbon to neutralise the pollution by the purchasing credit company,” the report stated.

Nature-based solution projects are not permanent as the carbon stored is at risk of being released when trees burn or land degrades.

There is also interest in technological solutions in ACMI, which come with their own set of challenges. 

The Kenyan government, ACMI and related private organisations are pushing for the use of direct air capture (DAC) technologies, which could theoretically remove carbon directly from the air. 

However, DACs are unviable and toxic, and they also have storage issues. There is also a threat that the technology could divert renewable energy resources needed for universal energy access to African communities, the authors explained.

Flow of money

The key players of voluntary carbon markets are:

1. Project owners, who set up emission reduction projects, such as tree planting or renewable energy schemes,
2. Project developers, who are entities that produce paperwork to apply for accreditation to sell carbon credits
3. Verification and validation boards (VVB), hired by developers to audit the project
4. Standard setters like Verra and Gold Standard, which develop methodologies and certify offsets
5. Financial brokers, who are intermediaries that connect buyers of carbon credits with sellers. They also buy and sell carbon credits many times with huge mark-ups

“The market is managed by brokers who buy and sell credits with little or no transparency. They can add transaction costs and the mark-up cost before selling to offsetting companies,” the report read.

For example, a company could be paying $9 for an offset through a broker, who, in turn, may have purchased the credit from the carbon credit-producing project at just $3. “There is very little transparency about the amount of money that actually reaches the mitigation activity,” the report noted.

Brokers associated with as many as 250 projects resold credits for at least three times the purchase price, according to a study commissioned by Carbon Market Watch, an independent, not-for-profit watchdog and research organisation with unique expertise in carbon pricing.

There is another trend of big companies such as Vitol, Glencore and Trafigura donning the role of brokers.

Shell, the seventh-highest emitter since 1965, is also brokering credits. “They are winning twice as they sell their fossil fuels to companies who then buy their credits to offset the emissions,” the report highlighted.

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