Welcome to our monthly newsletter, Carbon Market News Roundup, the goal of which is to introduce our audience to a new asset class market in the making: the carbon market. Our previous issues, along with the rest of our commentaries, may be read here.

Last issue, we focused the record-high greenhouse gas emissions that 2023 saw, as well as the $3 trillion clean energy investment gap in the way of achieving net-zero emissions by 2050. This issue, we look at recent efforts to bolster confidence in voluntary carbon markets, as well as highlighting the development of carbon markets in Africa, which holds enormous implications for climate finance.

The Voluntary Carbon Market Needs Integrity

US to Advance Carbon Offset Standards to Prevent Greenwashing

Jennifer A Dlouhy, Bloomberg

Carbon Prices and Voluntary Carbon Markets Faced Major Declines in 2023, What’s Next for 2024?

Jennifer L, Carboncredits.com  

Analysis: How some of the world’s largest companies rely on carbon offsets to ‘reach net-zero’

Josh Gabbatiss, CarbonBrief

The US is announcing tougher standards for carbon offsets in a bid to lend greater integrity to carbon markets, with the goal being to ensure that these markets drive real emission reductions rather than “greenwashing.” Climate advisor John Podesta said that offsets should represent real, additional, and permanent emission reductions (meaning genuine emission reductions that wouldn’t have occurred without action), that carbon trading regimes should avoid carbon leakage (where reductions in one area are offset by increased pollution in another), and that companies should not use carbon offsets to substitute efforts to reduce their emissions.

Other organizations have also been calling for enhanced credibility in carbon markets in recent months, such as the Commodities Futures Trading Commission, the International Emissions Trading Association, and the Integrity Council for the Voluntary Carbon Market. These guidelines may inject some sorely needed confidence back into the voluntary carbon market, which had a tumultuous year in 2023. A handful of major corporations, including names such as Shell and Nestlé, retreated from public carbon offsetting schemes last year following a series of greenwashing scandals from major carbon offsetting projects. The crisis in confidence had a huge effect on prices; the Xpansiv market CBL (the world’s largest spot carbon exchange) recorded carbon offset prices falling over 80% in an 18-20 month period.

Carbon markets play a vital role in achieving climate goals through the mobilization of private finance, and integrity in these markets is critical to achieve this. When companies or investors trust that offsets are genuine – that they represent real emissions reductions – they are more likely to participate in carbon markets. Because investors and companies seek reliable and transparent markets, high-integrity carbon markets attract investment, driving innovation and sustainable practices.

Despite the recent troubles in voluntary markets, demand is undeniable. First, as seen in the chart below, over six thousand companies have committed to emissions reduction targets.

This includes around two-thirds of Fortune 500 companies, as seen below.

These commitments drive corporate demand for carbon offsets. With many of these commitments being net-zero goals, these corporations will find that much of their emissions are not easily reduced in time to meet these goals. This is where carbon offsets come in – around two-thirds of the world’s biggest companies with net-zero goals are using offsets to help meet their goals, which allow these firms to claim emissions reductions while they invest on long-term structural emission reduction strategies. A credible voluntary offset market is essential for stakeholder trust and investor confidence, as well as to make a real difference in the fight against climate change. Given this built-in demand, carbon markets are not likely to go anywhere in the near future despite their recent troubles.  

The Development of Carbon Markets in Africa

Could carbon credits be Africa’s next big export?

The Economist

Can carbon markets solve Africa’s climate finance woes?

Ashoka Mukpo, Mongabay

Africa Clean Sweeps into $900B Global Carbon Credit Economy

Saptakee S, Carboncredits.com

A UN-backed consortium, the African Carbon Markets Initiative (ACMI), sees a golden opportunity for Africa in carbon credits. They estimate the continent could become a major seller, raking in $100 billion annually by 2050. This would be a massive boost, considering Africa’s foreign direct investment has never exceeded $80 billion a year. Kenyan president William Ruto is particularly enthusiastic, calling carbon credits an “unparalleled economic gold mine” and Kenya’s “next significant export.”

Africa has participated in carbon markets for decades, but in a limited way. It only captured 3% of credits issued under the Clean Development Mechanism, the first UN-backed international carbon market.

Climate finance initiatives in Africa has led to benefits outside of environmental ones. For example, carbon markets have been a boon for cooking-fuel startups in Africa, which aim to develop and scale cookstoves that are cheaper to fuel, healthier for African households, and produce fewer emissions that traditional charcoal or firewood cookstoves. Nearly a quarter of all African carbon credits on voluntary markets come from such projects. The Clean Cooking Alliance, a donor-funded organization, reports that over half of the 30 companies they support have used or plan to use carbon markets to attract financing.

ACMI is determined to expand Africa’s voluntary carbon market. At the September Africa Climate Summit in Nairobi, the United Arab Emirates pledged a significant $450 million to buy credits, and the Johannesburg Stock Exchange even launched its own dedicated voluntary marketplace. ACMI’s efforts, coupled with growing international interest, could turn the continent’s environmental potential into a real economic engine for the continent.

The development of carbon markets in Africa hasn’t come without problems. African policymakers have been frustrated with persistently-low prices for carbon credits, leading to a UN official calling for a common carbon registry that would align closer to the continent’s free trade area, which analysts expect would boost prices. The official also expressed the need for carbon markets to not be only based on revenues from the sale of credits, but also be focused on the creation of businesses and projects that generate carbon credits alongside co-benefits such as economic development.

With Africa being one of the continents hit the hardest by climate change, the development of carbon markets in the continent could support job creation, investment, and increase revenue in some of the places in the world that need it most. As Africa holds such potential in conservation, climate finance, and renewable energy, it would be nothing less than a tragedy for the continent to be left behind again in the fight against climate change.