It’s Africa Climate Summit week and ‘Carbon credits’ is a phrase that has been going around all through. What are they? Quite simply, a carbon credit is a type of tradeable instrument that represents one tonne of carbon dioxide removed from the environment.
Carbon Credits are used in carbon emissions trading, which is a cap and trade regulatory program designed to limit carbon emissions resulting from industrial activities. The carbon markets are divided into compliance and voluntary markets.
Compliance Market
In the compliance market, national and international authorities determine a cap on the amount specific sectors can release into the environment in order to achieve their Nationally Determined Contributions (NDC) under Article 4 of the Paris Climate Agreement. Entities that go beyond the prescribed amount of carbon emissions have no option but to buy or use saved credits to stay below the emissions limit.
Voluntary Market
In the voluntary market, carbon credits trade is on a voluntary basis, meaning that participants operate outside the compliance markets. This provides a flexible trading scheme for players (individuals, businesses, governments, and NGOs) to voluntarily offset their emissions by purchasing carbon credits
In Kenya, carbon credits have been used to pay landowners and local communities to keep carbon-absorbing forests standing. For example, since 2010, forests covering the lowlands of the Kasigau wildlife corridor between Tsavo East and Tsavo West national parks have been protected under a carbon credit program run by U.S.-based company Wildlife Works. The land is privately owned by cattle ranches, and nearby communities benefit from a share of the revenues that are allocated by local carbon committees. The Kasigau initiative is seen as a model for Kenya, generating about a third of the country’s offsets.
Carbon financing
Carbon financing refers to the financial mechanisms used to support projects that reduce greenhouse gas emissions or sequester carbon dioxide from the atmosphere. Carbon trading is the process of buying and selling carbon credits on an exchange or through other market mechanisms.
Leveraging Technology in Carbon Credits
Technology is playing an increasingly important role in the carbon credit market. The Taskforce on Scaling Voluntary Carbon Markets (TSVCM), sponsored by the Institute of International Finance (IIF) with knowledge support from McKinsey, estimates that demand for carbon credits could increase by a factor of 15 or more by 2030 and by a factor of up to 100 by 2050. This presents an opportunity for technology to be leveraged in the generation, verification, and trading of carbon credits.
One area where technology can be leveraged is the generation of carbon credits. According to the International Energy Agency (IEA), most CO2 emission reductions through 2030 will come from technologies on the market today. However, by 2050, almost half the reductions will come from solutions currently in the prototyping phase. This means that there is a need for continued innovation and investment in technology to support the generation of carbon credits.
Technology can also be leveraged in the verification of carbon credits. The use of remote sensing technology, such as satellite imagery, can help to monitor and verify the impact of carbon credit projects. This can help to ensure that carbon credits are being generated in a transparent and verifiable manner.
Finally, technology can be leveraged in the trading of carbon credits. The use of blockchain technology can help to create a transparent and secure platform for the trading of carbon credits. This can help to increase trust in the market and facilitate the growth of the carbon credit market.
Kenya is betting on carbon credits as it hosts climate summit. The UN-endorsed African Carbon Market Initiative, launched at COP27 in November, believes 300 million credits could be generated annually on the continent by 2030 –- a 19-fold increase on current levels. This presents an opportunity for Kenya’s farmers to take advantage of carbon trading to lower food prices.
Carbon credits are an important tool in the fight against climate change. They provide a way for individuals and organizations to offset their emissions while supporting projects that reduce greenhouse gas emissions or sequester carbon dioxide from the atmosphere. In Kenya, carbon credits have been used to pay farmers to keep trees standing, providing benefits for the environment and local communities.
