Exploring the potential and challenges of voluntary carbon markets in the Global South

 

Carbon markets – a specialized type of financial market through which carbon credits can be bought or sold – are increasingly being recognized as important instruments in the quest to identify new forms of financing to enable climate action globally. Carbon credit markets are broadly grouped into two categories: compliance and voluntary. The Paris Agreement permits voluntary cooperation between countries to trade carbon credits to achieve the emission reduction targets set out in the country’s Nationally Determined Contribution (NDCs). This has the potential to reduce the total cost of implementing NDCs by more than half. The potential value for Africa alone could be USD 1.5 trillion (approximately CAD1.98T) by 2050.

However, involving countries in the Global South in carbon credit markets is complex and the setting of these markets presents several challenges in terms of design, governance and impacts. If carbon sequestration cannot be implemented credibly, then these markets can pose a major risk of leakage. On the financial side, these markets promise major injections of capital into developing countries who are selling their credits, but so far little is known about the distribution of these funds, including the inclusivity and the opportunity costs of the carbon offsets.

The overall objective of the project is to explore the potential of voluntary carbon market (VCM) for low- and middle-income countries in Africa. This project will address critical knowledge gaps in terms of how VCM can integrate gender and social equity into carbon credits mechanisms to ensure VCM contributes to local livelihoods with a significant portion of revenue going to local communities. Using literature analysis, sectoral data and case studies, and stakeholder interview analysis in multiple countries, the project will generate knowledge that will contribute to better targeted research calls for improved implementation of carbon markets, improved design and implementation of initiatives to create carbon markets, guidance to funding agencies setting up institutions to promote efficient carbon markets, and increased capacity and awareness to handle carbon markets for the Global South.