AfDB Unveils Support Facility to Expand Africa’s Carbon Credit Market

The African Development Bank (AfDB) is set to launch a groundbreaking Africa Carbon Support Facility, aimed at kickstarting a robust carbon market across the continent. Announced during the Bank’s annual meeting in Abidjan, Côte d’Ivoire, this facility will help African governments create the policies, regulatory frameworks, and market infrastructure needed to turn carbon credits into a tradable commodity on local stock exchanges. The initiative comes amid mounting climate pressures—Africa has endured devastating droughts, cyclones, and floods in recent years—yet still receives only about 1% of global climate finance. AfDB officials hope this facility will unlock new streams of green funding, empowering countries to build resilient, low-carbon economies.

Why Carbon Credits Matter for Africa

Africa emits less than 3% of the world’s greenhouse gases, yet it bears a disproportionate share of the impacts—prolonged droughts in the Horn of Africa, cyclones pummeling the Indian Ocean islands, and floods across West and Central Africa.¹ While developed countries pledge to cut emissions under the Paris Agreement, many African nations face significant funding gaps to adapt to climate shocks and transition to cleaner energy. According to the AfDB, Africa receives merely 1% of annual global climate finance, a figure that lags far behind its needs.²

Carbon credits offer a way to channel private capital into green projects—everything from reforestation to renewable energy—which both sequester or avoid carbon emissions and generate revenue for local communities. By selling “credits” to nations or companies seeking to offset their emissions, African countries can attract new investment, diversify their economies, and build resilience. The AfDB’s new support facility seeks to transform carbon credits from a voluntary niche to a mainstream asset class traded on African markets, boosting prices and making projects more bankable.

What Is the Africa Carbon Support Facility?

The Africa Carbon Support Facility (ACSF), still at the design stage, will consist of two main components:

1. Policy & Regulatory Support
   Helping governments develop robust policies, regulatory frameworks, and legal instruments that govern carbon trading.
   
2. Market Development & Infrastructure
   Boosting both the supply of high-quality carbon credits (from forestry, agriculture, clean energy, etc.) and the demand (from corporate, institutional, and compliance buyers), while laying the groundwork for market infrastructure—such as registries, verifiers, and trading platforms—needed to underpin a liquid market.
   

“Our vision is a future where carbon credits are a tradable commodity on Africa’s stock exchanges, providing a new engine of investment for green growth,” said Anthony Nyong, AfDB Director for Climate Change and Green Growth, during the Bank’s annual meeting in Abidjan. “We want carbon finance to flow where it’s needed most—powering renewable projects, safeguarding forests, and supporting resilient farming.”³

At the same meeting, delegates also elected Sidi Ould Tah, former Finance Minister of Mauritania, as the new AfDB President. His experience in public finance and Islamic banking is expected to strengthen the Bank’s ability to mobilize green capital for member countries.

Component 1: Policy & Regulatory Support

Designing effective carbon markets requires more than good intentions; it demands clear policies, legal certainty, and institutional capacity. Component 1 of the ACSF will work with national governments to:

• Draft Climate Legislation: Assist ministries in crafting or updating laws that define how carbon credits can be generated, verified, and traded.
  
• Set Up Carbon Registries: Establish centralized databases that record the issuance, ownership, and retirement of carbon credits—critical for transparency, preventing double counting, and ensuring environmental integrity.
  
• Develop Monitoring, Reporting & Verification (MRV) Systems: Implement standardized procedures for measuring and reporting greenhouse gas (GHG) reductions, from forest carbon stocks to methane capture at landfill sites.
  
• Harmonize Standards: Align national regulations with established international carbon standards—such as the Verified Carbon Standard (VCS), Gold Standard, and UN Clean Development Mechanism (CDM)—so that African credits can compete globally.
  
• Build Institutional Capacity: Train government officials, local auditors, and project developers on carbon accounting, legal frameworks, and protocol compliance.
  

For example, countries like Kenya and Ghana have already begun drafting carbon laws. Kenya’s Climate Change Act of 2021 established a legal framework for carbon trading, but the operational details are still under development. The ACSF aims to fast-track these processes across member states, ensuring that no country lags when regulatory best practices exist.

“Without a clear policy framework, carbon markets can’t scale,” explains Dr. Kevin Kariuki, AfDB Vice President for Power, Energy, Climate Change & Green Growth. “Investors need certainty. They need to know that credits they buy today will be recognized and enforceable tomorrow.”⁴

Component 2: Boosting Supply, Demand & Market Infrastructure

Even with strong policies in place, markets need real assets and buyers. The second component of the ACSF will focus on:

1. Supply Side (Project Development)
   
   • Pipeline Identification: Map out existing and potential carbon projects—such as reforestation in the Congo Basin, clean cookstove distribution in East Africa, or solar mini-grids in the Sahel.
     
   • Technical Assistance: Provide expertise in project design, feasibility studies, and financial modeling so that developers can pitch “bankable” proposals to investors.
     
   • Seed Funding & Blended Finance: Offer grants or concessional loans (possibly paired with donor funds) to help early-stage projects reach registration and validation with recognized carbon standards.
     
   • Local Community Engagement: Ensure that projects deliver tangible benefits to local communities—jobs, skills training, and improved livelihoods—so that carbon finance fosters sustainable development, not just emission reductions.
     
2. Demand Side (Market Creation)
   
   • Buyer Mobilization: Work with multinational corporations, airlines (through CORSIA), and compliance entities (e.g., the EU Emissions Trading System) to channel demand toward high-integrity African credits.
     
   • Price Discovery & Market Platforms: Collaborate with exchanges—such as the Nairobi Securities Exchange or Bourse Régionale des Valeurs Mobilières in West Africa—to list carbon credits or related derivatives, enabling transparent price formation.
     
   • Standardized Contracting: Develop model agreements, verification protocols, and dispute resolution mechanisms to reduce transaction costs and build trust among buyers and sellers.
     
   • Awareness Campaigns: Educate businesses—especially small and medium enterprises (SMEs)—about the opportunities in carbon markets, emphasizing benefits like revenue diversification and competitive advantage in sustainability reporting.
     

By targeting both supply and demand, the AfDB hopes to overcome a critical bottleneck: currently, over 80% of Africa’s carbon credits are sold on voluntary markets—where prices average around US$3–5 per ton. In contrast, compliance markets (such as the EU ETS) trade closer to €80–100 ($85–105) per ton. Moving credits into compliance or high-value voluntary markets could tenfold the revenues for project developers, making more green initiatives financially viable.

Turning Carbon Credits into Tradable Securities

A novel aspect of the ACSF is the ambition to list carbon credits on Africa’s stock exchanges. While global platforms like the Intercontinental Exchange (ICE) and AirCarbon Exchange already offer trading in standardized carbon futures, Africa has yet to adopt similar mechanisms. By partnering with regional exchanges, the AfDB aims to:

• Create Carbon Credit Indices: Aggregate diverse credits (e.g., forestry, renewable energy, agriculture) into tradable baskets, similar to a stock index, allowing institutional investors to gain broad exposure.
  
• Issue Green Bonds Backed by Carbon Assets: Enable companies or governments to securitize future carbon revenues, selling bonds whose coupons are tied to credit prices. This can attract “green bond” investors who seek both financial return and positive environmental impact.
  
• Facilitate Derivatives & Hedging: As volumes grow, tools like carbon futures or options could emerge, giving project developers and larger corporations ways to hedge price risk—critical in a market where prices can swing based on evolving regulations or compliance deadlines.
  

Already, the Nairobi Securities Exchange (NSE) is exploring a pilot “Green Traded Fund” that would hold a basket of carbon credits alongside traditional renewable energy stocks. Similarly, the West African Regional Stock Exchange (BRVM) is in discussions to create a “Carbon Track” segment, although regulatory harmonization across its eight member states remains a challenge.

Africa’s Urgent Climate Challenge

Despite contributing only a tiny fraction of global emissions, Africa has endured some of the most severe climate shocks:

• Horn of Africa Drought (2020–2023): A three-year drought devastated pastoralist communities in Ethiopia, Somalia, and Kenya, affecting over 20 million people with acute food insecurity.
  
• Cyclone Idai (2019) & Eloise (2021): These tropical storms battered Mozambique, Zimbabwe, and Malawi, causing over 1,500 fatalities and economic losses estimated at over US$2 billion.
  
• Flash Floods in East & West Africa: Rapid precipitation events in Uganda (2023) and Nigeria (2024) displaced hundreds of thousands, destroying homes, crops, and roads.
  
• Sahel Desertification: Continuous encroachment of the Sahara has threatened livelihoods across Mali, Niger, and Burkina Faso, heightening conflict over scarce resources.
  

To adapt, African nations are prioritizing climate resilience—building flood-resistant infrastructure, investing in drought-tolerant crops, and expanding social safety nets. However, these efforts require substantial financing. According to a 2024 report by the African Climate Policy Center under the United Nations Economic Commission for Africa (UNECA), Africa’s annual adaptation needs are estimated at US$50–100 billion per year by 2030, yet only about US$10–15 billion was mobilized in 2024—leaving a yawning gap.

Carbon finance, if scaled effectively, could help narrow this gap. By generating predictable revenue streams from carbon credit sales, governments and private developers can co-finance green infrastructure, reforestation, and clean energy—reducing vulnerability to future climate shocks.

How Carbon Credits Work: From Trees to Trading

At its simplest, a carbon credit represents one metric ton of carbon dioxide (CO₂) (or an equivalent amount of another greenhouse gas) that has been either removed from the atmosphere or avoided through a specific project. Areas of carbon credit generation include:

1. Forestry & Land Use (REDD+)
   
   • REDD+ (Reducing Emissions from Deforestation and Forest Degradation) projects pay landholders to conserve or restore forests. Healthy forests sequester CO₂ in biomass, soil, and peat, while preventing emissions from deforestation.
     
   • For example, a community-led reforestation program in the Congo Basin might plant fast-growing native species that, over 20 years, sequester thousands of tons of CO₂. Each ton sequestered becomes a credit that can be sold to buyers.
     
2. Renewable Energy & Clean Cooking
   
   • Projects that build solar farms, wind turbines, or mini-grids can displace fossil fuel-based power plants, avoiding GHG emissions.
     
   • In rural Kenya, installing clean cookstoves reduces charcoal or wood burning, cutting CO₂ and black carbon emissions—each reduction yields credits.
     
3. Methane Capture
   
   • In landfills or wastewater treatment plants, capturing methane (CH₄)—an especially potent greenhouse gas—before it enters the atmosphere can generate credits.
     
   • For instance, the Kawama Hydroponics Farm in Zambia installed biogas digesters to capture methane from animal waste, reducing CH₄ emissions and providing renewable energy for farm operations.
     
4. Agricultural & Soil Carbon
   
   • Practices like no-till farming, cover cropping, and crop rotation improve soil carbon stocks and cut nitrous oxide (N₂O) emissions from fertilizer use.
     
   • In South Africa, pilot programs teaching farmers to integrate agroforestry (planting trees alongside crops) have shown promise in sequestering carbon and boosting yields.
     

Once a project’s emissions reductions are measured (through a rigorous baseline assessment), validated by a third party (e.g., Verra or Gold Standard), and verified annually, “credits” are issued. Each credit can then be sold—either on a voluntary marketplace (where buyers, often corporations or individuals, purchase credits to demonstrate sustainability) or on a compliance market (where regulated entities must meet emission reduction targets).

Examples of African Carbon Projects

Although Africa’s carbon market remains nascent, several pioneering projects illustrate its potential:

1. Kasigau Corridor REDD+ (Kenya)
   
   • Located in southeastern Kenya, this REDD+ project protects approximately 500,000 hectares of dryland forest. By preventing deforestation and promoting sustainable forest management, the Kasigau Corridor has reduced an estimated 27 million metric tons of CO₂ since its inception in 2011.
     
   • Revenue from carbon credit sales has funded community schools, health clinics, and alternative livelihood programs—showing that carbon finance can yield both environmental and social dividends.
     
2. M’Panda Okwenda Agroforestry (DRC)
   
   • In the Democratic Republic of Congo, the M’Panda Okwenda project integrates smallholder farmers into agroforestry systems—planting timber trees alongside staple crops. This approach sequesters carbon in tree biomass while enhancing soil fertility and food security.
     
   • Over a decade, the project aims to remove over 5 million metric tons of CO₂, with credits sold to European buyers under voluntary standards. The AfDB’s new facility could help scale similar initiatives across Central Africa.
     
3. Rural Electrification with Solar Mini-Grids (Senegal)
   
   • In Senegal’s Casamance region, decentralized solar mini-grids serve remote villages previously reliant on diesel generators. By displacing fossil fuel-based power, the project avoids emissions and provides affordable, reliable electricity to 20,000 residents.
     
   • Carbon credits generated from these avoided emissions have bolstered project revenues, lowering electricity tariffs and improving local economic activity.
     
4. Clean Cookstoves (Ethiopia)
   
   • Participatory stove distribution programs in the Oromia region introduced efficient cookstoves that use up to 50% less wood. By reducing deforestation and cutting indoor air pollution, these stoves have delivered health benefits (fewer respiratory illnesses) alongside carbon emission reductions.
     
   • Carbon credit sales fund carbon cookstove entrepreneurs, creating green jobs and empowering women—who often bear the brunt of wood collection and indoor smoke exposure.
     

Despite these successes, most of Africa’s credits remain in the voluntary market, where average prices hover around US$3–5 per ton. In contrast, compliance markets such as the EU Emissions Trading System (EU ETS) trade between €80–100 ($85–105) per ton—a gulf that, if bridged, could unlock vast additional revenues for African project developers.

The Role of African Stock Exchanges

A core ambition of the ACSF is to encourage carbon credits to be listed on regional stock exchanges. While Africa hosts over 30 stock exchanges—from the Nairobi Securities Exchange (NSE) in Kenya to the Johannesburg Stock Exchange (JSE) in South Africa—few have ventured into carbon or green securities. By collaborating with these exchanges, the AfDB hopes to:

• Create a Carbon Trading Segment: A dedicated platform where companies can list carbon credits, futures, or green bonds.
  
• Facilitate Institutional Participation: Pension funds, insurers, and sovereign wealth funds—already tuned to equities and bonds—could allocate a portion of their portfolios to carbon assets, driving liquidity.
  
• Leverage Regional Integration: The East African Community (EAC) and Economic Community of West African States (ECOWAS) are exploring harmonized financial regulations. A pan-African carbon market could emerge across multiple jurisdictions, attracting cross-border investors.
  

“Listing carbon credits on the JSE or NSE will help signal to global investors that African green assets meet rigorous standards,” explains Sarah Okeke, ESG Strategist at a Nairobi-based asset management firm. “We could see exchange-traded funds (ETFs) or index products that track African carbon credits, providing easy entry for institutional capital.”⁷

In December 2024, the NSE rolled out a pilot “Green Traded Fund” (GTF) that includes renewable energy and two forestry-based carbon credits from Kenya’s Mau Forest Conservation project. While still small—less than US$5 million in combined market cap—the pilot demonstrated investor appetite. The AfDB’s facility aims to scale such pilots across multiple countries, eventually linking them under a unified “African Carbon Exchange” initiative.

Global Carbon Market Context

To appreciate Africa’s opportunity, it helps to understand the broader carbon market landscape:

1. Compliance Markets
   
   • The EU ETS is the world’s largest carbon market, with cap-and-trade mechanisms covering power, industry, and aviation. In 2024, the average EUA (European Union Allowance) price peaked at around €95 ($100) per metric ton.
     
   • California Cap-and-Trade and Regional Greenhouse Gas Initiative (RGGI) are other major North American compliance schemes, with prices generally below US$35–40 per ton.
     
   • CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) requires airlines to offset growth in emissions above 2020 levels using approved credits, many of which come from projects in Africa and Asia.
     
2. Voluntary Markets
   
   • The global voluntary carbon market was valued at US$2.7 billion in 2024, with traded volumes around 430 million metric tons of CO₂ equivalent.
     
   • Prices vary widely—from US$1–2 per ton for lower-quality credits to US$50–70 for high-integrity, co-benefit-rich projects (e.g., community-driven agroforestry).
     
   • Platforms such as AirCarbon, XCHG, and PuroEarth are key trading venues, though many prefer to buy directly from standard holders like Verra or Gold Standard registries.
     
3. Emerging Trends
   
   • A shift toward “Nested” carbon markets—where national or subnational jurisdictions develop their own cap-and-trade systems linked to international markets.
     
   • Growing demand for nature-based solutions (NBS), such as reforestation and wetland restoration, which provide biodiversity and community benefits alongside carbon sequestration.
     
   • Heightened scrutiny on carbon removal (negative emissions) versus carbon avoidance (emissions reductions), with premium prices for verifiable removals that guarantee long-term storage.
     

For Africa, bridging from the voluntary to the compliance market could dramatically boost project revenues. For instance, a REDD+ credit sold at US$5 today might fetch closer to US$50 in an EU-linked scheme. Over a 10-year project period, that revenue uplift could mean the difference between financial viability and project stagnation.

Challenges & Considerations

While the potential is vast, several challenges must be addressed for the ACSF to succeed:

1. Data Quality & MRV Capacity
   
   • Accurate measurement, reporting, and verification (MRV) remain a hurdle—many African nations lack robust satellite monitoring, ground surveys, or carbon accounting expertise.
     
   • Ensuring that carbon savings claimed by projects are real, additional (i.e., would not have happened anyway), and permanent is critical to avoid “ghost credits.”
     
2. Regulatory Harmonization
   
   • Diverse legal systems across Africa complicate cross-border trading. For example, West African states (ECOWAS) operate in multiple currencies (CFA franc, cedi, naira), requiring currency conversion mechanisms for pan-African trading.
     
   • Differing tax treatments of carbon revenues could deter foreign investment if not harmonized.
     
3. Financing & Risk Mitigation
   
   • Upfront capital for project development can be scarce. While the AfDB might offer concessional financing, projects often need US$1–5 million to reach the validation stage—a barrier for small developers.
     
   • Political risk (e.g., sudden changes in government or policy) can spook investors. De-risking instruments—like political risk insurance or credit guarantees—may be necessary.
     
4. Market Liquidity & Scale
   
   • Early carbon markets often suffer from low liquidity—few buyers and sellers translate into volatile prices. Building enough scale (both supply and demand) to dampen price swings requires coordinated efforts.
     
   • Standardization of credit types—so that buyers can easily understand what they’re purchasing—is essential; a “stack” of forestry, energy, and agricultural credits can be confusing if not uniform.
     
5. Social & Environmental Co-Benefits
   
   • Beyond carbon, many projects aim to deliver biodiversity conservation, water resource protection, or improved livelihoods. Quantifying and marketing these co-benefits can command price premiums but also demand additional verification layers (e.g., Social Carbon Standard).
     
   • Ensuring equitable benefit sharing among local communities—especially indigenous groups with customary land rights—requires transparent governance frameworks.
     
6. Avoiding “Leakage”
   
   • Emissions “leakage” occurs when reducing deforestation in one area simply shifts it elsewhere. To counter this, national-level policies (e.g., improved land use planning) must complement project-level efforts, another reason why robust policy support is crucial.
     

“The technical and institutional challenges are significant, but they are not insurmountable,” says Dr. Samuel Chukwu, a climate policy advisor for the United Nations Environment Programme (UNEP). “With coordinated capacity building and clear incentives, African carbon markets can thrive.”⁸

Early Reactions & Potential Impact

Key stakeholders across Africa’s public and private sectors have welcomed the announcement:

• Governments in Kenya, Ghana, and Senegal have signaled interest in piloting the ACSF’s policy support component, eager to finalize national carbon laws before the end of 2025.
  
• Project developers say the promise of compliance-grade pricing—potentially 10× higher than current voluntary rates—is a game-changer. “We’ve been forced to operate on razor-thin margins,” says Amina Diallo, founder of a Burkina Faso agroforestry startup. “If we can sell on a compliance market, we can scale from 10,000 hectares to 100,000 hectares.”
  
• Investors, including African pension funds and regional development finance institutions, are exploring ways to allocate a portion of their portfolios to carbon assets once exchange-traded structures emerge.
  
• Civil society organizations applaud the emphasis on social co-benefits, but warn that robust safeguards must be built into the facility to prevent land grabbing or inequitable benefit distribution. The African Wildlife Foundation and other NGOs emphasize that genuine community consultation and Free, Prior, and Informed Consent (FPIC) must underpin every project.
  

The AfDB estimates that by 2030, Africa’s carbon market could generate US$5–10 billion annually—supporting 50–100 million hectares of reforestation, scaling up 5 gigawatts of new renewable capacity, and improving resilience for over 10 million subsistence farmers.

Looking Ahead: Roadmap & Next Steps

While the Africa Carbon Support Facility is still being finalized, the tentative roadmap includes:

1. Q3–Q4 2025: Finalize Facility Design
   
   • Conduct consultations with governments, exchanges, project developers, and community groups across 20 pilot countries.
     
   • Secure initial funding commitments—estimated at US$200–300 million—from donor partners (e.g., the Green Climate Fund, Climate Investment Funds, and bilateral agencies like USAID, GIZ, and DFID).
     
2. Early 2026: Launch Pilot Programs
   
   • Roll out policy support in 5–10 countries (e.g., Kenya, Ghana, Nigeria, Rwanda, Senegal).
     
   • Seed funding for 15–20 early-stage projects (e.g., REDD+ in DRC, solar mini-grids in Mali, agroforestry in Ethiopia).
     
   • Pilot carbon listings on two exchanges: NSE (Kenya) and JSE (South Africa).
     
3. Mid 2026: Expand to Additional Countries & Exchanges
   
   • Incorporate East African Community (EAC) integration to facilitate cross-border trading among Kenya, Uganda, Tanzania, Rwanda, and Burundi.
     
   • Launch a pan-African carbon registry, harmonizing data standards and ensuring interoperability.
     
4. Late 2026–2027: Scale Up & Attract Institutional Investors
   
   • Introduce carbon futures contracts on the NSE and JSE, enabling larger players to hedge price risk and encourage long-term commitments.
     
   • Facilitate “green bond” issuances backed by carbon revenues in countries like Egypt, Morocco, and South Africa.
     
   • Host an “African Green Finance Summit” convening government leaders, financiers, and carbon project developers to share lessons learned and forge partnerships.
     
5. 2028–2030: Consolidate & Drive Pan-African Integration
   
   • Aim for 100 million metric tons of annual credit issuance by 2030, with a balanced split between forestry, renewable energy, and agriculture.
     
   • Establish a Carbon Market Observatory within the AfDB to track volumes, prices, and impacts—informing policy adjustments and ensuring transparency.
     

Throughout these phases, the AfDB will emphasize capacity building—training local auditors, verifiers, and government officials in MRV, financial risk management, and digital registry systems. By 2030, the Bank aims for a self-sustaining marketplace where trade volumes and revenues are driven by real demand from compliance buyers (e.g., airlines, industrial conglomerates) and increasingly, by African corporations seeking to meet voluntary environmental, social, and governance (ESG) commitments.

Conclusion

The launch of the Africa Carbon Support Facility by the African Development Bank marks a pivotal moment for the continent’s climate and development agenda. By providing tailored policy support, technical assistance, and market infrastructure, the AfDB aims to transform carbon credits into a mainstream, tradable asset—bolstering green investment, creating jobs, and building resilience against increasingly severe climate shocks. While challenges remain—ranging from MRV capacity to regulatory harmonization—the potential benefits are immense: unlocking US$5–10 billion annually in carbon finance by 2030; scaling up reforestation, sustainable agriculture, and clean energy projects; and ensuring that local communities reap social and economic gains.

As Sidi Ould Tah steps into his new role as AfDB President, his leadership will be instrumental in rallying member states, donor partners, and the private sector around this vision. If successful, Africa could emerge not only as a beneficiary of carbon markets but as a global leader—setting standards for equitable, sustainable, and inclusive green finance. In an era of escalating climate risks, the Africa Carbon Support Facility offers a beacon of hope: a path toward a low-carbon, climate-resilient future where African forests, farms, and entrepreneurs thrive.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

3rd June, 2025