TRADING THE FUTURE

With all the talk about carbon trading as a way to slow global warming, one would think there must be lots of opportunity to get involved.

The Climate Group estimates that the global carbon market is worth 20 billion euros a year, and that this could grow 20 times by 2030. But how much of this is happening in Africa? Precious little. In January 2008, there were 908 certified emission reduction projects worldwide registered under the Kyoto Protocol’s Clean Development Mechanism (CDM). Only 24 of these were in Africa.

Before we get into the challenges Africa faces in joining this market, it should be said that the concept of buying and selling carbon credits is a controversial one.

The very idea that dirty industries in developed countries are allowed to continue polluting—even if they mitigate these emissions by investing in clean projects elsewhere—is considered by many people to be contrary to the spirit of environmental stewardship. This is a moral issue. Will the global community come together to address climate change, when some countries can pollute with impunity? As this nascent market grows, we can expect stronger geopolitical fault lines.

There is also a practical concern. The world is already on track to exceed the level of carbon in the atmosphere that will result in global warming of two degrees above pre-industrial levels, according to scientists reporting to the UN Intergovernmental Panel on Climate Change (IPCC). Beyond two degrees, they say, we are at risk of catastrophic consequences. Regardless of what we do now, there will be a continued warming effect not only from the existing fixed investment in industries that will continue emitting carbon well into the future, but also from the carbon already in the atmosphere—and targets for atmospheric carbon concentrations are only aiming to reduce the rate of increase, not actually decrease current levels.

On its own, carbon trading won’t address this problem because at best it simply shifts the source of emissions from one place to another, which is why it is generally seen as a strategy to be applied together with limits on emissions for each country or industry: a cap-and-trade system. So far, only industrialised countries that signed on to the Kyoto Protocol have carbon emissions targets to meet. Soon, there are also likely to be targets set for developing countries, which means that Africa will have to join the effort. Exactly what those targets will be is a matter for negotiation, and there is some contention around this issue even among developing countries. South Africa, for instance, has benefited from a relatively carbon-intense economy and has more resources than countries like Liberia or Sierra Leone, and may be expected to reduce its emissions commensurately.

Once targets have been set, each country will have to establish its own strategy for meeting them, and this will require concerted effort at all levels of government and appropriate responses from the private sector. Whatever carrots and sticks are used, it will be difficult to reach 100% compliance with targets, simply because some communities and industries won’t reduce their carbon footprints, and the rest will struggle to make up for others’ non-compliance. This is a tough challenge, and carbon trading may help if it emerges as a significant source of funding for clean projects; but Africa can only take full advantage if the continent’s leaders are prepared to support investment in renewable energy and greater efficiencies in its use, and not pursue carbon-intense industries.

There are many reasons for a lacklustre carbon market in Africa. One is the immaturity of the market itself; another is inappropriate pricing of carbon credits; and yet another is lack of awareness among project developers. But addressing all of these will mean nothing unless governments—individually and as collective rule-makers for the market—provide an environment that enables businesses to tap into it.

If carbon is to become the currency of climate change mitigation, then it must become a cost of doing business. Like any currency, it will only work if it is trusted, broadly accessible and easily traded. None of these criteria are currently met. At present, many small project developers are excluded, either because the administrative or financial burdens are too high, or because the type of project makes it difficult to gain certification of emission reductions. Some of the smaller projects that have benefited from CDM funding have only been able to do so with the support of external financial aid—a form of intervention that must change if the carbon market is to be self-sustaining.

With many small African countries lacking the resources needed to manage the complexities of the carbon market, it will be interesting to see whether regional trading blocs emerge to pool resources, perhaps along the lines of the Southern African Development Community, which is already facilitating activities such as the coordination of energy supply in the region. This may be what is needed to ensure that poorer nations can grasp the opportunity. By the end of 2009, the UN negotiations should have arrived at key decisions that will determine the shape of the carbon market. Whatever it takes to get it operating effectively, this may be one way to provide foreign investment of a kind that actually improves sustainability performance in regions that are vulnerable to outside influence and the vagaries of the global economy.

Whether political negotiations actually achieve an arrangement that is beneficial for Africa is an open question. The outcome is sure to be less than ideal, but it is worth remembering that we are looking for an effective mechanism for reducing global emissions, not another quick buck. A lot is at stake, and the future depends on what individuals and nations do now.