More often than not, I find reading the paper in this country a pretty sombre affair, but from time to time I come across an article that absolutely cracks me up. Such was the case when I read that our former Prez and erstwhile Teflon Don, the dishonourable Jacob Gedleyihlekisa Zuma, had arrived in Victoria Falls for the launch of the Africa Voluntary Carbon Credits Market Forum (AVCCMF) earlier in July with 2-million freshly minted carbon credits as a “pledge to kick-start the process”.
In another clear example of not having done any homework, JZ joined with high-ranking officials from Malawi, Zimbabwe, Zambia and Kenya as they staked their claim to all that sweet, sweet moolah flowing from the succulent, fatted calf that is the global carbon market. I’d still be laughing now if the absurdity of this situation didn’t reveal the underlying bigger issue here, which is the chasm of understanding on how the carbon markets work.
The vast majority of people think that the carbon market exists to facilitate the sale of credits generated by quantifying emission-reduction activities to companies that want to promote their “green” credentials. The popular narrative is that many of these credits are generated through dodgy smoke and mirrors and are often sold to companies that are trying to avoid reducing their own emissions profiles, which is considered greenwashing.
While examples of this type of situation do exist, it will no doubt surprise the reader to learn that the segment of the carbon market where the above scenario could occur is a mere 2% of the global carbon market, worth a princely $2bn in 2022. To put that into perspective, the diversity, equity and inclusion consulting industry in the US alone was worth almost twice that in 2022. Yes, folks. This is the big bad voluntary carbon market that everyone has got their knickers in such a knot about.
So where is the other 98% that you probably didn’t even know existed until now? That would be the compliance market, which was worth about $98bn in 2022. A total of 70% of this market comprises permits sold or allocated by regulatory bodies such as the EU’s Emission Trading System and the remaining 28% is from taxes and compliance offsets, such as the credits used in SA by companies that are either trying to reduce the cost of the pittance they must pay under the carbon tax or are trying to keep their revenues from environmental taxes out of the black hole that is the national fiscus.
Indeed, quite contrary to making a bumper profit with his 2-million Belarusian credits, Zuma and his fellow delegates are about to find out the hard way that this is a tough, highly risky, heavily regulated and illiquid market. Those Belarusian credits will not be eligible under any of the compliance markets, and seeing as they are reported to comprise banned Russian offsets no company in its right mind anywhere on earth would think of connecting its name to them.
With scant insight into the nature of the carbon market and bright, flashing dollar signs obscuring their vision, the central point of agreement by delegates to the AVCCMF appears to be that African governments must get their slice of the action on existing carbon offset investments.
This is thoroughly fascinating as there have never been any impediments to state actors generating carbon offsets. In fact, the entire category of jurisdictional credits is aimed specifically at them. So what we end up with is non-state actors who have been investing in conservation and communities having substantial portions of their cash flow being nationalised, which is always a winning formula. Time and time again, African governments cry out for foreign investment, only to slit their own throats when it arrives.
• Maguire is carbon project manager at Climate Neutral Group SA. He writes in his personal capacity.
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