Carbon's Pricing Problem

Africa Sequesters More Carbon Than Almost Any Region on Earth — So Why Does It Capture Almost None of the Value?

The global voluntary carbon market reached an estimated valuation of $886.8 billion in 2024, with compliance markets pushing total carbon trading volumes substantially higher. Carbon credits — tradeable instruments representing the reduction, avoidance, or sequestration of one metric tonne of carbon dioxide equivalent — have become the primary mechanism through which corporations, governments, and financial institutions attempt to offset their emissions. The market is projected to grow to between $10 billion and $40 billion by 2030, depending on the trajectory of corporate net-zero commitments and the evolution of regulatory mandates.

Africa's position in this market is paradoxical. The continent's forests, peatlands, mangroves, and soils sequester more than 600 million tonnes of CO2 annually. The Congo Basin alone — the world's second-largest tropical rainforest — absorbs roughly 1.5 billion tonnes of CO2 per year, making it one of the most significant carbon sinks on the planet. Africa's potential for renewable energy generation, clean cooking transitions, and avoided deforestation projects gives it an outsized role in the global carbon mitigation effort.

Yet Africa captures only approximately 16 percent of the global carbon credit market by volume, and a substantially smaller share by value. The credits that are generated on the continent are systematically underpriced relative to credits from other regions. An avoided deforestation credit from the Congo Basin sells for roughly $5 to $8 per tonne — a fraction of the price commanded by comparable credits from Southeast Asia or Latin America, and a tiny fraction of the social cost of carbon, which most economists estimate at between $50 and $200 per tonne. The continent that does the most to absorb the world's carbon receives the least compensation for doing so.

The Architecture of Undervaluation

Understanding why African carbon credits are underpriced requires examining the structural architecture of the carbon market itself — an architecture that was designed by and for the developed world and that systematically disadvantages the regions where the most consequential mitigation activity occurs.

The first structural factor is the dominance of verification and certification bodies headquartered in the Global North. The two largest voluntary carbon market standards — Verra's Verified Carbon Standard and Gold Standard — are based in Washington, D.C. and Geneva, respectively. Their methodologies, auditing requirements, and governance structures reflect the institutional norms and risk preferences of developed-country stakeholders. Compliance with their certification requirements demands technical expertise, legal documentation, and monitoring infrastructure that many African project developers lack. The cost of certification alone — typically between $50,000 and $150,000 for initial validation, plus ongoing verification costs — represents a prohibitive barrier for smaller-scale projects, which are precisely the type of projects most abundant in Africa.

The second factor is information asymmetry. Carbon credit buyers — predominantly corporations based in Europe, North America, and increasingly East Asia — have limited visibility into the quality, permanence, and additionality of African carbon projects. This information gap is filled, imperfectly, by credit ratings agencies, due diligence consultants, and market intermediaries who apply risk premia that reflect their own uncertainty rather than the actual risk profile of the underlying projects. The result is a systematic discount applied to African credits that is partly rational (reflecting genuine information gaps) and partly reflexive (reflecting a generalised perception of Africa risk that does not differentiate between well-governed and poorly governed contexts).

The third factor is market intermediation. The carbon credit value chain between an African project developer and the end buyer typically involves multiple intermediaries: project aggregators, brokers, trading platforms, and retirement registries. Each intermediary captures a margin, and the cumulative effect is that the project developer — the entity actually doing the work of protecting forests, distributing clean cookstoves, or installing renewable energy — receives between 20 and 40 percent of the final credit price. The remaining 60 to 80 percent is captured by intermediaries who are overwhelmingly based outside the continent.

The fourth factor is the buyer's market dynamic that has prevailed since 2023. A series of high-profile investigations into the quality of certain carbon credit categories — particularly REDD+ avoided deforestation credits — led to a crisis of confidence in the voluntary carbon market. Major buyers paused or reduced their purchasing. Credit prices fell across the board. But the impact was disproportionately felt by African project developers, who had less market power, fewer buyer relationships, and less capacity to absorb price volatility than their counterparts in more established markets.

The ACMI Ambition and Its Contradictions

The Africa Carbon Markets Initiative, launched at COP27 in Sharm el-Sheikh in November 2022, represents the most significant attempt to reshape Africa's position in the carbon market. ACMI set an ambitious target: scaling African carbon credit production to 300 million tonnes annually by 2030, generating $6 billion in revenue and creating 30 million jobs. The initiative assembled a coalition of African governments, development finance institutions, and private sector partners to address the structural barriers that have constrained Africa's participation in the carbon market.

ACMI's diagnosis is largely correct. Its identified barriers — insufficient project development capacity, high transaction costs, inadequate market infrastructure, and misaligned incentive structures — accurately describe the challenges facing African carbon market participants. Its proposed solutions — developing Africa-specific methodologies, reducing certification costs, building local technical capacity, and creating aggregation platforms — address genuine structural gaps.

However, ACMI's framework contains a fundamental tension. The initiative aims to increase African carbon credit production within the existing market architecture — an architecture that, as described above, systematically undervalues African credits. Scaling production within a market that pays $5 to $8 per tonne for African credits will generate revenue, but it will not generate the $6 billion that ACMI projects unless prices increase substantially. And prices are unlikely to increase substantially unless the structural factors that depress them — certification barriers, information asymmetry, intermediation costs, and buyer market dynamics — are addressed. ACMI acknowledges these factors but has limited leverage over many of them, particularly the governance structures of the major certification bodies and the risk perceptions of international buyers.

There is also a deeper question about whether maximising carbon credit production is the right objective for Africa. Carbon credits, by their nature, compensate countries for not doing something — not deforesting, not emitting, not developing in carbon-intensive ways. This framework implicitly positions African countries as custodians of global environmental commons rather than as economic agents pursuing their own development objectives. A Congolese policymaker might reasonably ask whether selling carbon credits at $5 per tonne is a better deal for the Congolese people than the economic value that could be generated by alternative land uses — agriculture, mining, urban development — that the credits are designed to preclude.

The Integrity Question

The voluntary carbon market's integrity crisis has particular implications for Africa. The investigations that shook the market — most notably a series of reports examining whether large REDD+ projects had genuinely achieved the emission reductions they claimed — raised legitimate questions about the additionality and permanence of certain credit types. But the market's response was indiscriminate: buyer confidence declined across all credit categories and all geographies, punishing high-quality projects alongside questionable ones.

For African project developers, the integrity crisis has both risks and opportunities. The risk is that a market-wide credibility discount is applied to African credits, making it even harder to achieve fair pricing. The opportunity is that Africa, as a relative newcomer to the carbon market, is not burdened by the legacy projects and questionable methodologies that have tainted the market in other regions. If African market participants can establish a reputation for high-integrity credits — through rigorous monitoring, transparent reporting, and credible third-party verification — they may be positioned to capture a premium in a market that is increasingly distinguishing between high-quality and low-quality credits.

The Integrity Council for the Voluntary Carbon Market, established in 2021 to set global benchmark standards, has introduced Core Carbon Principles that aim to establish a quality threshold for all carbon credits. These principles — which address additionality, permanence, robust quantification, and co-benefits — could level the playing field for African credits if consistently applied. However, the transition to the new standards is slow, the assessment process is resource-intensive, and the initial round of methodology approvals has been dominated by project types that are more common in developed countries.

Alternative Architectures

The most provocative question in African climate finance is whether the existing carbon market architecture can be reformed sufficiently to serve African interests, or whether entirely different mechanisms are required.

One alternative is direct climate finance transfers. Rather than commoditising African carbon sequestration through market mechanisms, wealthy countries could pay directly for the climate services that African ecosystems provide. This is the logic behind the recent $500 million commitment to the Congo Basin, negotiated at COP28 and structured as direct payments to the Democratic Republic of Congo and Republic of Congo in exchange for forest conservation commitments. Direct transfers avoid the intermediation costs, price volatility, and integrity questions that plague the credit market, but they introduce their own challenges around conditionality, sovereignty, and long-term commitment.

Another alternative is the development of African-owned carbon market infrastructure. Several African countries and regional bodies have begun exploring the creation of domestic or regional carbon exchanges that would allow credits to be originated, traded, and retired within African-governed platforms. Kenya's Nairobi International Financial Centre has positioned itself as a potential hub for African carbon trading. The African Development Bank has invested in market infrastructure development. These initiatives are nascent, but they represent a strategic bet that Africa can build its own market institutions rather than remaining a price-taker in markets governed by others.

A third alternative, increasingly discussed in academic and policy circles, is the integration of carbon value into sovereign wealth and natural capital accounting frameworks. If African countries accounted for the carbon stored in their forests, soils, and oceans as a component of national wealth — analogous to how petroleum reserves are treated — the economic case for conservation would be embedded in national development planning rather than dependent on the vagaries of international carbon markets. Gabon has pioneered this approach, incorporating natural capital accounting into its sovereign wealth framework and issuing the world's first sovereign carbon credit backed by national forest conservation data.

What Fair Pricing Would Look Like

If African carbon credits were priced at even a modest approximation of the social cost of carbon — say, $30 to $50 per tonne, rather than the current $5 to $8 — the implications would be transformative. At 300 million tonnes per year (ACMI's 2030 target), credits priced at $40 per tonne would generate $12 billion annually — double ACMI's revenue projection and equivalent to roughly 5 percent of total official development assistance to Africa.

This revenue, if retained within the continent rather than captured by intermediaries, could fund the climate adaptation infrastructure that African countries desperately need: resilient agriculture, water management systems, coastal protection, and renewable energy deployment. It could also fund the conservation workforce — the rangers, monitors, and community stewards — whose labour makes carbon sequestration possible but who are currently compensated, if at all, at poverty wages.

Fair pricing is not an act of charity. It is a recognition that the atmospheric carbon that African ecosystems absorb has a quantifiable economic value, that this value is currently being captured by others, and that a market structure which systematically underprices the most critical climate mitigation asset on Earth is not merely unfair — it is economically irrational. The carbon market was designed to put a price on pollution. It has succeeded in that narrow objective while failing spectacularly at putting a fair price on the remedy. Until it corrects that failure, Africa's carbon will continue to be the most undervalued asset in the global climate economy.