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The Climate Policy Initiative(CPI), an independent non-profit research group and international climate policy organisation, said Nigeria and other African countries need $213.4 billion for climate financing.

The research group, in its latest report titled ‘Africa’s Carbon Market: Paving the Way to a Sustainable Future,’ stated that Nigeria for instance, only 23 percent of the total climate finance committed in 2020 was from the private sector and this level of investment is not enough.

The CPI report cited that the International Renewable Energy Agency (IRENA) estimates that Africa requires about $213.4 billion from the private sector to close its climate financing gap by 2030.

It stated that the public sector alone cannot meet the continent’s climate financing needs. “The private sector is increasingly becoming the main driver of climate action, in 2022, about 51 per cent of the global climate financing was provided by the private sector.”

CPI, whose mission is to support governments, businesses, and financial institutions in driving economic growth while addressing climate change, however, said in Africa and other developing nations, private sector contribution to climate financing is quite low.

“While the continent’s more mature markets, like South Africa and Kenya, have established and utilised complex capital market instruments like green bonds and asset securities, less developed financial markets have trouble attracting private sector capital. There is a need for innovative financial structures and instruments that can attract and mobilise private sector financing,” the CPI report said.

It noted that the demand for carbon credits to offset carbon emissions by large firms is expected to increase globally, and that companies will need carbon credits to meet their ambitious net-zero targets and pledges.

The report said Voluntary Carbon Markets (VCMs) will help to directly drive private capital flow into Africa, adding that VCMs are also an opportunity for clean energy and climate action projects in Africa to generate additional income.

“This additional revenue increases profitability and can help de-risk projects, allowing developers to raise much-needed private-sector financing. As VCMs grow to include more corporations, the price of carbon credit would also rise, improving the feasibility of clean energy projects and allowing developers to attract more private capital,” the report said.

CPI further stated that the development of carbon markets also helps countries to establish and strengthen their local monitoring, reporting and verification frameworks and regulations.

It added that this enabling environment reduces the risk of doing business and can help lower the cost of private sector financing.

According to McKinsey, Africa currently generates only about two per cent of its maximum annual carbon credit potential.

Sustainable Energy for All notes that only five countries—Kenya, Zimbabwe, DRC, Ethiopia, and Uganda—account for about 65 per cent of all of the continent’s carbon credit issuance over the past half-decade.

“More countries need to realise their potential and fully take advantage of carbon pricing mechanisms. To do so, countries must establish adequate frameworks needed.

“VCMs on the continent face significant challenges including the lack of standardisation on emissions quantifying and reporting which can lead to a risk of double counting credits. These challenges affect the quality and reliability of carbon credits sold in these markets, significantly hampering their sale,” it said.

The report said carbon pricing mechanisms have the potential to catalyse private sector investment on the continent. Carbon pricing mechanisms provide a financial incentive for reducing greenhouse gas (GHG) emissions.