Six least developed countries (LDCs), including Malawi are struggling to access global carbon markets due to their smaller economies and difficulties in attracting foreign investment.
This untapped potential, according to the United Nations Conference on Trade and Development (Unctad), has limited the economies’ financial returns, which are modest compared to larger sources of funding like development aid, foreign direct investment, and remittances.
As at May 2024, Bangladesh, Cambodia, the Democratic Republic of the Congo, Malawi, Uganda and Zambia account for over 75 percent of all carbon credits issued in voluntary markets and 80 percent of credits under the Kyoto Protocol’s Clean Development Mechanism (CDM).
In its analysis of the carbon market participation, Unctad observed that with only two percent of the potential was being utilised, a carbon price of $100 per tonne is needed, without which approximately 97 percent of their mitigation potential could go untapped by 2050.
Said Unctad in the analysis: “The market value of carbon credits does not represent the actual size of financial transfers to the LDC host countries of underlying projects, since significant shares of the value created by the mitigation activities are taken by brokers, resellers and other intermediaries operating in those markets.
“Carbon projects currently provide only a minor contribution towards meeting the enormous investment needs of LDCs’ energy sectors.”
Unctad said in 2023, the estimated market value of LDC-sourced carbon credits was $403 million, corresponding to about one percent of net bilateral official development assistance flows from traditional donors.
Unctad has since urged LDCs and their partners to strengthen domestic regulations, enhance international cooperation and build to unlock economic opportunities through carbon markets while advancing global climate goals.
Data from the Ministry of Natural Resources and Climate Change shows that Malawi has earned K150 million from the sale of about 75 000 carbon credits through projects under the Green Development Mechanism and Reducing Emissions from Deforestation and Degradation (Redd+) programme.
This is coming at a time the Ministry of Natural Resources and Climate Change said the carbon credit initiative in Malawi has the potential to generate $600 million (about K1.05 trillion) annually.
Parliamentary Committee on Natural Resources and Climate Change chairperson Werani Chilenga is on record as having said lack of a legal framework to regulate and sanitise the industry has left the sector less attractive to serious players.
“As we speak, we don’t have the Carbon Credit Act to regulate the sector and if we have any policy I have not seen it,” he said.
Unctad secretary general Rebeca Grynspan noted in an accompanying statement that while carbon markets are seen as catalysts of capital flows towards developing countries, they are not a panacea that can solve the pressing issue of financing sustainable development in the LDCs.
“They are not a substitute for official development assistance or for climate finance flows, particularly for adaptation, which is these countries’ priority,” she said.
Last year, President Lazarus Chakwera listed carbon credits as one of Malawi’s potential game changers, a pathway for the country to generate the much-needed foreign exchange and restore Malawi’s degraded forests.
Carbon offset programmes or carbon financing programmes are financial mechanisms and incentives designed to support projects that reduce greenhouse gases (carbon dioxide and methane) or remove carbon dioxide from the atmosphere.
