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Climate Change Finance

Malawi Moves To Regulate Carbon Trading Amid Transparency Concerns in Global Market

Nature-based solutions in Malawi give the country opportunities to contribute to the removal of greenhouse gases from the atmosphere while also generating money. Credit: Charles Mpaka/IPS

Nature-based solutions in Malawi give the country opportunities to contribute to the removal of greenhouse gases from the atmosphere while also generating money. Credit: Charles Mpaka/IPS

BLANTYRE, Malawi, May 27 2024 (IPS) - Malawi is increasingly pitching carbon trading as a source of revenue it needs to bolster the economy, which is suffering from foreign exchange shortages caused by a large trade imbalance and being buffeted by several shocks, including the climate crisis.

Presenting the 2024–25 national budget in Parliament in February, Minister of Finance Simplex Chithyola Banda listed increased and more efficient carbon credit revenue generation among the strategic initiatives in the government’s economic recovery blueprint. 

“We want to make sure that Malawi considers carbon trading as one of the sectors where we can get revenue and boost the economy,” Chithyola Banda said.

With Malawi’s carbon potential estimated to be around 19 million metric tons annually, local climate lobbyists and economic analysts agree that Malawi can count on carbon offsets for revenue.

Julius Ng’oma, National Coordinator of the Civil Society Network on Climate Change (Cisonecc), says carbon trading can also boost Malawi’s biodiversity conservation drive and strengthen its contribution to the reduction of greenhouse gas emissions.

“Carbon trading can provide incentives for managing trees and forests and all other initiatives that enhance carbon sequestration and are aimed at avoiding reducing greenhouse gases,” he says.

However, among the experts, issues of transparency and accountability in carbon trading are an increasing concern.

In 2012, the Department of Environmental Affairs in the Ministry of Natural Resources and Climate Change evaluated 15 projects with an estimated carbon reduction potential of around 2 million tons.

More firms have entered the market since then.

Today, these questions remain: How many credits have these carbon projects thus far produced? How much revenue has been generated from those credits? How much and in what way has that revenue been shared with communities that are at the coalface of implementing the carbon projects?

Ng’oma’s view is that Malawi has not benefited as much as it should have from such projects, “as the money realized mostly benefited the international project developers.”

He says concerns about global carbon trading are generally focused on the determination of prices for carbon credits and accounting mechanisms.

“Very few people understand these arrangements and they favor mostly experts in the Global North,” he says.

Minister of Natural Resources and Climate Change, Michael Usi, tells IPS that most of the projects that were under evaluation in 2023 were implemented under the Clean Development Mechanism and REDD+ as one way for Malawi to unlock resources from multilateral and bilateral donors for different development projects.

After the evaluation, Malawi registered 11 projects and accessed about USD 40 million in socio-economic development financing, he says.

However, Usi admits that there were no formal procedures for implementing these carbon initiatives, meaning that Malawi has not had a way to count credits and track revenue generated in an efficient way.

Most of those carbon projects were largely about the distribution of improved cooking stoves. According to the ministry, these stoves have been effective in stemming the tide of deforestation in the country and therefore reducing carbon emissions because “we believe they help in reducing the over-reliance on natural resources, especially wood.”

Among the early firms in the distribution of cook stoves as a carbon project in Malawi is the United States-headquartered C-Quest Capital, which is active in 21 countries, including Tanzania, Kenya, Burundi, Zambia, Mozambique, Zimbabwe, and parts of Southeast Asia.

C-Quest Capital’s Chief Executive Officer, Jules Kortenhorst, says the company, established in 2008, has issued up to 9 million credits on the voluntary carbon market and has invested more than USD 40 million in Malawi since it started its projects.

For Kortenhorst, questions over transparency and accountability in the carbon market are not invalid. Part of the challenge, he says, is that many countries have not had internal administrative systems to be able to monitor and regulate the carbon market.

“When the Paris Agreement was negotiated, there was Article 6—the idea that countries would establish carbon markets among themselves—but setting up internal administrative systems has been hard because they didn’t know what the rules were.

“Unfortunately, it has taken forever for negotiators to make progress in creating a rulebook for Article 6. This has been a very large frustration—until lately,” he tells IPS.

Having administrative structures in place would help to organize carbon credit transactions and enable global South countries, like Malawi, to sell credits in places such as Switzerland or Singapore.

He believes that developing countries and projects, such as improved stove distribution, have the potential to have a strong impact on cutting greenhouse gas emissions.

According to Kortenhorst, the historical responsibility for reversing climate change lies with developed countries because the carbon footprint per capita in countries like Malawi is small, particularly as compared to countries like the Netherlands or the United States.

“But the good news is that everybody can make a small contribution. Worldwide, the emissions associated with the lack of clean cooking are around 2 to 3 percent. This is not huge but it is not insignificant.

“But also, we know that if we have to remove carbon dioxide from the atmosphere, we can use the beautiful invention of Mother Nature—trees. Looking at nature-based solutions, countries like Malawi have tremendous opportunities to combine better agriculture and restoration of ecosystems—all of which can contribute to the removal of greenhouse gases from the atmosphere while the country also generates money. So it is a win-win-win situation,” he says.

But to achieve all this, there is need for a mechanism to count credits in an appropriate manner.

“That’s where transparency and efficient verification systems come in. That’s not easy because we are still learning the technology to do that. But we are getting better at it,” Kortenhorst says.

The Ministry of Natural Resources and Climate Change acknowledges that without proper systems and procedures in place, Malawi has been facing difficulties in the reporting and declaration of carbon credits.

The government has now finalized the formulation of the Malawi Carbon Trading Regulatory Framework. Through this framework, the government hopes to have better oversight over the design, implementation, monitoring, and management of carbon markets.

The instrument focuses on project formulation, implementation, assessment of credits generated and benefits for the country and communities at large.

In addition, the National Determined Contributions (NDC), which the government updated in 2021 and whose implementation plan it launched in August 2022, provides a platform for carbon trading project developers to design projects that support Malawi’s targets in mitigation as part of reducing greenhouse gas emissions.

In June last year, the government launched the Malawi Carbon Markets Initiative (MCMI). The institution will champion the implementation of the frameworks, action plans, and ongoing programmes that support carbon markets.

Through these efforts, Malawi is confident that it is taking carbon trading operations in its stride.

“With the coming in of organized structures and a regulatory framework for carbon trading, we have embarked on a journey to formalize and transition [earlier] respective projects into carbon trading,” Usi says.

The initiatives also inspire hope in campaigners like Ng’oma, who says the regulations and guidelines could maximize the benefits of carbon trading to local communities and Malawi in general.

The Ministry of Natural Resources and Climate Change is now moving to commission a study to assess the carbon potential of Malawi and the corresponding value in terms of money.

The expectation is that the assessment will provide a good estimate of the number of carbon credits that could be generated from different activities and a range for the value of those credits.

IPS UN Bureau Report




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