Blockchain technology could offer best opportunity to attain optimal prices in carbon market.
As Rwanda is set to launch a carbon market framework at the 28th UN Climate Conference (COP28) in December this year, players in the carbon market believe that the country could have "high-quality carbon credits" that could attract better prices.
Carbon credits on the carbon market are measurable, verifiable emission reductions from certified climate action projects. These projects reduce, remove, or avoid greenhouse gas emissions.
A carbon credit represents a tonne of carbon emissions removed. The carbon market allows nations, companies, or entities to finance carbon-cutting projects in other countries and count the avoided emissions towards their own climate targets.
ALSO READ: Inside Rwanda's 'carbon market scheme'
The cost of carbon credits in the carbon market can vary from approximately one dollar to several hundred dollars per tonne of carbon dioxide equivalent (CO2e).
Speaking to The New Times, Paul Foster, CEO and Founder of CSG Holding, which seeks to invest in environmental, social, and governance projects in Rwanda, said: "We are very confident that the framework and the governance in Rwanda will lead to the highest price of carbon credits that can be achievable."
He said that once Rwanda launches the carbon market framework, they will assess their offer to be able to start issuing credits if they get a permit from the government.
He stated that CSG, the parent holding company, established CO2 Cap Projects Africa. This company aims to tokenise the carbon offset generated by Rwanda's existing trees and plants and cultivate additional sustainable opportunities for the future. These endeavours will enable the company to generate more credits on the voluntary carbon market.
"When we set up the company, we wanted to have the highest standards, not just from a governance point of view, but also from the point of view of the quality of the credits," he noted.
How much is one carbon credit?
Foster said: "The carbon credit price is very fluctuating at the moment, especially in the voluntary market. There are two markets. There is a mandatory market with a fixed price. But in the voluntary market, it depends on the quality of the credits, the number of people buying those credits, and lastly, the trust in those credits by the industry."
ALSO READ: Rwanda's cabinet briefed on carbon market framework
There are many ways to value a carbon credit, whether using market dynamics, basing it on the cost of implementation, or the value that the project delivers. Pricing can also vary by project type, size, location, and other determining factors.
One carbon credit has a monetary value on the compliance and voluntary carbon markets of $40 to $80, on average.
However, this can be expected to fluctuate greatly with supply and demand, fuelled by regulations.
The World Bank, which compiles a yearly report on carbon credit pricing in the carbon marketplace, also noted that most prices of carbon credits are below the $40-80 per metric tonne of carbon dioxide emitted needed to keep global warming within a two-point degree, as provided by the Paris Agreement.
The carbon credit price varies. The weighted carbon price is $34.99 (as of June 2021) up by around $20 near the end of 2020. The cheapest credits in the voluntary carbon market come from forestry and renewable energy, typically priced at $1-$12 per tonne.
Rwanda's minister for environment recently said the country could set a floor price of at least $30/tonne for carbon credits, for both technology-based and nature-based solutions.
World Bank says that higher prices are required to achieve global emission targets. There are two main ways of determining the prices of carbon credits namely external and internal carbon pricing. The first option works for organisations that set internal carbon credit prices to guide their investment decisions.
ALSO READ: Rwanda to plant 63 million indigenous trees for carbon market
On the other hand, external pricing is fixed primarily by the market forces of supply and demand. Additional factors that influence external pricing include existing regulations and international climate change protocols.
What could drive carbon price in Rwanda?
According to Foster, the expected highest quality credits, "will lead to the highest quality price."
"The quality of the credit is tied to the governance. It is about verifying the credits, logging the credits, and actually being able to create an audit that people can review and see. It is also about checking those credits over time. So, by using blockchain technology, you will be able to log those credits and track them over time."
He suggested that utilising blockchain technology could offer the greatest opportunity to attain the optimal price in the carbon market.
"We scan trees, work out how much carbon they are absorbing, and then we will be able to tokenise that, whether that landowner is private sector or government," he said.
He said the money from carbon credits can be reinvested in planting new forests, for instance, or their management. "Forests can create the highest quality of credits."
He noted that one of the problems in the carbon credits is that there have been a lot of low-quality operators in the space who have effectively driven the price down. And although there is a shortfall in carbon credits, the price has dropped, he said.
"What we are trying to do is get that price back up to the level it should be by offering the best quality carbon credits," he said.
Why choose Rwanda?
Foster explained that Rwanda was selected as the initial launch location in Africa for several reasons.
"There are a lot of reasons for that. One is the political drive of the government. Secondly, it is the whole policy of the country in environmental protection. Thirdly, it is the quality of the trees that you have here," adding that special measures to protect forests are also very promising.
Sign up for free AllAfrica Newsletters
Get the latest in African news delivered straight to your inbox
He said that it generally takes three months to have the credits up and running and that Rwanda has been positioning itself as the leading investment hub of Africa, so there is a need for sustainable finance.
ALSO READ: Rwanda to offer clean cooking technologies on carbon market
He said their initiative will ensure carbon reduction, environmental benefits, community benefits, and employment.
"We are already starting to assess the viability of projects in the country," he noted, saying Rwanda's green growth agenda has a lot of opportunities.
Adam Bradford, Director of CO2 Capital's Africa project told The New Times last month that they are currently engaged in exploring carbon market prospects within Rwanda.
CO2 Capital specialises in scaling up verified carbon credit projects via forest restoration and agroforestry using blockchain technology.
He said that by creating and distributing carbon offset credits on the blockchain instead of using traditional methods such as web-based registries or paper documentation, each individual emissions reduction can be uniquely traced and verified.
Bradford said, for instance, that such projects worked in Finland, capturing carbon in forest land.
Blockchain technology is utilising satellite imagery, drone scanning, and deploying blockchain technology to unlock the complete potential of green asset projects through afforestation and forest preservation. This helps protect biodiversity, restore nature, and promote socio-economic benefits.
