DEMYSTIFYING CARBON CREDITS: INSIGHTS FROM A RWANDAN ENTREPRENEUR
In 2017, a group of Europeans approached our company with an irresistible offer: continue our community work, and they would provide a 10-year contract, covering infrastructure, monitoring costs, and ongoing maintenance. I was amazed and immediately pursued the opportunity, eager to position Water Access Rwanda as their technical partner. This marked my first purely private B2B revenue relationship that also created and sustained community impact. This is the promise of carbon credits for impactful social enterprises. Like many others before me, I accepted the deal without fully understanding the market, its operations, or how they could afford to pay us for this work.
As African entrepreneurs discover the world of carbon credits, it's crucial to understand both the opportunities and the common pitfalls. After my initial introduction in 2017, I became very interested in how climate finance could drive sustainable development in Africa and attract more funding for social enterprises, making bottom-of-the-pyramid markets more financially attractive. This interest led me to pursue a Master of Science in Climate Change Finance and Investment at the University of Edinburgh in 2022, funded by a Chevening Award. This program gave me broader exposure to carbon markets, which is a nascent field full of myths. In this article, I aim to debunk and clarify some of these myths.
The market will make you believe you need a lot of expensive consultancies…
The carbon market world is daunting, full of jargon and hard-to-read documents. It took me years to be brave and bold enough to read a methodology by myself. The convoluted paragraphs and long equations with constants I was not familiar with made me assume this was a sacred document. Only highly paid consultants had the brains and minds to understand, and projects paid them dearly for it.
The highest cost to starting a project for an organization is always the consultants. And very few are based locally. The majority of consultants are European and Indian, and similarly, the majority of the trading firms are located in Europe and India. Our project was with very good people that we are still working with. They were kind enough to encourage me to understand more, albeit in a limited way.
Yes, if you are starting out, you need the best of consultants to get your project off the ground and generate high-quality carbon. However, you do not need to hire them at a premium cost. There are now several African-based consultants who are fair in their fees and genuinely committed to supporting projects. Next several Indian firms offer the services at about 1/8th of the cost charged by their European counterparts.
Find a person on the inside and heavily negotiate any offer you get.
It’s a club, and they will take a cut to let you in…
I unfortunately discovered the market at the time to be (for lack of a better word), a white men’s club. While many within the market were willing to handhold and share the basics, there were impenetrable barriers to obtaining clients or connections to clients. Everyone wants a cut, and they preserve knowledge for the cut. Expect any deals you make to allocate about 10-30% of your credits or earnings to a middle guy. Once you add up the cost of that cut, you will be surprised how much you are giving away. My recommendation is to do it this way if the risk is shared.
Green-bashing is real!
We are all familiar with greenwashing, but have you heard of green-bashing? This is the phenomenon where companies actually implementing climate change mitigation actions including buying carbon credits are heavily attacked in the media. This is the same media that ignores the thousands of companies doing nothing. Often the arguments center on the fact that companies buying carbon credits should rather focus on reducing their own emissions. The arguments tend to adopt a narrow view where companies making both reductions of emissions and offsetting through carbon credits are not spared by green-bashing.
Green-bashing is often a one-sided story. Imagine providing clean cooking technology to thousands of homes in Africa, seeing the kitchens now free of smoke, and time and money savings from your beneficiaries, only to open the news and the company buying your credits is being called out for not supporting climate change mitigation! That is a classic case of green-bashing.
Another conspiracy against Africa?
Basically, we are all polluting the same atmosphere, and in a perfect world, a credit generated in Europe should be equal to a credit generated in Africa. However, given the nature of emissions, removing certain sources of emissions (say converting a cement factory) is much more expensive than, say, providing a solar grid to villages that previously ran on generators. When viewed from this perspective, African credits tend to be cheaper than those generated in the West. Therefore, we would have to focus even more on reducing emissions in Africa to maximize the reach and impact of our climate finance.
But this is when things get tricky, Africa is a historically low polluter. So, when you assign value to credits being emitted already, low polluters get the least value! There are mechanisms to address this, such as suppressed demand, but this receives a lot of backlash. The truth is, the carbon market is a market. And like other markets, there is a somewhat misinformed effort to keep Africa out. It does not make sense to me why climate finance should primarily create opportunities in the global north, when the global south contributed so little to climate change. The balance should be that those who pollute less are rewarded, but this can potentially create a major climate injustice because the biggest polluters also have the most value to offer. Allowing considerations like accounting for suppressed demand and giving more value to protected nature solutions can balance the scale for Africa, while achieving climate justice and fairness across the board.
Should you do it?
Green-bashing and policies that change after COPs make this market extremely volatile, but one would argue that this is characteristic of new markets. While there is a predicted future demand for more credits than anyone is producing currently, market signals can be erratic, switching between pessimistic and positive outlooks from day to day, and this affects investment into new projects. But for the African social entrepreneur, this might be the time to register your climate impact and start generating carbon credits. Without going deep into the numbers (you have to pay my consulting fee for that!), my rule of thumb advice is: if your business is mitigating upwards of 10,000 tCO2 per year (10,000 tons), you are losing out on way more by not registering than by registering. Do it now, and take a risk. You are an entrepreneur, you are used to this.
On the practical side, getting a stable source of revenue for 10-15 years can allow you the patience we often need to better serve Base of the Pyramid markets. For us at Water Access Rwanda, this means we can subsidize water customers, and keep expanding water infrastructure, without having to worry about the purchasing power of the community we intend to serve.
One last note on carbon credits
Carbon emission reductions are generated when someone stops polluting or removes carbon from the air. A Carbon credit is basically a fungible token accounting for 1 ton of those emissions removed or avoided. Of course, the token must go through lots of lengthy and rigorous processes and receive the magical blessing of a standard body before you can trade it.
You can find more about Water Access Rwanda here.
