Carbon market readiness in Africa: Looking beyond policy promises
Sovereign authorisation is becoming a defining risk for developers and investors in Africa
The abrupt collapse of clean cooking startup Koko Networks earlier this year highlights a growing tension in Africa’s emerging carbon markets: strong project design and compelling climate narratives are no longer enough to guarantee project viability. The episode reflects a broader transition underway in global carbon markets as governments move to treat carbon credits as sovereign assets rather than purely private environmental commodities.
Koko’s model was widely celebrated: subsidised bioethanol fuel and cookstoves for low-income households financed through international carbon credit sales. But the business depended on a critical government approval. When Kenyan authorities ultimately did not issue the Letter of Authorisation required for selling credits into international compliance markets under Article 6 of the Paris Agreement, the company’s revenue model collapsed overnight.
Koko’s collapse illustrates a growing reality for carbon projects across Africa: carbon market participation will increasingly depend on host government authorisation, regulatory clarity, and administrative capacity – areas where many national frameworks are still evolving.
Carbon credits are increasingly being treated as sovereign assets rather than purely private environmental commodities.
The shift from standards-led voluntary markets to sovereign authorisation
The growing importance of Article 6 is reshaping how carbon markets operate. Under voluntary market models, developers could typically generate and sell credits through independent standards with relatively limited host government involvement. Article 6 changes this dynamic. Because internationally transferred mitigation outcomes affect a country’s national emissions accounting, governments must now authorise credit exports and apply corresponding adjustments to their inventories. As a result, host governments are moving from a relatively passive role in carbon markets to one where they directly control access to international credit markets. This shift is bringing carbon markets into the realm of sovereign decision-making in ways that developers accustomed to voluntary market structures may not fully anticipate.
The development of national carbon market frameworks is also beginning to reshape existing voluntary carbon markets. In several countries, governments are introducing requirements for voluntary projects to obtain new national approvals or register credits in domestic carbon registries to prevent double counting with national climate commitments. While these reforms aim to strengthen oversight and protect national climate accounting, they also signal a broader shift toward greater government oversight in markets that were previously governed largely through international verification.
Positive signals abound, but political support is insufficient
Across the continent, governments are enthusiastically signalling support for carbon finance. National climate strategies reference carbon markets, ministries speak optimistically about Article 6 opportunities, and project pipelines are expanding rapidly. In Kenya, for example, an investment framework agreement signed with Koko Networks in 2024 signalled Nairobi’s intention to allow the company to sell credits into compliance markets, consistent with President William Ruto’s efforts to position the country as a regional hub for green investment.
Yet in many cases, the political will and institutional architecture required to support these markets remains insufficient. Approval processes are unclear, carbon ownership rules are contested, and governments themselves are still developing the rulebooks for how to manage what is effectively a new sovereign asset class. For African governments, authorising credits today may reduce a host country’s flexibility to meet its own future climate targets. Carbon credits increasingly resemble other sovereignly allocated assets such as mineral concessions and spectrum licences.
For developers and investors, this raises an important question: How can project proponents distinguish between markets that are genuinely ready for carbon investment and those where rhetoric and policy signals outpace the realities of regulatory readiness and genuine political will?
Governance challenges: process fuzziness and transaction risk
Recent experiences in several African markets suggest that even where governments express strong support for carbon markets, the practical process for securing approvals can be far less predictable. In some cases, projects that appeared viable on paper have struggled to navigate evolving approval procedures or unclear institutional mandates.
Capacity constraints are real
Not all regulatory uncertainty reflects governance risk. In many African markets, governments are still building the human capital, technical expertise, and administrative infrastructure required to operate carbon markets effectively. This includes national registries, monitoring, reporting and verification (MRV) systems aligned with UNFCCC reporting, and inter-ministerial coordination mechanisms capable of managing corresponding adjustments under Article 6. Capacity gaps alone can therefore produce significant delays, conflicting guidance, or slow approval processes. In many cases, the Designated National Authority (DNA) that manages carbon market activities under Article 6 – often a climate or environment-focused ministry or agency – lacks the expertise in capital markets required to manage offsets as an asset class.
The value of carbon incentivises strategic ambiguity
A core challenge is that the Article 6 authorisation requirement creates political economy dynamics that are directly shaping carbon market development and governance. While these do not inevitably lead to bad behaviour, they are introducing new, high-value discretionary decision points. These points – in which a single administrative decision can unlock tens or hundreds of millions of dollars in value – do not exist in other climate project contexts and are exactly where governance problems have historically emerged. Political economy dynamics emerging around Article 6 authorisation processes include:
Leverage through scarcity: Governments are using the leverage afforded by their approval powers over a scarce resource to renegotiate project terms, demand revenue shares, and delay approvals until political or financial priorities are met. Fiscal constraints and a renewed focus on African sovereignty over natural resources are making this leverage more politically salient.
Asset values and rent-seeking opportunities incentivise discretion over process: As carbon credits are a nascent asset class, the absence of transparent, rules-based processes combined with their high value incentivises i) the consolidation of approval authority at the highest levels of government (even when this conflicts with written procedure), ii) limited procedural guidance, and iii) opaque decision-making timelines. While by no means a new rent-seeking tactic, this dynamic nevertheless slows the process of institutional capacity building and encourages inter-agency competition.
Information asymmetry creates policy volatility: Carbon markets are relatively new and technically complex, and many institutions are still learning how credits might be valued, how carbon markets function, and how other countries are structuring agreements. The result of this learning curve is often policy volatility in which early approvals are reversed as governments seek to renegotiate deals or tighten rules when their understanding of the asset’s value changes.
Political cycles mismatched with private investment timelines: Governments may seek to delay authorisations for the purpose of achieving political aims, whether to prioritise national carbon strategies, aggregate projects into national programmes, wait for higher carbon prices, or position deals as pre-election wins. This dynamic reflects a key friction point for developers – the consolidation of Article 6 approval power with political elites, rather than within technical institutions, means that projects are often weighed based on their political value and not just their methodological credibility and technical strength.
Carbon credits are becoming tools of economic diplomacy: Offsets are increasingly part of bilateral economic deals, extending their political importance beyond project-level climate finance. In these arrangements, Article 6 commitments are often linked to energy investments, infrastructure projects, climate finance packages, and sovereign wealth investments. For African governments, allocating credits through bilateral agreements is often viewed as more strategically valuable (both financially and geopolitically) than approving individual private projects.
For developers, understanding how authorisation processes function in practice can therefore be more important than understanding the formal regulatory frameworks. A project that is sound and meets local requirements may still struggle to obtain authorisation if:
i. The government is reserving credits for strategic bilateral arrangements
ii. The country anticipates needing the credits for its own NDC (or has doubts about its own accounting on corresponding adjustments)
iii. The government prefers to channel credits through national programs
iv. There are more pressing near-term political priorities
Ownership and value distribution is increasingly political
The Koko case has also revived debates about how value is distributed within carbon markets. Critics across Africa and the wider Global South increasingly argue that project developers and international credit buyers capture a disproportionate share of the financial value generated by carbon credits, while host countries, communities, and credit producers receive relatively modest returns. These concerns – often framed in terms of “carbon colonialism” – are increasingly influencing how governments approach the sector. Demographic and macroeconomic shifts, alongside the global rush for critical minerals, are increasing public scrutiny over how African leaders grant access to national assets. In response, many governments are moving to assert stronger sovereign control over carbon offsets through approval requirements, revenue-sharing rules, and limits on credit exports.
For project developers, this means that political debates about fairness and value distribution are no longer abstract ethical questions; they are increasingly shaping regulatory outcomes and should be monitored closely.
Five signals of genuine carbon market readiness
Developers and investors should look beyond climate rhetoric and assess whether governments have established the institutional foundations required to support functioning carbon markets. Several indicators can help distinguish markets that are genuinely ready for carbon investment from those where regulatory and political risks remain high.
Developers and investors entering emerging carbon markets knowingly accept a degree of regulatory uncertainty. Early-stage markets can offer significant first-mover advantages, including access to high-quality project pipelines and strong government relationships. For many carbon stakeholders in frontier markets, these opportunities justify accepting a degree of policy and institutional risk. However, the Koko case highlights that Article 6 introduces a distinct category of risk that differs from typical early-market uncertainty. Therefore, understanding how governments allocate carbon credits will become as important as understanding how projects generate them.
Key indicators include:
1. Legal clarity on carbon ownership
Clear rules governing who owns emissions reductions are a foundational requirement for carbon markets. In many jurisdictions, ownership may be contested between project developers, landholders, local communities, and the state. Developers should assess whether carbon ownership is clearly defined in national legislation or climate policy frameworks, and whether disputes over ownership have emerged in existing projects. Ambiguity around carbon rights can create significant uncertainty around project financing and credit issuance.
Illustrative case:
In Kenya, the Climate Change (Amendment) Act (2023) introduced new provisions requiring revenue-sharing with local communities and strengthening government oversight of carbon projects. While these reforms aim to address concerns around equitable benefit-sharing, they have also introduced new questions about how carbon rights are structured and administered in practice.
How Sofala can help:
Our political economy analysis helps clients map how carbon ownership rules are interpreted and enforced in practice, including how ministries, county governments, and community stakeholders interact around carbon rights. This helps developers anticipate where legal ambiguity may translate into project risk.
2. Article 6 authorisation process
Political support does not equal operational readiness. Developers should assess whether authorisation processes are operational in practice rather than relying solely on investment agreements or policy statements indicating political support. Key indicators include whether the responsible authority is clearly designated, whether approval procedures and timelines are publicly documented, and whether projects have successfully obtained authorisation in practice. Where authorisation processes remain informal or highly discretionary, projects may face unpredictable delays or political intervention.
Illustrative case:
Ghana has taken early steps toward establishing a structured Article 6 framework, including identifying a designated national authority and piloting bilateral carbon credit agreements with Switzerland. These early transactions provide a clearer signal of how authorisation processes may function in practice.
How Sofala can help:
We support clients to assess whether formal approval frameworks are operational in practice by conducting source enquiries with regulators, climate negotiators, and project developers to understand how authorisation decisions are being made.
3. Carbon registry infrastructure
Participation in international carbon markets requires technical systems capable of tracking credit issuance, preventing double counting, and managing corresponding adjustments to national emissions inventories. Developers should assess whether a country has established a national carbon registry and whether its monitoring, reporting, and verification (MRV) systems are aligned with UNFCCC requirements. In cases where critical infrastructure is still “in the works”, developers should sequence investments alongside key regulatory and process milestones (and include this sequencing explicitly in investment frameworks and other agreements).
Illustrative case:
Rwanda has invested in developing a national carbon market framework and associated registry infrastructure as part of its broader green growth strategy. While the scale of projects remains relatively limited, these institutional investments signal an intention to build the technical architecture required for carbon market participation.
How Sofala can help:
Sofala’s on-the-ground research and analysis helps clients distinguish between registries and systems that exist on paper and those that are operational in practice, including whether technical systems are supported by sufficient staffing, data infrastructure, and regulatory coordination.
4. Government revenue expectations
Governments are increasingly seeking to capture a share of carbon credit revenues through taxes, royalties, or revenue-sharing mechanisms. While this is becoming a normal feature of carbon market governance, the key question for developers is whether these expectations are clearly defined, aligned with commercial realities, or subject to renegotiation.
Illustrative case:
Tanzania introduced regulations requiring carbon project developers to share a portion of revenues with the government. While these measures aim to ensure national benefit from carbon markets, evolving rules have created uncertainty for some project developers regarding long-term project economics.
How Sofala can help:
Sofala helps clients anticipate how revenue expectations may evolve over the lifecycle of a carbon project by analysing fiscal pressures, political incentives, and emerging debates around natural resource sovereignty.
5. Administrative capabilities
Even where legal frameworks exist, effective carbon markets require institutions with sufficient technical expertise and administrative capacity to evaluate projects, process approvals, and manage registries. In many countries, designated national authorities are still building the staff, systems, and expertise required to manage carbon markets effectively.
Illustrative case:
Across several African markets, environment ministries tasked with managing Article 6 processes have limited experience engaging with carbon offsets as financial assets. This capacity gap can lead to jurisdictional disputes between regulators, slow approval processes, and create uncertainty around how authorisation decisions are made.
How Sofala can help:
We support clients to assess the real operational capacity of carbon market institutions by analysing how ministries coordinate across government, how decisions move through approval hierarchies, and where bureaucratic bottlenecks are likely to emerge.
Understanding how governments allocate carbon credits will become as important as understanding how projects generate them.
Looking ahead
The Koko Networks case is unlikely to be the last high-profile dispute over carbon credit authorisation in Africa. Decisions about whether and how credits are authorised for export (and for whom) are increasingly embedded within broader questions of climate policy, economic strategy, and resource governance.
This shift is redefining the operating environment for carbon market participants. Africa will remain one of the most important sources of future carbon supply given its mitigation potential and growing policy focus on climate finance. The key change is that projects will increasingly operate within government-led frameworks as states move to manage carbon credits as strategic assets.
The implication for developers and investors is not to withdraw from African carbon markets, but to approach them with a more sophisticated understanding of how governments are allocating and governing carbon assets. Assessing carbon market opportunities will therefore require political economy analysis and targeted stakeholder engagement support alongside technical carbon expertise. Investors that understand these political and institutional dynamics will be best positioned to capture the opportunities emerging as African carbon markets continue to take shape.
