Voluntary carbon markets in sub-Saharan Africa: What we’re watching in 2025
This is a briefing for investment funds, development finance institutions, project developers and commodity traders seeking to navigate the evolving carbon market landscape in sub-Saharan Africa. Drawing on Sofala Partners' engagement with market intermediaries, project developers, and policy experts, we identify five key trends set to impact the structuring, financing and risk/reward profile of projects across the continent’s nascent voluntary carbon market (VCM) in 2025 and beyond.
Africa in the global voluntary carbon market
Africa currently represents about 14% of global VCM credit supply, with significant growth potential. Most African credits come from agriculture, forestry and land use (AFOLU) projects, concentrated in just five countries that generate two thirds of the continent's registered emission reductions. According to the African Carbon Markets Initiative (ACMI), Africa is producing only ~2% of its potential volume, with capacity to generate 2,000 MtCO2e annually by 2030 (worth $30-50 billion). This growth could create and support up to 30 million jobs through forest protection, improved agricultural practices, energy access initiatives, and clean energy transition projects.
What to watch in 2025
1.African governments that delineate the legal framework for all carbon market pathways are starting to earn a ‘regulatory premium’ in the VCM.
In a small cohort of ‘front-runners’ across SSA, legislative action to boost credit integrity and investor confidence in the carbon market is paying dividends. Kenya, for example, amended its Climate Change Act in 2023 to authorise carbon credit trading via bilateral deals under Paris Agreement Article 6.21, private offset agreements, and voluntary markets. Although the requirement to re register with a National Carbon Registry caused short term uncertainty, and some localisation terms such as the mandatory 25%+ community benefit-sharing requirement have been viewed as onerous, the net impact was positive. This is reflected both in the jump in new carbon project registrations in Kenya in 2024, and in the 15%+ price premium observable in nature-based solution credits originating from Kenya versus credits from comparable projects in countries with weak frameworks. What lesson should Kenya’s sub-Saharan peers draw? The answer is clear: define the respective legal frameworks for voluntary, compliance and sovereign carbon markets simultaneously, remove ambiguity around future sovereign claims on private projects, and international investment into VCM projects will flow.
Turning to West Africa, Ghana 's Carbon Markets Office has signed government-to-government deals with Switzerland, Sweden, Singapore, South Korea, and Liechtenstein. The largest of these, led by the Klick Foundation (Switzerland’s carbon credit procurement agency), granted $850 million in funding for six projects in Q1 2024. Buyers of carbon credits particularly value this type of bilateral agreement over more generic national frameworks, as the greater specificity enhances credit exportability. However, while Ghana is emerging as a success story in piloting Article 6.2 transactions, only a handful of privately financed developers in the country’s VCM are seeking endorsement for project proposals, reflecting a less certain legal framework outside of the bilateral market. As these examples show, progress in operationalising carbon market rules at the sovereign level is not sufficient to attract capital into ‘private’ carbon project development in which credits are marketed to the global corporate sector on a voluntary basis under independent standards. With low and volatile global credit prices creating headwinds, only countries with ‘joined up’ legal frameworks covering all carbon market pathways will succeed in attracting such risk capital.
2. Innovative insurance products could prove a game changer for investor confidence in African VCM projects, enabling premium pricing for developers and building trust amongst buyers.
Over the past 12 months, global insurance brokers have launched first-of-a-kind risk transfer tools for the carbon market which may unlock a step-change market acceleration in the coming years. For instance, Marsh's We2Sure 2024 facility—backed by underwriters Sompo, Brit, and Talbot—addresses credit fraud and non-delivery risks; while Howden Group’s Carbon Credit Warranty & Indemnity (W&I) Insurance, launched in June 2024, was the first W&I policy tailored specifically for carbon credits. Howden’s W&I policy offers protection for buyers against project-level fraud and double counting risks, thus boosting the authenticity and value of credits. The company’s inaugural policy placement applied to 300,000 credits from UK-based Mere Plantations' reforestation project in Ghana, covering 10,000 acres of degraded land inside the Afram Forest Reserve. The project aims to remove 2.9MT of carbon between 2011 and 2031. This ability to transfer risk around future credit quality from the off-taker to the global insurance/reinsurance market could prove transformational as brokers and underwriters scale these new products, and build awareness of their availability amongst buyers. When combined with clear sector-specific regulations, novel insurance solutions tailored to the VCM can remove key barriers to institutional investment by allowing funds to manage fiduciary obligations while participating in what remains an immature marketplace.
3. We anticipate a shift of buyers' preference for carbon removal over avoidance credits driven by market integrity concerns and net-zero alignment requirements.
Market data reflects emerging two-tier demand: amid integrity controversies in 2023, demand for avoided deforestation and older renewable energy credits plunged, contributing to an oversupply and price drops. At the same time, removal credits – often seen as higher quality and necessary for net-zero goals – maintained or increased in popularity despite higher costs. A 2024 survey of VCM stakeholders found that nearly 90% of corporate buyers do not plan to use traditional reduction or avoidance credits in their future decarbonisation strategies. Tech sector leadership is driving this transition through advance market commitments, with Microsoft, Google, Meta, and Salesforce launching the Symbiosis Coalition to purchase up to 20 million tons of high-quality nature-based removal credits by 2030. We expect this trend to catalyse project development in Africa. With extensive land suitable for reforestation and potential for renewable-powered direct air capture, Africa is positioned to become a key global supplier of carbon removal credits in the coming years.
4. Across most African jurisdictions, land tenure insecurity and inadequate community engagement will represent critical challenges to voluntary project viability.
These challenges affect voluntary market participants differently: private funds must balance financial returns against intensive on-the-ground engagement requirements; commodity investors must prioritise project timeline predictability and reputational risk, while community consultation is at the core of DFIs development mandates, as well as assessing integrity risk. Many carbon projects require both long-term access to land and meaningful stakeholder participation through Free, Prior and Informed Consent (FPIC). In numerous African countries, official proof of land ownership is often lacking, while simultaneously, buyers increasingly demand evidence of robust community benefit-sharing. Some countries are beginning to address these issues (for example, Kenya's updated climate legislation requires proof of community consultation), but until standardised approaches to both land rights and community engagement become widespread, these challenges will continue to create market inefficiencies, as projects with greater community engagement needs limit the pool of return-focused buyers in the market.
5. We anticipate that diversification of buyers will reshape the African VCM projects landscape as public funding recedes.
Major donors like USAID and FCDO have reduced their commitments, with the US imposing a freeze on its $60 billion aid budget and the UK cutting overseas aid from 0.5% to 0.3% of GNI at the time of writing. This contraction comes at a time when Climate Policy Initiative reports that Africa is only receiving 18-20% of the climate finance needed to meet its mitigation and adaptation goals. For funds, this presents opportunities to deploy capital where aid previously dominated, particularly in reforestation and clean energy sectors. DFIs will need to prioritise blended finance approaches to leverage limited public funds and de-risk private investments. Commodity investors may find value in bilateral carbon credit arrangements – exemplified by Zimbabwe's $1.5 billion UAE forest conservation deal – as non-traditional actors step in where Western donors have retreated. We anticipate that countries that successfully attract these alternative financing streams will experience accelerated voluntary market development, while adaptation-focused projects without tradable credits risk stagnation and a slower pace of development.
A toolkit for managing risk and capturing opportunity
We have developed a toolkit to help investors manage risks associated with carbon project development in sub-Saharan Africa. The table below provides a summary of key risks to assess across execution, reputation, and regulatory dimensions. You can find the full version of our toolkit, developed in collaboration with Norton Rose Fulbright, here.
