Malawi is poised to become a leader in the global carbon market with the launch of its first-ever Internationally Transferred Mitigation Outcomes (Itmo) auction. The auction, hosted on the leading global voluntary carbon platform CTX, is set to redefine the carbon market by attracting diverse investors, including family offices and funds, traditionally outside the carbon market.
This ground-breaking initiative has the potential to unlock new sources of climate finance and drive the country’s sustainable development.
Democratising carbon trading
With a starting price of $10 (about K17 510) per credit and a minimum bid of $250 000 (about K437.5 million) the Itmo auction is designed to be accessible to a wider range of investors.
This democratisation of carbon trading is a significant step towards tapping into new sources of capital for climate action. CTX chief executive Wayne Sharpe expressed his excitement for the project, saying: “Finding the right country has been the key. We launched the auction concept at CoP28 [the 2023 Conference of the Parties] held in Dubai, United Arab Emirates. We knew we were digging for gold.”
He was quoted by the Business Wire as having said: “We found the richest vein could be found here in Malawi, thanks to our long-standing partners, Gold Standard, and a well-established CTX client.
“Putting funds into cookstoves in Malawi ticks every box we ever created CTX for in the first place.”
Climate finance for development
Proceeds from the auction of 1.5 million credits, generated from the promotion of cleaner cooking technologies, will support the country’s adaptation and mitigation projects.
The Malawi Government is poised to generate $15 million (about $26.2 billion) assuming that all the credits are sold at the starting price of $10 per credit.
In a statement announcing the auction, the Ministry of Natural Resources and Climate Change said 12.5 percent of the proceeds from the auction will be paid directly to the Malawi Government to support local carbon initiatives.
“A share of proceeds to local entrepreneurs ensures that the vast majority of the funds are reinvested in the host country remaining,” reads part of the letter signed by Secretary for Natural Resources and Climate Change Yusuf Nkungula.
“This represents a substantial opportunity for the country to address pressing environmental and social challenges while generating revenue.
Minister of Climate Change and Natural Resources Michael Usi, who is the country’s Vice-President, expressed the government’s optimism about the auction’s potential to spur economic transformation.
“We want the carbon market to boost the country’s economy, create jobs and real benefits in our towns and villages.
“So, we look forward to a successful auction and hope this can be the first of many,” he was quoted by the Business Wire as having said.
Modern Cooking for Healthy Forests (MCHF) project, emphasised the importance of exploring opportunities in the agriculture and forestry sectors to deliver real emission reductions while benefitting households.
He said in an e-mailed response: “I also believe that carbon finance presents a unique potential to assist Malawi to pivot towards sanitary waste management,” including composting and recycling.
“The MCHF project, co-sponsored by the United States Agency for International Development and UKAid and implemented in partnership with the Malawi government, is focused on promoting the adoption of more efficient cookstoves and agroforestry practices.
By reducing deforestation and improving soil health, the project has contributed to carbon sequestration and climate change mitigation.
Additionally, the project has supported the livelihoods of smallholder farmers through the cultivation of trees and the production of forest products.
Ensuring Efficiency and Transparency
To maximise the impact of carbon finance, it is crucial to promote efficiency and transparency in carbon markets.
Climate change experts stress the importance of publicising the article 6 (carbon trading) framework, developing a carbon project registry and carefully selecting carbon project developers.
Said Kanaan: “There is need to carefully research and select carbon project developers and assessing the ability of the proposed developer/projects to deliver credible mitigation outcomes.
“There is also need to transparently document financial inflows of carbon projects and how these monies are reinvested in climate adaptation, mitigation and resilience building efforts”.
Responding to these concerns, Sharpe emphasized CTX’s commitment to transparency.
He said all the transactions are cleared and settled through CTX and Westpac Bank, with detailed electronic statements generated for both the seller and buyer.
“Each transaction creates a detailed electronic statement for the seller [Hestian] and an electronic tracking record of volumes, amounts paid and fees” said Sharpe, adding that the electronic ‘trail’ is fully transparent for Hestian and Malawi Government.
CTX has implemented robust verification and monitoring systems to ensure the integrity of the carbon credits traded on its platform.
The platform uses third party verification bodies to validate project emissions reductions and carbon credit issuance.
Additionally, CTX provides regular reporting on the performance of carbon projects, including information on emission reduction, carbon credit issuance and project impacts.
Hestian director Conor Fox, whose institution was granted permission to auction Malawi carbon credits, echoed Sharpe’s sentiments, said CTX track record encouraged them to engage with the platform on the auction.
He further lauded CTX’s existing partnerships with Gold Standard and the United Nations Framework Convection on Climate Change as key factors in their decision.
CTX boasts a 14-year partnership with Gold Standard, the sponsors behind the Chitetezo Mbaula project that generated the carbon credits Malawi is selling at auction.
The Chitetezo Mbaula project, implemented by Care Malawi, a non-governmental organization, has been instrumental in promoting the adoption of improved cookstoves in rural communities.
The project which commenced in 2010, has reached over 200 000 households, distributing over 250 000 cookstoves.
This has resulted in a reduction of over 1.5 million tonnes of carbon dioxide equivalent emissions that Malawi is selling at the auction.
A Catalyst for African Carbon Markets
the successful execution of Malawi’s Itmo auction has the potential to serve as a potential to serve as a blueprint for other African countries seeking to leverage their carbon assets for sustainable development.
By showcasing the potential of carbon markets to drive climate action and economic growth, this auction could stimulate increased interest and investment in the region
As Malawi embarks on the pioneering journey, the world watches with anticipation.
The outcome of the auction will not only shape the future of Malawi, but could also set a precedent for carbon markets across the African continent.
source: The Nation- Eric Mtemang’ombe-Senior News Analyst- 25 july 2024