Supporting Climate-Resilient African Smallholder Farmers Through Carbon Markets

Recommendations

• Policymakers should recognise that different carbon credit types come with different risks and benefits, input requirements and income potentials. As such, a ‘one-size-fits-all’ approach to carbon market regulation is not appropriate.
• Carbon market processes that deliver evidence-based non-carbon outcomes such as food security, nutrition and economic development, in conjunction with carbon removals/reductions, need to be prioritised for implementation and support.
• Policymakers should investigate ways to add value to carbon programmes by, for example, supporting research, making state assets accessible and supporting regulatory measures such as corresponding adjustment mechanisms to legitimise state revenue sharing.
• Policymakers should create agricultural policies that support conservation and regenerative agriculture so as to ensure the permanence of agricultural carbon programmes.

Executive summary

This policy briefing explores the potential of carbon markets to support climate-resilient smallholder farmers in Africa. It highlights the dual benefits of enhancing agricultural productivity and contributing to climate change mitigation and adaptation. The briefing emphasises the need for investments in climate-smart agricultural practices that promote soil health through carbon sequestration.

Some of the current challenges limiting the adoption of this approach are strict carbon credit requirements, limited financial resources and the need for robust governance frameworks. It is important to create policies that prioritise non-carbon outcomes such as food security, nutrition and economic development supported by carbon removals and reductions.

The briefing also addresses the controversies surrounding carbon markets. It argues for the introduction of rigorous standards and methodologies to ensure the credibility of carbon credits while acknowledging the barriers these pose for small-scale farmers.

In conclusion, there is a call on policymakers and stakeholders to harness the potential of carbon markets as high-potential, outcomes-based finance mechanisms. By addressing criticisms and ensuring fair participation, they can ensure that carbon finance drive sustainable agricultural development and resilience against climate impacts, ultimately benefiting smallholder farmers and Africa as a whole.

Introduction

Supporting smallholder farmers to invest in their soil health through soil carbon interventions is a cross-cutting mitigation and adaptation response to climate change. It improves nutrient cycling, enriches soil biodiversity, promotes water retention and increases yields. Yet the World Bank finds that ‘African countries face critical challenges related to leveraging investments for climate action, promoting adoption of new technologies and creating the necessary institutions for climate smart agriculture implementation’.¹World Bank, Scaling Up Climate-Smart Agriculture through the Africa Climate Business Plan, Report (World Bank, 2018). In fact, the Climate Policy Initiative’s 2023 Global Finance Landscape report²Barbara Buchner et al., “Global Landscape of Climate Finance 2023” (Climate Policy Initiative, November 2, 2023). shows that, globally, climate finance continues to be channelled primarily towards mitigation efforts focused on energy and transport investments, with 44% and 29% of total finance allocations respectively. Despite the essential humanitarian importance of a food system transition and its cross-cutting role in mitigation and adaptation, food systems received just 4.3% of climate finance allocations in 2023 and smallholder farmers specifically a meagre 0.8%. Here the potential for carbon credit finance to fill a pressing and pervasive void presents itself for evaluation.

Climate action holds multiple benefits for African farmers

In the Intergovernmental Panel on Climate Change’s (IPCC) sixth assessment report³H. Lee and J. Romero, eds, Climate Change 2023 Synthesis Report (Intergovernmental Panel on Climate Change, 2023). on global temperature increases, greenhouse gas (GHG) emissions and the impact of the climate crisis, the IPCC found that global warming would likely reach 1.5°C between 2030 and 2035. This will have dire consequences for humanity’s ability to produce the food, fibre and materials that sustain our existence. In the African context, the negative impacts of a volatile climate are compounded by the effects of a growing population, low agricultural productivity and limited adaptation or disaster risk support. Recent studies project that, if climate change continues on its current path, crop production across the region will decline by 18% by 2050,⁴Philip Kofi Adom, “The Socioeconomic Impact of Climate Change in Developing Countries in the Next Decades” (Working Paper 681, Centre for Global Development, February 2024). putting some 200 million people at risk of extreme hunger.

The IPCC also finds that ‘there is substantial mitigation and adaptation potential from options in agriculture, forestry and other land use’ and that, in this regard, ‘conservation, improved management and restoration of forests and other ecosystems offer the largest share of economic mitigation potential’.⁵Lee and Romero, Climate Change 2023, 106. The agricultural sector thus presents significant opportunities to mitigate GHG emissions through improvements in methane, nitrous-oxide and burning activities in particular. In addition, the IPCC estimates that improved land management practices in croplands and grasslands could sequester between 0.4 and 8.6 gigatonnes of CO2-equivalent in soil organic carbon per year, representing as much as 20% of the climate mitigation potential from natural climate solutions.⁶Lee and Romero, Climate Change 2023.

The carbon market value of sequestration aside, soil carbon is a key indicator of soil health, which not only supports farmers to sustain higher yields with less inputs but also protects crops from both drought and flooding. Existing and projected climate impacts on water security are especially bad for agriculture, and particularly for smallholder farmers in rainfed crop and pasture systems, who are responsible for most of Africa’s food supply. In sub-Saharan Africa, 33 million smallholder farms account for around 80% of farms in the region, as well as 70% of the region’s food supply. The rapid onset of climate change, low levels of institutional support and chronic under-investment in the sector expose these farmers, as well as the people who rely on them for food, to chronic food insecurity. This already affects around one-third of people across the continent.⁷Christopher Ward, Raphael Torquebiau and Hua Xie, Improved Agricultural Water Management for Africa’s Drylands, Study (World Bank, 2016).

Water insecurity in rainfed agricultural systems diminishes yields, increases the risk of production failures and limits intensification. This results in rainfed agriculture’s consistent under-performance relative to irrigated systems in terms of production per hectare. As climate impacts worsen while populations grow, water scarcity will increase Africa’s dependence on food imports and undermine food sovereignty. This makes agriculture pivotal in combatting climate change.

Rainfed agriculture depends on infiltrated rainfall (‘green water’), which is stored in the topmost soil layers where it is available to plant roots. This storage functionality is undermined by soil degradation arising from poor soil fertility management practices.

The latter have now resulted in an estimated 65% of sub-Saharan African agricultural land’s being classified as degraded.⁸Shamie Zingore et al., “Soil Degradation in sub-Saharan Africa and Crop Production Options for Soil Rehabilitation”, Better Crops 99, no. 1 (2015). The World Bank estimates the cost of implementing land management activities that improve green-water management in rainfed smallholder farming to be between $250 and $500 per hectare.⁹Ward, Torquebiau and Xie, Improved Agricultural Water Management. This cost mostly covers small-scale rainwater harvesting and in-field soil moisture retention techniques, focusing on increased soil carbon/biomass improvements that are largely low technology and labour intensive.

Key climate-smart land management practices include:

• conservation tillage to reduce soil disturbance;
• crop residue retention to protect soil from erosion and provide the biomass fuel that is converted into soil carbon by microbes;
• leguminous cover crops that fix nitrates;
• the addition of organic matter from manure and compost; and
• the use of crop rotation and intercropping to vary income streams and diversify nutrient cycling.

The main activities that should be promoted are case dependent and will need to be matched to crop types, soil types, climate regions and market conditions. Policymakers can support investments that build soil carbon and promote resilient agriculture by testing different combinations of crop types and land management practices. This should be done in conjunction with monitoring inputs, yields, water retention and soil carbon development impacts.

African agriculture carbon markets remain largely untapped

African governments have actively been promoting climate-smart agriculture through initiatives such as the Comprehensive Africa Agriculture Development Programme, the Nairobi Declaration and the AU Climate Change and Resilient Development Strategy. However, current levels of available finance are insufficient to address the scale of the problem. As a result, many African nations have initiated the development of carbon market legislation and regulatory frameworks in partnership with multilateral entities such as the African Carbon Markets Initiative to facilitate outcomes-based financial flows.

Government programmes are being met by farmer-led initiatives such as the Eastern Africa Farmers Federation (EAFF), an umbrella organisation representing some 25 million smallholder farmers. It has been working to support members to ensure that the interests of small-scale farmers are prioritised and that they benefit fairly from carbon trading mechanisms.¹⁰Stephen Muchiri, “How the Eastern Africa Farmers Federation Became a Climate Policy Influencer”, CGIAR Blog Post, May 7, 2024.

Carbon markets have proven to be a divisive issue in recent years. Proponents have praised the nascent markets as serving a vital role in delivering outcomes-based payments for ecosystem services, while opponents have raised concerns about greenwashing and over-crediting. On the one hand, the allegations of greenwashing have been effectively debunked,¹¹Ecosystem Marketplace, All In on Climate: The Role of Carbon Credits in Corporate Climate Strategies, Report (Ecosystem Marketplace, October 2023). but examples of over-crediting continue to surface. This has resulted in the annual value of the voluntary carbon market dropping to $723 million in 2023, a 61% decline from the 2022 value.¹²Ecosystem Marketplace, State of the Voluntary Carbon Market, Report (Ecosystem Marketplace, 2024).

Credits related to sustainable farm and pastureland management, however, saw a 24% increase in the volume of credit offtake, but with overall decreases in credit prices across the market the result was a 41% decrease in price for agriculturally based credits specifically.¹³Ecosystem Marketplace, State of the Voluntary Carbon Market. Crucially for credits stemming from small-scale farmers, credits with social and biodiversity co-benefits across all credit types continued to attract a price premium, although this premium fell to 37% in 2023 compared to 63% in 2022.¹⁴Ecosystem Marketplace, State of the Voluntary Carbon Market. This indicates the value of non-carbon outcomes and the importance of their prioritisation with respect to project implementation, as well as carbon methodology-compliant monitoring and evaluation.

While market demand in the voluntary market has seen a significant decline recently, when both the voluntary and compliance credit markets are assessed as a whole we see quite a different picture. Instead of a 56% drop in the demand for carbon credit units, the decrease is a mere 4% decrease in credit retirements.¹⁵MSCI, 2023 VCM in Review: Carbon Markets at an Inflection Point (MSCI, 2024). This means that, in the past, more of the units were being used by the voluntary system relative to the compliance system.

This is now shifting towards a stronger share of compliance market consumption out of the total market value. This is being driven by the 39 countries that have implemented carbon taxes with more on the way. In most cases, these countries make use of crediting systems that can produce credits for both voluntary and compliance purposes. The shift towards compliance market demand could signal the convergence of the two market systems that many senior proponents of carbon markets have called for in recent years. It is a signal to policymakers and carbon developers to prioritise carbon standards and methodologies that have applicability across various market platforms.

An important outcome of the negative publicity surrounding carbon credits has been an increase in the rigour associated with carbon standards and their methodologies. The result is that carbon credit issuances have declined from a record high in 2021, dropping slightly in 2022 and then declining by 13% in 2023.¹⁶Climate Focus, Voluntary Carbon Market 2023 Review (Climate Focus, January 2024).

While this increased stringency is positive for buyer confidence in the markets, the pursuit of ever-higher levels of rigour and carbon sequestration permanence is raising the barriers to entry for small-scale farmers from developing countries. There are ever-higher evidence requirements for key methodology components such as baselines, practice changes in improved land-management activities and land tenure. Increasing carbon sequestration permanence requirements, a dearth of localised peer reviewed agricultural research and high soil sampling costs are further complicating matters. Advancing methodologies to keep pace with scientific progress is good for the credibility of carbon credits and the stability of the market but, without support on these issues, few farmers will realise the benefits of this market.

A review of the roughly 720 agriculture projects¹⁷R. Jindal and M. Vardhan, “Agriculture-Based Offsets for Voluntary Carbon Markets: Review of Current State, Extent of Markets,  Smallholder and Gender Concerns, and Addressing Research Gaps” (Working Paper, CGIAR, 2023). that are either currently generating voluntary carbon credits or have done so since 2011 found that over 80% of these were either methane reduction (46%) or rice cultivation projects (37%). More than 90% of these projects were emission reduction projects, while less than 10% included a carbon removal component. Only 12 agricultural projects that have issued carbon credits could be identified for the entire continent of Africa.

This highlights the difficulties that small-scale farmers in research-poor areas like Africa face when required to substantiate the impact that climate-smart agriculture has had on their carbon market-relevant outcomes.

Opportunities in the livestock sector

The livestock sector is one of the most significant contributors to GHG emissions within agriculture, with the Food and Agriculture Organization placing emissions at approximately 12% of the sector’s total.¹⁸Food and Agriculture Organization, Pathways Towards Lower Emissions: A Global Assessment of the Greenhouse Gas Emissions and Mitigation Options from Livestock Agrifood Systems, Report (FAO, 2023). About two-thirds of global ruminant emissions are estimated to come from the developing world. Sub-Saharan Africa is considered a global hotspot for emission intensities, largely owing to low animal productivity, poor animal health and low-quality feed.¹⁹Tunde A. Amole and Augustine A. Ayantunde, “Climate-Smart Livestock Interventions in West Africa: A Review” (Working Paper 178, CGIAR Research Program on Climate Change, Agriculture and Food Security, 2016).

That said, cattle are a much-prized store of wealth across sub-Saharan Africa and dairy products are a vital source of protein and essential micronutrients. Annual milk demand in developing countries is expected to almost double from 20 million tonnes at the turn of the century to 39 million tonnes by 2030, while Africa’s demand for livestock-derived foods is projected to increase by 80%.²⁰FAO, Pathways Towards Lower Emissions.

Integrating livestock into regenerative agricultural systems that enable access to improved feed not only improves relative emissions intensity but also helps to add important biological components to the soil. This facilitates biomass conversion to soil organic carbon, soil fertility and water retention. As such, efforts to improve the production efficiency of African dairy cattle relative to their methane emissions are both a global climate issue and a national health priority.

Conclusion

Leveraging carbon markets is a significant opportunity to support smallholder farmers in Africa. By integrating climate-smart agricultural practices, farmers can enhance soil health, improve water retention and increase crop yields, contributing towards both mitigation and adaptation to climate change in the process. Despite the challenges posed by limited upfront finance and onerous compliance requirements, the potential benefits for food security, rural development and environmental sustainability are substantial.

To maximise these benefits, it is crucial that policymakers create supportive frameworks that prioritise non-carbon outcomes such as food security and economic development. Additionally, practical examples and successful initiatives, such as Conservation International’s Herding 4 Health programme, demonstrate the viability of these approaches. By addressing criticisms of carbon markets and ensuring fair participation for small-scale farmers, Africa can harness the power of carbon finance to drive sustainable agricultural development and resilience against climate impacts.