The carbon market and climate future: A Solution or a False Hope?

By Akua Frimpoma SAFO

Carbon markets are rapidly emerging as a transformative tool in the fight against climate change. These markets operate by converting emission reductions from sustainability initiatives into tradable credits, enabling governments, businesses, and individuals to offset their carbon footprints.

Recognizing the potential of these markets, Ghana has taken a significant step by incorporating carbon market and climate change provisions into its new Environmental Protection Act, 2025 (Act 1124).

Ghana  ratified the Paris Agreement to the United Nations Framework Convention on Climate Change in 2016 and has since updated and strengthened its Nationally Determined Contributions (NDCs) for the 2020–2030 period, reaffirming its dedication to emissions reduction and climate resilience.

Act 1124 marks a significant milestone in this effort, serving as a comprehensive legal framework to address climate change and enhance national resilience. Notably, Part Five of the Act focuses on integrating climate policies across sectors, advancing low-emission development, and establishing financial mechanisms to support mitigation efforts.

Effects of Climate Change

Human activities such as deforestation and burning fossil fuels lead to the release of greenhouse gases like carbon dioxide and methane which trap heat in the atmosphThis process leads to global temperature increases and a host of environmental challenges. The effects of climate change are profound and far-reaching.

Rising sea levels, biodiversity loss, and extreme weather events including droughts, heatwaves, and floods pose significant threats. These changes also carry substantial risks to public health, food and water security, and overall economic stability.

Ghana’s Climate Future Plans

For Ghana, where agriculture and other climate-dependent activities are vital to the economy, addressing climate change is particularly critical. The Act mandates a comprehensive approach to climate adaptation and mitigation, ensuring that every economic and ecological decision considers climate impacts to safeguard the nation’s future.

These well-established impacts of climate change calls for the development of adaptation plans that enhance the resilience of human and ecological systems through coordinated efforts among government, private sector organizations, civil society groups, and academic institutions.

This collaboration aims to establish robust data systems for effective planning and implementation of adaptation measures, including the integration of disaster risk reduction into national strategies. Additionally, the Act directs the Environmental Protection Authority, the implementing body under the law with expanded regulatory powers to partner with local and international institutions to support low-emission development measures in key sectors such as oil and gas, agriculture, air conditioning, and refrigeration.

To further these efforts, the Act underscores the importance of capacity building and technological advancement. It encourages national dialogues on climate action, the promotion of green technologies, and the facilitation of low-emission development strategies. The Environmental Protection Authority is tasked with securing the necessary financial and technical resources through international collaborations to support these initiatives.

Carbon Regulation

Additionally, the Act designates the Environmental Protection Authority as the national body responsible for managing carbon market approaches including voluntary carbon markets and domestic carbon pricing instruments, as well as for coordinating the preparation and submission of international climate change reports. This is to ensure compliance with the United Nations Framework Convention on Climate Change (UNFCCC) and related agreements.

In line with the mandates of the Act, the Ghana Carbon Registry has been established as a comprehensive digital platform designed to facilitate and regulate carbon market activities both within and beyond the country. The Registry serves as a central database for carbon market projects, tracking the transfer and utilization of internationally transferred mitigation outcomes (ITMOs).

It streamlines the listing and registration of mitigation activities and voluntary carbon market projects, ensuring transparency and accountability in Ghana’s carbon trading landscape. Furthermore, the platform maintains a detailed record of all ITMO activities and issued credits, providing a reliable reference for stakeholders.

To oversee the functioning of the carbon market, Section 151 of the Act establishes the Carbon Market Committee, comprising representatives from key government ministries, the private sector, and civil society. The Committee is responsible for approving mitigation projects eligible for voluntary carbon markets, overseeing independent assessment entities, and making recommendations for the issuance of internationally transferred mitigation outcomes.

The Climate Mitigation Fund

To bolster Ghana’s climate action, the Mitigation Fund was established to provide financial support for key mitigation activities. The Fund is designed to support bilateral cooperative approaches that generate authorized ITMOs, enhance domestic mitigation benefits, and increase Ghana’s overall emission reduction capacity. It also finances projects aimed at elevating the nation’s climate ambition and leverages investments to launch new initiatives that might otherwise lack funding. Additionally, it backs the operations of the Carbon Market Committee, ensuring effective oversight of Ghana’s carbon market.

The Fund is primarily financed through a Corresponding Adjustment Fee, which is paid by developers of mitigation activities or acquiring parties to cover the costs related to ITMO transfer and reporting. This fee, paid by mitigation activity developers or acquiring parties, covers the costs associated with ITMO transfers and reporting.

Also, the Fund Committee comprises representatives from key government agencies, financial institutions, and industry bodies, ensuring that funds are allocated to projects aligned with both national and international climate goals. The Mitigation Fund operates under strict guidelines and would undergo regular audits to ensure high standards of transparency and accountability.

The carbon market theoretically offers several benefits, such as improving transparency and encouraging investments in green technologies. By putting a price on carbon emissions, industries are given a compelling financial incentive to invest in cleaner technologies. This approach can also stimulate innovation and accelerate the transition toward a low-carbon economy.

Additionally, the Ghana Carbon Registry offers a robust framework for monitoring carbon credits, which helps reduce the risk of fraud by ensuring that each credit corresponds to a verifiable reduction in emissions. As part of its international commitments, the Act positions Ghana to participate actively in global carbon markets. Such integration could attract foreign investment and facilitate technology transfer, further enhancing the country’s climate resilience.

A Critique of Act 1124’s Approach

Despite these potential benefits, significant concerns persist. Critics argue that without stringent enforcement, carbon markets could serve as loopholes for high-emitting industries. Rather than undertaking substantial operational changes, companies might simply opt to purchase carbon credits, effectively paying to evade their environmental responsibilities. The success of the carbon market also depends on the effectiveness of the Carbon Market Committee.

If oversight is lax or regulations are not rigorously enforced as outlined in Section 159 of the Act, the system risks devolving into a financial instrument with little real-world impact. Furthermore, uncertainty surrounds the financial sustainability of the Mitigation Fund, with concerns about its ability to mobilize the necessary resources for large-scale emissions reductions. This is especially challenging due to its reliance on external credits and the unpredictability of international carbon pricing.

The truth is Ghana’s approach, as outlined in Act 1124, is both ambitious and crucial for addressing today’s climate challenges. It is essential to emphasize that, when properly regulated, the carbon market can play a pivotal role in advancing sustainable development.

This potential is contingent upon the Environmental Protection Authority and its committees enforcing strict measures, conducting continuous monitoring, and ensuring transparent reporting. If these conditions are met, the carbon market could deliver real reductions in greenhouse gas emissions, rather than allowing it to become a mere financial workaround.

Conclusion

In conclusion, Ghana’s carbon market represents a pioneering effort to merge economic progress with environmental stewardship. The success of this initiative relies on rigorous oversight, unwavering enforcement, and a constant commitment to achieving meaningful emissions reductions, all guided by the framework established by Act 1124 and beyond. The true test lies in transforming the market from a potential loophole for high emitters into a dynamic engine for sustainable development.

As Ghana forges ahead, its bold experiment could set a global standard for how economic growth and environmental integrity can coexist and reinforce one another. While challenges remain, the promise of a greener, more resilient future is well within reach, offering a beacon of hope for climate policy in Africa and beyond.

Akua is an (Associate – Legal)

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