1. Context

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Carbon credits represent a fundamental innovation in the search for solutions to the global challenges of climate change. In a world increasingly aware of the need to reduce greenhouse gas emissions and mitigate the impacts of human activities on the climate, carbon credits emerge as an effective and flexible tool. This approach, which combines the financial market with environmental conservation, allows companies, governments and individuals to offset their carbon emissions by investing in projects to reduce or remove emissions elsewhere in the world.

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This concept of carbon credit emerges from the 1997 Kyoto Protocol, which we'll look at below. This carbon credit is the currency used in the carbon market, and one credit is equivalent to one ton of carbon that has not been emitted into the atmosphere.

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Mozambique, like many developing countries, faces substantial challenges related to climate change. Extreme weather events, such as droughts and floods, threaten the country's food security, infrastructure and economic stability.

In this context, carbon credits represent an area of growing interest and importance as the country seeks to balance economic development with climate change mitigation.

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A noticeable example of this concern is the promotion of New and Renewable Energies, especially hydroelectric, wind and solar energy, as a way of reducing dependence on fossil fuels. The construction of wind farms, solar power plants and the expansion of hydroelectric capacities contribute to the reduction of carbon emissions and the supply of affordable and clean electricity to the population.

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The REDD+ program represents an innovative approach that aims to preserve tropical forests, which are essential for carbon absorption, while supporting the sustainable development of the communities that depend on these forests.

However, Mozambique also faces challenges in the effective implementation of carbon credit projects, including the need for infrastructure, financing and technical capacity building. In addition, governance issues and proper project management are key to ensuring environmental and social integrity.

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This article aims to present and analyze Mozambique's specific legislation on carbon credits, highlighting how these laws and government regulations influence the country's participation in the global carbon market and how they promote investment in emission mitigation projects. We will also examine the challenges and opportunities presented by the current legislation, as well as possible ways to improve it.

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2. The Emergence of Carbon Credits

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The issue of Carbon Credits is intrinsically linked to the international context and the climate agreements that seek to deal with climate change at a global level. In Mozambique, as in many other countries, the regulation of Carbon Credits is not yet fully established in national legislation. In order to properly understand these dynamics, an approach based on the international scenario, with a focus on the Kyoto Protocol, is crucial.

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Climate change and subsequent global warming emerged as a concern as early as the 1980s, but only recently has it been widely recognized as a problem that requires urgent attention. This is due to the growing awareness of the significant environmental and socio-economic impacts on the global order.

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It was in this context that the Kyoto Protocol was signed in 1997, as a component of the Framework Convention on Climate Change at ECO-92, which contains, for the first time, a binding agreement committing Northern countries to reduce their emissions.

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This Protocol aims to provide the first step in the international community's transition from its current fossil fuel-intensive energy economy to a more carbon-neutral one, with the purpose of stabilizing greenhouse gas concentrations in the atmosphere at a level that avoids dangerous anthropogenic interference in the climate system..[1]

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The Paris Agreement, to which Mozambique has been a party since 2019, establishes that the Parties must cooperate voluntarily to achieve their Nationally Determined Contributions ("NDCs"). In essence, this cooperation has taken place within the framework of the Conferences of the Parties, and the outcome of COP 28, which is currently underway, is eagerly awaited.

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Within this framework, the Article 6 possibilities the creation rules, modalities and procedures capable of implementing a carbon market. In practice, this mechanism allows countries to transfer carbon credits obtained by reducing greenhouse gas (GHG) emissions to support others in meeting their targets.

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As part of the efforts to reduce GHG emissions into the atmosphere, based on the Protocol, states have entered into international treaties that aim to establish quotas for the amount of GHG that countries can produce, which in turn establish quotas for companies, creating instruments such as carbon credits and carbon offsetting to improve the scenario, encouraging companies to be more environmentally friendly when conducting their activities. A carbon credit allows one ton of carbon dioxide or a corresponding amount of other GHG to be discharged into the atmosphere.[2]

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Therefore, carbon credits appear as a way of quantifying the reduction of GHG emissions in tons of carbon dioxide equivalent (CO2e), they are generated from projects or activities that reduce GHG emissions in relation to a reference scenario.

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3. Carbon markets

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It is in this context that carbon markets have emerged. 

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The term carbon markets refers to the process of buying and selling carbon credits, allowing companies, governments and other organizations to buy and sell carbon credits as a way of offsetting and reducing their carbon emissions, with a price being assigned to each ton of CO2.

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By putting a price on pollution, carbon markets financially penalize those who emit more than an established quota and reward those who emit less. Putting a price on carbon is considered to be one of the main tools in the fight against climate change.

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Carbon markets encourage the development of innovative clean energy technologies, making them more competitive with their more carbon-intensive counterparts.

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There are two types of markets. Compliance markets are regulatory mechanisms created by states that impose a payment scheme on polluters for polluting emissions.

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This mechanism aims to regulate emissions, in accordance with the objectives set out in the Kyoto Protocol, and at the same time lead to their reduction, through an incentive for efficiency resulting from the setting of a price for each additional emission.

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In these mandatory markets, participants are obliged to join the market and meet the reduction targets set. One of the most relevant examples of a compliance market is the European Emissions Trading Scheme ("EU ETS").

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The EU ETS is based on a general cap-and-trade principle, allocating a certain and limited number of emission quotas per country and industry that cannot be exceeded ("cap"). Once the allowances have been distributed, holders of surplus or unused allowances can trade or sell them on the market to operators who need to exceed their allocated allowances, or to other investors in general ("trade").

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In these mandatory markets, buyers of carbon credits are incentivized by the obligation to respect predetermined emission limits. As such, they are forced to buy emission allowances for every ton of CO2 that exceeds their allocated emissions, and therefore seek to meet these obligations at the lowest possible cost.

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Putting a price on pollution is an appropriate tool to encourage organizations to emit less, and polluters are forced to consider new options: either accept the costs of pollution, or change production processes and/or reduce their energy consumption.

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In contrast, voluntary markets allow demand and supply to meet voluntarily. Demand is often driven by reputational reasons, marketing or corporate social responsibility.

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Voluntary carbon markets focus on GHG emission reduction and carbon sequestration projects that promote the mitigation of GHG emissions. In this context, the main players in the voluntary carbon market are the promoters of GHG emission mitigation projects and the purchasers of carbon credits.

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In this sense, the voluntary carbon markets make it possible to encourage and channel private sector investment towards the sustainable transition of the economy, complementing public efforts to combat climate change.

It is worth highlighting the bodies responsible for certification, which play a key role in voluntary carbon markets. These entities should ideally be external and independent verifiers, and the success of the market will largely depend on their effectiveness,

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Finally, it could be set by governments or regulators, or, on the contrary, consist of a value defined by the market itself, depending on whether we are dealing with a compliance market or a voluntary market, respectively.

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4, Overwiew of the Carbon Credits in Mozambican Legislation

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In Mozambique, the regulations on carbon credits are still "deserted", as mentioned above. So far, the law has only dealt with the issue of carbon credit trading.

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Firstly, it is necessary to point out that the first mention of this instrument is in the Regulation Establishing the Tariff Regime for New and Renewable Energies (REFIT), approved by Decree 58/2014, of October 17, more specifically in its article 17, which states that "carbon credits resulting from the development of new and renewable energy projects are the property of the state, and the government may, at its sole discretion, share the gains in a pre-negotiated proportion if it considers that such sharing may constitute an incentive for a particular independent producer with experience in the carbon credit market”.

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It is in this term that the Regulation of the Law on the Protection, Conservation and Sustainable Use of Biological

 

Diversity, approved by Decree no. º 89/2017, of December 29, enshrines in its article 128 that in the process of marketing carbon credits, consideration must be given to: (i) the right to use and exploit carbon stocks existing in a conservation area and its respective buffer zone belongs to the entity that manages the respective conservation area; (ii) the marketing of carbon stocks must be done in accordance with the provisions of the Law, in the form of carbon credits traded on the carbon market or otherwise in accordance with the applicable legislation in force in Mozambique; (iii) the marketing of carbon credits existing in a conservation area can only be done with the favorable opinion of the managing entity of the respective conservation area.

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Although our legal framework in relation to this flexibilization mechanism is still deserted, the content of some regulations, such as point (ii) mentioned above, shows the growing interest in promoting the need for action to mitigate emissions through participation in the carbon market. It is in this way that the Regulation on the procedures for approving demonstration projects aimed at reducing emissions from deforestation and forest degradation (REDD+), approved by Decree no. 70/2023 of December 20, establishes the need to set out the procedure for approving demonstration projects and studies relating to REDD+, as well as indicating the competent entities for this purpose. In this vein, it is concerned with the issue of administration and control of the allocation of benefits as well as carbon credit risks, and this responsibility is entrusted to the REDD+ Technical Unit, which must carry out this administration in accordance with the guidelines.

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To encourage participation in the carbon market with a view to mitigating emissions, this regulation grants demonstration project proponents the right to trade carbon credits on the voluntary market provided they apply for any normal international voluntary carbon certificate recognized by Mozambique, as well as to trade the credits themselves or through an intermediary. Also in this vein, in order to regulate the pursuit of this flexibilization mechanism, the regulation specifically establishes the obligation to submit annual progress reports, under terms to be set by Ministerial Diploma, to the National Directorate responsible for Environmental Management with the knowledge of the National Directorate responsible for Land and Forest Management, including audited accounts for the following fiscal year and reports on the carbon credits generated by the project.

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Due the verifiable growth of carbon credit projects in the country, the country became a member of the African Carbon Markets Initiative and began drafting a Carbon Market Activation Plan, with a working group prioritizing the production of a comprehensive and conducive regulatory framework, helping to guarantee the environmental integrity of carbon projects, enabling the country to participate in international carbon markets, providing clarity for project developers and carbon buyers and, above all, ensuring that projects support and benefit local communities and the Mozambican population in general.

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Although the final part of article 17 of the REFIT allows the state to allocate a proportion of the credits at its discretion, sharing the profits if it considers that this sharing of profits is important for encouraging carbon markets, the reversion to the state of carbon credits resulting from the implementation of REDD+ Programs and Projects, as well as from the development of new and renewable energy projects, provided for in the current regulatory framework, is a disincentive for promoters of emission mitigation projects to participate in carbon markets in Mozambique, limiting their proliferation.

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5. Carbon credits in material terms in Mozambique

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Under the scope of the Forest Carbon Partnership Carbon Fund (FCPF), the validation and verification body ASTER Global carried out the verification of the Zambezia Integrated Landscape Management Program in Mozambique through a robust validation and verification process developed by the World Bank with the support of Climate Focus, later implemented with the support of the ANSI Accreditation Board, which concluded the verification of 2,040,904 (Two million forty thousand nine hundred and four) emissions reductions resulting from deforestation, from deforestation, constituting the first carbon credits to be issued under the Forest Carbon Partnership Carbon Fund (FCPF) and to be paid by this fund.

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The Minister of Land and Environment also declared that Mozambique holds forty-five million carbon credits that are available for trading. In order to exploit the potential of the carbon market, Mozambique became a member of the African Carbon Markets Initiative and began drawing up a Carbon Market Activation Plan that will allow the country to participate in international carbon markets and projects that benefit local communities.

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6. Consultation sources

 

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• Law no. 16/2014, of June 20 (Law of Protection, Conservation and Sustainable Use of the Biological Diversity, amended and republished by Law no. 5/2017, of May 11);

• Decree no. 70/2023 of December 20 (Approves the Regulation of the Procedures for Approval of Demonstration Projects aimed at Reducing Emissions from Deforestation and Forest Degradation);

• Decree no. 89/2017 of December 29 (Approves the Regulation of the Law of Protection, Conservation and Sustainable Use of Biological Diversity);

• Decree 58/2014 of October 17 (Approves the Regulation that establishes the Tariff Regime for New and Renewable Energies);

• Resolution no. 10/2004, of July 28 (Ratification of the accession of the Republic of Mozambique to the Kyoto Protocol (Kyoto) related to the United Nations Convention on Climate Change, approved in Kyoto (Japan) on December 11, 1997, during the 3rd Session of the Conference of the Parties to the United Nations Convention on Climate Change).

 

[1] FREEDMAN, Bill, STINSON, Graham, LACOUL, Paresh, Carbon credits and the conservation of natural areas.

[2] GUPTA, Yuvika, Carbon Credit: A Step Towards Green Environment

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