Tanzania has made significant strides in its carbon market development, with over 100 registered projects, but only six generating credits. This gap between registration and issuance is a challenge that the government is seeking to address. Minister Hamad Masauni has instructed public institutions to identify carbon market opportunities in their projects and build emission reductions into planning and design. This move is expected to increase the country's carbon market potential.
The government's focus is on projects that have not yet reached financial close, such as railway sections still awaiting finance and later phases of the bus rapid transit network. For these projects, carbon must appear in the financial model and board papers before the investment decision. This approach will ensure that carbon credits are generated and sold, providing a new revenue stream for the country. The Minister has also announced an allocation of over Sh5 billion for digital systems to monitor reductions and register projects and credits.
One of the key challenges in Tanzania's carbon market is ensuring additionality, which is a matter of chronology. The government must decide how much mitigation it is prepared to export and at what minimum price before the first letter of authorisation for a public asset is issued. This will help to ensure that the country's national climate targets are met. The aviation sector is a good example of the trade-offs involved, with airports able to cut emissions through solar power and efficient terminals.
The demand for carbon credits is high, particularly under the UN aviation scheme known as CORSIA, which requires airlines to cancel credits carrying a host-country letter of authorisation and a corresponding adjustment. Industry forecasts put airline demand for the current phase well above 100 million tonnes, while hundreds of millions of otherwise eligible units sit waiting for host governments to sign. The scarce asset in this market is not the project itself, but the letter of authorisation, which only the state can provide.
To ensure the credibility of the carbon market, the National Carbon Monitoring Centre will verify private projects and public institutions will submit their findings to the Centre. A published, rules-based allocation method would protect the Centre's credibility and reassure private capital. The government has already taken steps to establish a dedicated monitoring centre, a registry, and Article 6 authorisation for cookstove credits.
Trust is also a critical factor in the carbon market, with the Minister recently rejecting claims that foreign firms had been handed Tanzanian forests. The speed at which the claim travelled highlights the need for transparency and visibility in the market. The new digital systems should publish project status, issuance, and community payments in a form that any citizen or buyer can check.
Tanzania has done the groundwork for its carbon market, with regulations in place since 2022 and a dedicated monitoring centre. The next stage is portfolio discipline, deciding which tonnes to sell, which to keep, and which assets to finance by other means. The country's carbon market potential lies in projects yet to be built, and the government's focus on railways, buses, and dams is a step in the right direction.
Key points
- The Tanzanian government is focusing on projects that have not yet reached financial close, such as railway sections and bus rapid transit networks, to increase its carbon market potential.
- The country must ensure additionality and decide how much mitigation it is prepared to export and at what minimum price to meet its national climate targets.
- Transparency and visibility are critical in the carbon market, with the government planning to publish project status, issuance, and community payments.
