What is Carbon Trading?
Carbon trading is a financial system that involves the buying and selling of carbon credits. These credits allow businesses or organizations to emit a specific amount of greenhouse gases (GHGs) or, alternatively, to offset those emissions by reducing or removing an equivalent amount of GHGs. GHGs include carbon dioxide (CO2), methane, nitrous oxide, sulfur hexafluoride, and hydrofluorocarbons.
CO2 is the most significant contributor, accounting for 70-80% of all GHG emissions, according to the Intergovernmental Panel on Climate Change (IPCC). The consequences of unchecked emissions are severe: floods, food and water shortages, droughts, the spread of diseases like malaria, and even the disappearance of small islands and glaciers. Carbon trading aims to reduce these environmental threats by incentivizing companies to cut their emissions.
Legal framework: Local and International context
Internationally, carbon trading is governed by key agreements designed to curb climate change. The Kyoto Protocol (1997) and the Paris Agreement (2015) set global frameworks for reducing carbon emissions and have influenced both national and corporate policies on climate action.
The Kyoto Protocol introduced the idea of carbon credits, allowing nations to trade emissions reductions. This helped countries like China, which initially had limited carbon trading schemes, develop national carbon markets such as the China Emissions Trading Scheme and the Paris Agreement expanded this by making carbon trading a key part of strategies to cut emissions both internationally and within national supply chains. These efforts are transforming how businesses approach sustainability, investment, and supply chain management.
In line with these international commitments, Tanzania has also committed to reducing greenhouse gas emissions and addressing climate change by introducing the Environmental Management (Carbon Trading) Regulations GN No. 636 of 2022. These regulations, along with the National Carbon Trading Guidelines, aim to establish a framework for carbon trading in Tanzania. To ensure effective implementation, the government established the National Carbon Monitoring Centre and Registry, overseen by the Ministry of the Vice President’s Office (Union and Environment), which helps to ensure transparency and effective management of carbon trading projects. The National Carbon Committee further supports the implementation of these regulations, with the legal framework being strengthened by the amended GN No. 721 of 2023.
How to Get Involved in Carbon Credit Projects in Tanzania
If you’re considering engaging in a carbon credit project in Tanzania, here are the essential steps to ensure your project meets all the necessary legal and operational requirements:
- To register the project with the Registrar of National Carbon Trading Registry; and
- To be registered with the Registrar, it needs to have and do the following:
- The Registry shall within thirty (30) days process and respond to the project proponent or managing authority on the registration of the project idea.
- Development and submission of Project Concept Note; The Project Concept Note shall be submitted to the Carbon Authority for review and evaluation, accompanied by proof of payment of the project registration fee, which is 1% of the expected Certified Emission Reductions (CERs) from the project
- Review and Response by the Carbon Authority;
- Submission of Project Document for Ministerial Endorsement; the Carbon Authority shall review it to ensure it meets all the required criteria. If satisfied, the Carbon Authority shall submit the project proposal to the Minister responsible for the environment for endorsement of implementation.
- The project proponent or managing authority can within two (2) years after receiving the endorsement start implementing the project.
Adding to the above, a Company is permitted to transfer carbon credits to another company abroad, but only with prior authorization from the relevant authority, as outlined in Regulation 24(3) of the amended regulations. This process allows for emissions reduction to be shared internationally, provided it follows the procedures, methods, and standards set by the 2015 Paris Agreement.
However, like any venture of significance, there are circumstances where a project may face the difficult decision of cancellation.
- Where the proponent submits an official notice for voluntarily cancelling a project;
- Where the endorsement was obtained through misrepresentation;
- Where the continued operation of the project activity is likely to be injurious to the environment or human health;
- Where the project activities are overridden by other public interests;
- Where there was insufficient or holding of information in the application process;
- Failure to submit the Project Concept Note or Project Document within the prescribed time;
- Failure to commence the project activities within the prescribed time; and
- Non-compliance with the project requirements as stipulated under the Regulations.
CONCLUSION
By aligning with international standards and establishing a clear regulatory framework, Tanzania is positioning itself as a key player in the global push towards sustainability. Currently, the government is eyeing a registration of 35 carbon trading projects worth around $1 Billion (about Tsh. 2.4 trillion) once it completes the registration of planned schemes in Tanzania. The Carbon credit system serves as a powerful tool to reduce emissions, promote local job creation, and stimulate sustainable industries, but its success depends on the commitment of all stakeholders to transparency, fairness, and the common good.
