“Africa presents probably the greatest growth opportunity within carbon markets”

Exclusive interview with Javier Manzanares, co-CEO, Green Climate DAO*: ClimateCoin and the former deputy executive director of the Green Climate Fund. Mr Manzanares is also a member of the advisory board of the upcoming Africa’s Green Economy Summit. 

*DAO (decentralised autonomous organisation)  

Let’s start with some background on you. You have extensive experience as a green climate finance advisor, including with the Green Climate Fund. 

Good day to everyone. Thank you very much for having me. My name is Javier Manzanares. I am the co-CEO of Climate Digital Investment, with ClimateCoin as a flagship brand for the project. 

Regarding my experience, I worked for the Green Climate Fund (GCF) for nearly eight years, initially as a CFO and director of support services. I then became interim executive director on two occasions. My final post during the last four years at the GCF was as deputy executive director. I finished that tenure about a year and a half ago. Since then, I’ve been fully immersed in carbon markets, mostly in voluntary carbon markets. 

I’m also a senior consultant to the World Bank on a project and programme to scale voluntary carbon markets in middle-income countries. We cover about 14 countries: South Africa, Egypt, Kenya, Morocco, Vietnam, Indonesia, India, Colombia, Mexico and Peru, to name a few. I’m also a board member at a programme standard for voluntary carbon markets called BioCarbon Registry. 

Please tell us more about ClimateCoin. 

ClimateCoin is a blockchain-based project. The purpose is to tokenise credible, robust certified carbon credits and to convert them into a digital currency, and the digital currency is ClimateCoin. 

We’ve dedicated the last year to product development. Our first beta testing is available for testing on different social media channels, and we are now also progressing towards our second product development that brings us to a two-way bridge, meaning that you can decide yourself to tokenise those certified carbon credits that you hold on one of the registries and convert them into ClimateCoin. If you decide to go back off-chain, go back into the initial status of your certified carbon credits, you can also do so. 

ClimateCoin has applied for listing on the Spanish Stock Exchange, and we have already filed our proposal with the Comisión Nacional del Mercado de Valores (National Securities Market Commission), and we are ready for the public listing of our governance token, we call it CLIMAT, and we expect that to take place during the month of October. 

Let’s talk about the rising importance of carbon markets in battling climate change. How have carbon markets developed and what is the state of play?    

Both mandatory compliance markets and voluntary carbon markets have already reached very sizable, very relevant figures. All in all, for the year 2022, research indicates that the volume within market carbon markets was nearly $900 billion, which was mostly within the compliance and mandatory carbon markets. However, voluntary carbon markets are definitely progressing and growing rapidly and exponentially and it should have an important role in battling climate change.  

Why carbon markets are growing in importance? I would say that it’s just a logical reason behind the battle against or towards decarbonisation. In order to combat climate change, we need to reduce emissions, we need to decarbonise the entire society. Carbon markets offer an alternative for that process of decarbonisation. Whether it’s because you are avoiding, reducing or removing emissions, carbon markets offer financial instruments and frameworks for that to take place in an orderly manner. 

The carbon markets have developed in in two different ways, the regulated and the compliance one is still a growing market and we see countries adopting, for instance, carbon tax, domestically, and we also see countries that are adopting emission trading asset cap-and-trade systems. This is growing, like I said. A number of countries are joining carbon markets in the compliance or the mandatory stage.  

We also see a market within, which is the voluntary and is growing, albeit with growing pains, if I may say, and growing with a level of fragmentation, growing with the need for more transparency, more liquidity, more transparent price discovery, but growing nevertheless. And, perhaps, it is within that stage of asking out loud for some kind of level of regulation within the voluntary carbon market. In my view, it is taking too long for countries to react.  

You will probably have seen the news in the carbon markets during the last few months the criticism because of the lack of integrity. As a response to that, we have also seen a number of initiatives and frameworks that are trying to provide that level of transparency and integrity in the voluntary carbon market. This is happening, it is also rapidly evolving, and we see initiatives presenting core carbon principles, like the ICVSM (Integrity Council for the Voluntary Carbon Market), and with the work of the BCM Initiative, the International Chamber of Commerce, we also see the Taskforce on Scaling Voluntary Carbon Markets etc. So all of this is adding to providing a greater degree of transparency. However, we’re still missing some global or universal standards setting authority to provide that type of guidance, and in the absence of that, these initiatives and frameworks are providing that element of additional robustness or transparency and integrity into the voluntary carbon markets. 

What opportunities does carbon finance present to Africa? 

Particularly in Africa, we see enormous opportunities for carbon finance. I see it within nature-based solutions, and I also see frameworks and protocols for biodiversity that are coming up very strongly. 

They call it biodiversity credits, protocols on habitat banks, with a purpose for conservation and restoration of nature. Africa presents probably the greatest growth opportunity within carbon markets. In order for that to happen, what we also need to see is countries taking ownership in generating an ecosystem that will support the growth within countries. For this, I’m referring to countries with a certain scale in Africa that should move to ensure that there are domestic standards in the country and domestic players that can provide services of validation and verification. These domestic players can provide registries: whether it’s a national registry by governmental authority or within the private sector itself that can provide those types of tools. Tools that, all in all, not only present the basis for growth, but also create job opportunities and the capacity that is needed in many of the countries. 

Then, definitely apart from biodiversity credits, nature-based solutions or results-based financing in carbon credits. I also think that Africa presents opportunities in carbon storage, carbon capture and storage and widely in energy, renewable and solar, which still having a lot of room for growth, and being part of that energy transition. It is a transition that is needed in many regions of the world, but particularly in Africa—a just energy transition with the support of the right financing package would bring Africa to the level that is needed within the continent. 

Are there successful examples of carbon market deals that have gone through in the last 12 months? 

There are a lot of deals in the carbon markets that we have seen during the last 12 months. If I were to highlight some of them, I would say that habitat banks present a growth opportunity for many developing countries or emerging economies. This is not only about carbon markets. Carbon markets and carbon reduction cannot be taken in isolation. It has to be taken within pricing nature, and there is also a Taskforce on Nature-related Financial Disclosures now.  

The objective is to understand what the nature-related risks are, the impact, the challenge and the opportunities, and then the market, through all these initiatives, is bringing that badly needed element. So, examples within nature-based solutions within habitat banks have all the necessary elements to ensure that the carbon reduction has to be accompanied by restoration, conservation of nature, and these deals have indeed provided this initial additional element of certainty into a protocol for biodiversity credits. These are the deals that in my opinion are to be highlighted. 

Which innovative finance products have you seen to be effective in this sector? 

Honestly, that remains to be seen. Some of the financial products that we have seen are becoming effective. Others need additional support, maybe from large, multilateral development banks or regional development banks. And in my mind, what I’m referring to right now, is the potential growth and importance of financial instruments like carbon insurance.  

We have seen a number of standards and programmes, and they are playing a very important role in issuing carbon credits. Some of them also play an important role in providing registries, and carbon credit ratings are also coming into the picture, so as to give additional peace of mind in the integrity and quality of these carbon credits. So, in my view, carbon insurance could and should be another innovative finance product. It would definitely give that element of credibility to the investors and buyers.  

Personally, I would like to see a lot more results-based financing in carbon markets, and there is plenty of room for growth in the issuance of partial credit guarantees or similar instruments. That would motivate buyers and investors and provide that element of security during a period of uncertainty that the voluntary current market has gone through and is still going through. If these more innovative financial products could come along, with the support from institutions like IOSCO (International Organization of Securities Commissions) in providing guidance and regulation to the exchanges, that would be ideal.  

And then, in a global and international context, I believe that, in the current volatile markets, we are missing the leadership of international organisations and leadership in terms of standards that all the programmes can follow. And, it would be extremely useful to also have a registry that provides that type of integration. The World Bank has done and is doing quite a bit of work on the Climate Action Data Trust, for instance, to provide the registries and space for integration within a platform. This is the type of initiative that the market is crying out for. 

Getting back to mandatory and voluntary carbon markets, are there certain legal implications that present challenges? 

Particularly, when we talk about legal implications, I would like to refer initially to the voluntary carbon markets, this is in the nascent stage. And referring, for instance, to the work that we are doing with the World Bank in a number of countries. We’re starting from the very, very initial stage, meaning, what’s the legal nature of carbon credits? At the end of the day, countries are sovereign, but we’re now supporting countries in defining the legal nature.  

So, as you can imagine, the implications are tremendous. There are implications in terms of tax treatment, financial disclosure and legal agreements. So, all of this is still being tackled, if I may say. So, without clarity for investors on what the tax implication are for a company, for a financial institution, maintaining a portfolio of carbon credits, if there is no clarity on how to account or what the risk is for the capital of a corporation in maintaining these new assets, the market will definitely take a lot longer to develop and to scale. 

This has been treated differently in the mandatory and compliance markets. I think proof of that is their level of growth and the vast volume of ETS (emissions trading system) markets that they have developed. They have grown quite a bit, and at the end of the day this is also represented in the pricing. There is a price disparity between mandatory and compliance markets, and you see an enormous difference with voluntary carbon markets. Even when we talk about carbon tax, let’s say, an average price for carbon tax, we go from $5, $6, $7 to $8 or $10. In most of the countries, they are outliers with a much higher rate on carbon tax, but the average would probably be around $7 or $8 a tonne. When you go into ETS markets in Europe, it varies, but an average price for 2023 is €75, €85 a tonne. Like I said, a price disparity.  

Then, we move to the California ETS and the average price is about $40 a tonne. So, the price disparity is not helping either. Still, it gives you an idea of the need for more universal and global frameworks that can provide guidance to countries in general on how to tackle these challenges that we see that, in my view, until such a time that there is some sort of regulation within the carbon markets, will create a bottleneck that will hamper the growth of voluntary carbon markets. 

How important is the principle of ESG to combat climate change? 

ESG is the foundation. I’m not sure if we can call it a principle, foundation or a framework. But it is definitely a good basis for combating climate change. And I mentioned earlier on that we cannot speak about climate change in isolation of the social elements and in isolation of strong governance, and that is what the ESG framework presents. It ensures for those companies that are adopting an ESG framework, that, from those companies’ perspective, from organizations in general, that we tackle all decisions based on the three buckets that could definitely be presented, maybe even more ambitiously, into other frameworks.  

But, if we speak more specifically about ESG, what all of us are trying to do, is that the decisions made within a corporation, within any organization, elements related to the environment are taken into account, elements related to social activities within the company, within the structure and governance of the corporation, and that they have an impact in society. They also provide the challenges and opportunities in that every decision that a corporation makes has either nature-related risks or they have socially or governance-related risks. So when I speak about climate change, I speak about climate change within the context of our planet, within the context of our society. Again, this is not an isolated problem, this is a problem that has to be integrated within all the necessary responses to our society. And again, ESG is a robust framework that we can use. 

What keeps you excited about this industry? 

What keeps me excited about the industry in the current markets is the level of innovation that carbon markets are presenting within any possible context. Here we talk about blockchain, digital monitoring, reporting and verification. We talk about new technologies in carbon capture and storage or how to use artificial intelligence within carbon markets. So personally, what makes me excited is how the new breakthrough technologies are impacting carbon markets and how they are about to impact carbon markets in the near future with the main purpose of decarbonising the economy.  

So, by bringing in new technology and by reaching a certain level of scale, we will make the usage of that technology a lot more efficient and effective, and what is most relevant, how to put this new technology at the service of emerging and developing economies, so that the transition and the decarbonisation of these least developed, developing and emerging economies is fair and just. And, those polluting and who have contributed the most to the huge level of emissions in the atmosphere, they have to pay the bill, they have to contribute and they have to support others who have not contributed to the levels of emissions that we see nowadays. 

You are a member of the advisory board for the next Africa’s Green Economy Summit in Cape Town in February 2024. How important is such an event for the continent in your view?

I’m honoured to be a member of the advisory board for Africa’s Green Economy Summit. These kinds of events are of great importance as they provide not only that element of visibility that is needed, but also bring experts and the right audience in terms of investors and sponsors and in ensuring that we are all contributing to a green economy.  

And, particularly for Africa, I think these events are even more important, because the level of support, and I say here South-South support, I think is more important than ever. There are some countries in Africa that are taking strong leadership in areas of ESG and areas of green economy and it would be ideal if these countries are also in the knowledge sharing sessions. So, from the perspective of having investors and potential investors, relevant players, academia, experts in general in green economy, experts in ESG, in circular economy—they bring the right narrative and the right context for all of us to learn. At the end of the day, this industry badly needs more contributions, more adoption of ESG practices and facilitating to provide the right context for investors and financiers to feel comfortable about contributing, participating and investing in in Africa. 

What will be your message at the event next year? 

From my perspective, my message is more about African countries’ ownership. It is essential that African countries believe in themselves to build the right voluntary carbon markets and mandatory carbon markets for that purpose, but that they bring their ecosystem so that the carbon market can complete the stages in a project cycle and that these stages are handled by nationals to the furthest extent possible. So, there is an opportunity for jobs, there is an opportunity for knowledge and that the countries can tackle mandates by themselves.  

So, it is essential, and this is what I would like to summarise as part of my message, it is essential that those countries that are in a position to strengthen their own capacities in the carbon markets provide avenues for domestic growth and new job opportunities. I would like to encourage the countries to do so, and if they have not done it, to start putting measures in place so that the carbon market ecosystem is as strong as possible in each one of the countries. Thank you very much. It was a great pleasure to have this discussion with you today.