Ministry Launches Carbon Market Push for Climate Finance's Development Lifeline

Ministry Launches Carbon Market Push for Climate Finance's Development Lifeline

Oct 18 , 2025. By BEZAWIT HULUAGER ( FORTUNE STAFF WRITER )

Federal authorities are charting a new path in climate finance with a 10-year National Carbon Market Strategy, intended to attract private investment, generate high-quality carbon credits, and integrate green finance into the country’s broader economic transformation. Officials hope the new market will deliver not only environmental gains but also tangible social and economic benefits.

The federal government is preparing to build a carbon market from scratch, an ambitious bid to place Ethiopia on the global climate finance map.

The new 10-year National Carbon Market Strategy, unveiled by the Ministry of Planning & Development under Fistum Assefa (PhD), envisions a system that can attract private investors, generate high-quality carbon credits, and integrate climate finance into the country’s wider economic transformation agenda. Officials frame the strategy as both a financial innovation and a developmental tool. Its objectives of transparency, fair benefit-sharing, and credible emission reductions are designed to ensure that carbon trading yields not only environmental gains but also social and economic dividends.

“We’re aiming for measurable climate impact and private-sector engagement,” says Mechaeal Hordofa, the Ministry’s carbon-market specialist. “Projects will target clean energy, forestry, agriculture, waste management, and electric mobility, sectors that can cut emissions while boosting livelihoods.”

The Ministry has set a notably ambitious target to slash greenhouse gas emissions by 68.8pc by 2030. Yet, the officials admit that 80pc of that target depends on international support. Getting there will require an estimated 154 billion dollars over the next thirty years. Of this, 86 billion dollars is earmarked for mitigation efforts, projects such as power generation, waste management, and cleaner transport.

Even with these numbers, officials acknowledge there is a substantial financing gap, one they hope the carbon market will help to fill.

Ethiopia is set to pass its first national carbon market law within six months, followed by detailed regulations and benefit-sharing mechanisms. The plan calls for both monetary and non-monetary gains to be shared, including cash revenues. But there will also be community investments and social programs. Operational costs are to be covered through cost-recovery mechanisms, such as registration fees.

Ethiopia’s early forays into the carbon credit market have yielded 1.1 million Certified Emission Reductions (CERs) and more than nine million voluntary carbon credits, most generated through the Verified Carbon Standard REDD+ project in the Bale Mountains.

“The numbers point to early progress,” said Hordofa. “But, we expect growth under the new strategy.”

Estimating future income from carbon credits is tricky. The strategy singles out sectors with high potential for tradable credits, such as clean cooking initiatives, programs to move households from traditional stoves to improved models, and programs to move households from traditional stoves to electric or biogas cooking. These changes are not only intended to cut emissions but are also expected to deliver public health benefits.

Despite the optimism, Hordofa believes gaps in the registration of voluntary credits remain a challenge that the strategy intends to tackle head-on. He confirmed the first carbon market law is scheduled to reach parliament this year, a milestone for formal market governance.

The plan features off-grid solar irrigation projects and the export of clean energy to neighbouring countries. Bilateral deals are in place to prevent double-counting of emission reductions and preserve the value of credits. Electric mobility is a flagship program, especially in Addis Abeba, where transport authorities push to scale up electric vehicle use and reduce reliance on imported fuel. Forestry projects are set to expand on the Green Legacy Initiative’s reforestation work, to ramp up carbon sequestration and ecosystem restoration.

Some, like Dejena Dadi, general manager of the Oromia Coffee Farmers Cooperative Union, see real-world results already. The Cooperative has already begun selling voluntary carbon credits. In partnership with Japan’s Sumitomo Corporation, which holds more than a quarter of Safaricom Kenya's shares, the Union’s projects were recently hit by a new directive requiring 20pc of carbon income to be shared with the government.

Even as audits continue, the Union last year distributed 8,000 improved cookstoves to generate more credits.

“After the government’s memorandum with Japan, we’re entering the Japanese carbon market,” said Dejena.

A metric ton of carbon in Japan trades at 35 dollars, while in Europe the price fluctuates between 18 dollars and 23 dollars, affected by a new standard that has put pressure on trading.

The Ethiopian Investment Holdings (EIH), which oversees state-owned companies, is to coordinate efforts. The Ethiopian Airlines Group may buy domestic carbon credits to offset emissions from sustainable aviation fuel, and the Development Bank of Ethiopia (DBE) is expanding rural electrification. Other sectors in the crosshairs include sugar, cement, industrial parks, and waste management, each seen as a potential source of new carbon credits.

Industries that rely on coal now face mounting pressure to shift to renewables. A new directive from the Ministry of Finance gives companies recognised for carbon credit trading or biogas emission reductions a 10-year corporate tax rate of 15pc on taxable income. Companies that use at least half of renewable energy will receive a similar tax break for five years from the start of their operations.

Axumawi Ebuy, CEO of Panafrique Energy PLC, is attempting to harness the biomass energy potential. His company is building projects in the Afar and Somali regional states, targeting household energy and industrial biocharcoal production from plant waste. The goal is to produce 60tns daily with verified zero carbon emissions.

However, Axumawi blames “bureaucratic delays in market processing” for undermining his progress.

Federal officials, including ministries of Transport & Logistics, Finance and Planning & Development, want private companies, cooperatives, and social enterprises to develop carbon projects in clean energy, forestry, transport, waste, and agriculture. These projects are required to meet strict environmental, social, and governance (ESG) standards and national safeguards. The credits are designed for compliance and voluntary markets, with investments encouraged in areas like e-mobility, green manufacturing, solar irrigation, and reforestation.

Private developers are tasked with collecting accurate data and securing independent verification, all in line with national rules and Article 6 of the Paris Agreement. Carbon rights and benefit-sharing frameworks are expected to be observed, ensuring all stakeholders get their fair share.

Private entities are also required to align with government policies, consult local communities, and secure "free, prior, and informed consent" where relevant. Strong partnerships with local communities are seen as vital for project ownership and governance. Projects are required to register and get licenses from federal authorities, and the forthcoming law will establish penalties for non-compliance.

Experts see challenges ahead. Bereket Tesfaye, a renewable energy specialist with GIZ, the German cooperation agency, lists bureaucratic delays, costly EU compliance requirements, and volatile carbon prices as the biggest hurdles. He argued for a law governing carbon markets and a central authority to speed up approvals, build investor confidence, and run a national registry that meets global standards. Differentiating credit types and bundling small projects, Bereket believes, could lower risk and make the process easier.

Ethiopia, compared with regional peers, enjoys advantages from greater scale, rural potential, and strong domestic demand for credits. But, for Bereket, training is crucial as more skilled staff for project validation and approval will speed up processing and improve project quality.

“Ethiopia’s rural potential and anchor buyers like the Ethiopian Airlines give it an edge over Kenya and Senegal,” he said.

Bereket sketches out a fast-track plan that includes passing the law in six months, launching a national registry within a year, defining credit types within three to six months, and piloting large clean cooking and forestry projects within six to 12 months. The federal government should also work to secure buyer agreements within 12 months, establish a risk fund in 12 to 18 months, and train staff over three to nine months to accelerate approvals and improve project quality.

“Strategic buyer agreements, financial safeguards, and staff training are all essential to stabilising prices and moving faster,” he said.

PUBLISHED ON Oct 18,2025 [ VOL 26 , NO 1329]