(Bloomberg) -- African nations should conserve and expand their forest cover to take advantage of the rising demand for carbon offsets even though the current pricing for such projects remains low, a new report says.

“There’s no point in selling cheap today when you know the price is going to go up higher,” said Samaila Zubairu, president of the Africa Finance Corporation, which published the report. “The focus today should be on conserving the forest.”

Africa must forge ahead to create a pipeline of high-quality projects which “demonstrably” remove and sequester carbon from the atmosphere for the continent’s offsets to command higher pricing, the report said.

Foreign companies and entities have been drawn to forest-based offset projects in Africa because they offer a potentially easy way to cancel out their homegrown, hard-to-abate greenhouse gas emissions. But the market has cooled recently amid increasingly sharp criticism from scientists and experts. Purchases by businesses fell for the first time last year, according to an analysis by Bloomberg Green.

Africa’s carbon removal potential is currently being “undervalued,” AFC experts said on a virtual press conference Monday. They recommended that countries hold on to the natural assets until carbon prices adjust upwards.

Offsets are a key theme at the COP28 climate conference currently underway in Dubai. Negotiators from 190 countries are looking to strengthen carbon trading by deciding rules for a new emissions market overseen by the United Nations.

“We expect to see an announcement emerge that reaffirms the importance of putting a price on carbon and broad institutional support from the public and private sectors in making that a global reality,” said Dale Hardcastle, partner at Bain & Co., in a statement. “What is critical now is to establish international rules and standards to scale carbon pricing and project financing rapidly.”

Read more: Are ‘Carbon Offsets’ a Credible Climate Solution?: QuickTake

Forests in Africa absorb a net 600 million tons of carbon dioxide a year, with the capacity to offset 76% of all emissions from Africa or about a fifth of European emissions, according to the AFC.

However, many offset projects in Africa currently cannot show that the forest wouldn’t have been preserved anyway — without the payments the projects receive for their carbon-absorbing capacity. That prevents the projects from meeting a criterion known as “additionality,” which is required to qualify them as a source of legitimate carbon offsets. 

With more than 70% of Africans relying on forests for their livelihood, that carbon-accounting shortcoming means poorer people aren’t discouraged to cut trees for cooking fuel or other uses.

“We want to call out the very perverse logic of additionality and the fact that it has the unintended consequence now of encouraging deforestation,” said Zubairu, who spoke from the COP28 conference. Africa recorded the world’s highest deforestation rate between 2010 and 2020 “because we failed to incentivize communities,” he said.

African Potential

The continent draws much of its potential for abating emissions from its forests, but also from grasslands, peatlands and mangroves, which are also carbon sinks, meaning they absorb more carbon from the atmosphere than they emit. That makes it an attractive target for foreign investors and entities seeking ways to compensate for their emissions. 

For instance, Blue Carbon LLC, a Dubai-based company, is in talks with several countries, including, Liberia, Zimbabwe, Zambia and Tanzania, to gain rights to as much as 10% of their landmass to generate carbon credits. 

But governments are increasingly recognizing a need to assert more control over the carbon offsets produced within their borders, which could curb the supply of offsets to today’s $2 billion voluntary carbon market, according to BloombergNEF research.

“A time for a convergence of the offset price is on the horizon,” said Zubairu. “What we are trying to avoid is a situation whereby there’s this massive wholesale sale and long leases of these forests for people that are positioning to take advantage of this arbitrage,” he said without naming a specific deal.

(Adds need for high-quality projects in third paragraph. An earlier version corrected the lender’s name in second paragraph.)

©2023 Bloomberg L.P.