Ethiopia is positioning its vast forest resources as a new engine for climate‑linked revenue, but turning that promise into real cash flow is proving more complex than the legal groundwork suggests.

In December 2025 the Forest Carbon Trading Directive No. 1122/2025 was released, establishing a clear set of rules for registering forest‑based carbon projects and defining forest carbon credits as tradable units equivalent to one tonne of CO₂‑e. The directive also requires projects to keep records for a minimum of ten years and mandates verification by internationally accredited bodies.

According to Motuma Tolera, head of the Forest Sector Transformation Unit, the legislation creates a pathway for both public and private forest owners to participate, yet the rollout has been slowed by the need to align national standards with global market expectations.

Current estimates suggest that Ethiopia could unlock roughly $200 million in forest‑carbon revenues if all eligible projects achieve certification and secure purchasers. The Oromia Forested Landscape Program, which entered advanced talks with Norway in early 2023, is identified as the flagship initiative responsible for the bulk of this potential income.

State‑managed forest cooperatives retain 80 percent of proceeds, while private landowners keep ownership of the credits generated on their parcels. The revenue stream is seen as a complement to Ethiopia’s broader Green Legacy Initiative, which aims to restore millions of hectares of degraded land.

Over the past year, officials have engaged more than 25 potential buyers across three continents, narrowing the field to a handful of major intermediaries. The majority of interest is directed toward compliance markets, especially the International Civil Aviation Organization’s CORSIA scheme, where recent price premiums have ranged between $10 and $20 per tonne.

However, CORSIA eligibility hinges on approval under the ISFL methodology, which only received clearance for CORSIA use in April of this year. Until that approval is finalized, many buyers remain cautious, creating a bottleneck at the certification stage.

International purchasers are increasingly demanding high‑integrity credits verified through robust measurement, reporting, and verification (MRV) frameworks. Independent verifiers must be accredited, and projects must undergo rigorous monitoring to retain their status. These safeguards raise both the technical and financial barriers for smaller projects, particularly those operating in rural or under‑resourced regions.

Consequently, program designers are confronting uneven costs: larger, well‑funded initiatives can absorb verification expenses, while community‑level schemes may struggle without external financing or technical support.

State forest co‑management arrangements grant 80 percent of net proceeds to local cooperatives, a share that reflects Ethiopia’s ambition to channel climate finance back to rural communities. Nonetheless, translating this share into tangible development outcomes depends on transparent accounting and reliable accounting systems, both of which are still being piloted.

Case studies from the Humbo and Sodo reforestation efforts illustrate that generating credits can span two decades and require sustained donor support. The $1.63 million already distributed to cooperatives under those projects underscores the long‑term patience required to realize financial returns.

The legislative journey is advancing quickly. In May 2026 the Council of Ministers approved a draft Carbon Market Proclamation that seeks to formalize transactions, revenue‑sharing rules, and cross‑border dealings. Parliamentary approval is anticipated soon, and it will provide the legal certainty investors are seeking.

Stakeholders emphasize the need for coordinated action among government agencies, research institutions, development partners, and the private sector. As Eyasu Elias, State Minister of Natural Resources Development, noted, carbon finance must be integrated with broader agricultural transformation goals to maximize impact on soil health, landscape restoration, and livelihood creation.

While Ethiopia has laid a solid regulatory foundation for forest carbon markets, the transition from policy to profitable projects remains contingent on international buyer commitment, timely certification, and adequate financing for verification. Investors who can navigate these complexities may find a strategic entry point into a market projected to generate hundreds of millions of dollars, positioning the country as a pivotal player in Africa’s emerging climate‑finance landscape.

Source: Ethiopian Business Review

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