Through our running series on the carbon market, we aim to build our collective knowledge to spur informed discourse.
While Article 6 of the Paris Agreement provided a much-needed framework for the global carbon market, players across the value chain continue to navigate a world of complexity. As African countries race to benefit from trade in carbon credit projects, regulators are increasingly taking steps to assess and potentially control growing activity in the carbon market.
Kenya is one of the few countries in the world with dedicated legislation on climate change. The Climate Change Act 2016 provided a benchmark for a low carbon transition, with the overall goal to mainstream climate change into development planning, decision making and implementation. The Act has been pivotal in streamlining and prioritising sectoral assessments of climate change impacts.
Kenya has proven its ability to generate a variety of financially viable, carbon projects, well before Article 6 was finalised. So much so that at COP 27, President William Ruto predicted that Kenya’s next significant export will be carbon credits. However, these projects have been severely criticized for a myriad of issues, including allegations of exploitation of Kenyan farmers and local communities by carbon project proponents, skewed benefit-sharing arrangements, false reporting or measurement of carbon emission reductions, forceful evictions and overall cultural disruption.
Faith in the carbon market has been dwindling for a long time. There have been unified calls for simplified, transparent carbon market systems that directly benefit communities and not just intermediaries. This is the impetus for recent legal developments in Kenya’s carbon market space.
In September 2023, the Climate Change Act was amended to provide express regulation of carbon markets in Kenya. The Carbon Market Regulations provide guidance in the development and implementation of carbon markets in compliance with international obligations, and provide policy direction on benefit-sharing mechanisms.
In essence the regulations attempt to address the numerous claims challenging carbon credit issuances.
- Notably, issues around community benefit sharing, unfettered trade and grossly overstated emissions reductions.
- It is now an offense to willingly conduct the unauthorized trade in carbon credits.
- It is an offense to give misleading information on the environmental or financial gains from a carbon credit project, and one has to maintain carbon credit records.
The amended Climate Change Act also provides for the establishment of a national carbon registry and requires that every carbon trading project undergoes an environmental and social impact assessment. Community Development Agreements are mandated to regulate the relationship and obligations of carbon project parties.
These agreements must provide for an annual social contribution to the community as a percentage of aggregate earnings – 40% in land based projects, and 25% in non-land based projects.
This was an extremely contested provision. Stakeholders, and in particular investors, were of the view that this is too high given the upfront investment made by project developers and financiers.
New Carbon Markets Law
On the tail of the Climate Change Amendment Act, a draft Carbon Credit Trading and Benefit Sharing Bill is currently undergoing legislative process. The Bill proposes the introduction of carbon trading permits for anyone intending to carry on the carbon credit trading business – whether in the voluntary carbon market or the compliance market. It also seeks to establish a carbon credit register and stipulate benefit sharing ratios between stakeholders across the value chain.
Debatably, it also sets up the Carbon Trading and Benefit Sharing Authority mandated with issuing permits and providing overall policy direction. These measures are all likely to be contentious, given the prevalence of authorities tasked with structuring climate action in the Country and overlap with the amended Climate Change Act. Nonetheless, there are likely to be substantial changes given the stage of legislative consideration.
Kenya is showing, in true African fashion, that it will shroud the carbon market with regulation. Don’t get me wrong, regulation is critical and necessary to address the myriad of issues cited earlier. But at the same time, Africa’s legal and regulatory environment ranks amongst the least business-friendly in the world. African entrepreneurs face more hurdles to register businesses and obtain various permits than in any other regions.
The Carbon Market presents tremendous opportunity for African entrepreneurs, land owners, small holder farmers and more, but an overly regulated space will ultimately be a barrier to entry at a time when the world is still navigating complexity. Perhaps an opportunity to ask more pointedly – how do we make it easier for locals to benefit from local resources and harder for foreign interests to exploit them?
If you’re keen on understanding the elusive world of carbon and how you can strategically engage, keep reading our carbon series where we dig deeper, challenge ideologies and navigate the intricacies of this dynamic landscape.
About the Author:
Dr. Yvonne Maingey-Muriuki is an expert in climate change adaptation, with over 15 years of combined academic and practical experience. She is an advisor to multiple entities including EABL, NCBA Group, Bamburi Cement, Nairobi Securities Exchange (NSE), Save the Children, Oxfam and major players in the Tea Sector in Kenya in the areas of climate risk, climate finance, sustainability and ESG reporting.
