Introduction
Kenya’s carbon credit industry has, for a time, existed in a state of uncertainty due to the absence of regulation prescribing procedures and minimums for stakeholders in the business. However, the enactment of the Climate Change (Amendment) Act of 2023 set the stage for regulation of the sector, subsequently leading to the preparation of the draft Climate Change (Carbon Markets) Regulations of 2023 (the Regulations). The Regulations, which incorporate stakeholder views derived from public participation, aim to provide a regulation framework for carbon market projects, incentivize players to participate in reducing greenhouse gas emissions and ensure communities derive both social, environmental and economic benefits from carbon market projects through annual social contributions.
Highlights of the Regulations
Institutional Framework
In line with the above-mentioned objective of providing regulation for carbon market projects, the regulations designate functions to the Cabinet Secretary Ministry of Environment, Climate Change and Forestry and the Principal Secretary (referred to in the regulations as the Focal Point). Their functions include overseeing the implementation of all carbon market projects. Additionally, the Regulations establish four institutions to further participate in regulation, namely the Designated National Authority, the Climate Change Directorate, the Ad Hoc Committee and the National Carbon Registry. While the institutional framework is quite elaborate, it risks being a little bit too complex due to the many participating institutions.
2. Participation in Carbon Markets
In addition to what is set out above, the Regulations place several obligations on project proponents, including providing information on the project costs, verified emission reductions and removal and adherence to all legal requirements for the projects. Further, all carbon projects going forward must be aligned with national policies and laws, indicate the ownership of the property involved in the project, involve local communities and indicate expected employment creation, among other prescribed requirements. The Regulations also ensure that carbon market projects do not have adverse effects on the environment by requiring project proponents to obtain an Environmental Impact Assessment Certificate from the National Environmental Management Authority. These provisions are intended to enhance accountability by project proponents and ensure that carbon projects established going forward provide tangible benefits to the community.
3. Procedures for Developing Carbon Market Projects
In this part, the Regulations set out elaborate procedures relating to making applications for approval of carbon projects, the requisite documents, timelines within which to initiate carbon projects and cancellation of approval. Project proponents are required to make an application to the Designated National Authority (DNA) which shall consider the application and approve or reject the same depending on the information provided. If approved, a project proponent must, within 12 months, develop and submit to the DNA a project design document containing matters such as the carbon credit period and a description of the project activity. The DNA then forwards the same to the ad hoc committee for review and recommendations, which must be submitted to the DNA within thirty days. Depending on the ad hoc committee’s recommendations, the DNA either issues a letter of authorization to the project proponent or rejects their project. Once issued with the letter of authorization, the project proponent must commence the implementation of the project within 12 months. Importantly, the Regulations ensure that project proponents’ adherence to the legal requirements of operating the project by providing that the letter of authorization may be revoked for various reasons, including failure to commence the project within the specified timelines or non-compliance with project requirements.
4. Social Contribution
In line with their objective of ensuring communities derive economic benefits from carbon projects, the Regulations propose that project proponents share a portion of their aggregate earnings with the community in varying ratios depending on where the project is carried out. On the one hand, if carried out on public land (public carbon market projects), project proponents must contribute 25% of their earnings to the community. On the other hand, project proponents must contribute at least 40% for projects developed on community land (community carbon market projects). This is a commendable initiative which will, in theory, ensure communities derive financial benefits from carbon market projects. However, it is worth noting that, while the Regulations prescribe the parties to be responsible for the disbursement of benefits in community carbon market projects, no such responsible party is prescribed for public carbon market projects. Additionally, carbon projects developed on private land by private entities are not subject to the social contribution requirements.
5. Transition
Finally, the Regulations recognize the need to regulate already existing carbon projects. Consequently, proponents of such projects have been afforded two years from the commencement date to comply with the procedures described in part three above. The two-year grace period is an improvement on the period prescribed in the first draft of the regulations and was arrived at following stakeholder engagement by the Ministry of Environment, Climate Change and Forestry (the Ministry).
Do they work?
In its Regulatory Impact Statement (RIS) for the draft Regulations, the Ministry has lauded the Regulations as the way to go in regulating carbon market projects, preferring the Regulations to what they termed a “business-as-usual” approach (no regulation as is the case currently) and self-regulation by project proponents. The Ministry predicts that the country will derive many benefits from the regulations, including a widened tax base, equitable sharing of monetary and other benefits with communities through social contribution, community engagement, transfer of knowledge and climate change mitigation. While this is potentially true, the Regulations could be polished further to cure the pitfalls that exist in the institutional framework and social contribution provisions.
Please note that this is not legal advice and is intended primarily for information purposes. If you require tailored advice or further information, please contact me at sarinke@mckayadvocates.com