Introduction
Carbon offsets, net-zero, carbon sequestration: these are buzzwords that have become almost synonymous with the abstruse yet fast-growing carbon-credit industry. Kenya is Africa’s biggest carbon-credit seller, accounting for roughly 23% of the total carbon credits issued. Private conservancies and rangelands have been the ‘poster boys’ for carbon trading in Kenya. Indeed, the industry, which is still at its nascent stage for the most part, runs on the back of the huge swathes of land under the control of conservancies. The prevailing opinion, however, is that the proceeds from the sales have not trickled down to the communities living around some of the carbon-credit projects.
For the most, Kenya’s legislature seems to have been caught flat-footed by the surge of the industry. The ensuing scramble to regulate carbon trading has borne two legislative instruments - the Carbon Credit Benefit Sharing Bill 2023 and the Climate Change (Amendment) Bill 2023, both seeking to regulate the industry, yet starkly dissimilar in approach and content.
The government-sponsored Climate Change (Amendment) Bill, which borrows from the United Nations Framework Convention on Climate Change (the Paris Agreement), seeks to insert control and regulatory mechanisms into the existing Climate Change regulatory framework. On the other hand, MP Joseph Lekuton’s Carbon-Credit Benefit Sharing Bill, whose raison detre is regulating the business aspects of carbon trading and benefiting the communities surrounding carbon-credit projects, intends to create a wholly new regulatory structure. At face value, the Climate Change (Amendment) Bill appears to be the more polished of the two bills, but its Achilles heel lies therein too. Whereas it offers more in terms of defining the various aspects of the carbo-credit market, it lacks the bite and falls short when considering the needs of the communities affected by carbon-credit projects.
Highlights of the Carbon-Credit Benefit-Sharing Bill
1. Scope of application
A significant proportion of carbon credits issued from Kenya have been as a result of conservation in rangelands, community ranches. This being the case, the Carbon-Credit Benefit Sharing Bill covers rangelands, forests, biodiversity and genetic resources, soil, public, private and community land, surface and groundwater and renewable energy, including wind, solar and geothermal. While the explicit scope of application ostensibly limits the reach of the Bill, it allows the bill to focus on the areas with an already existing affinity with the trading of carbon credits.
2. The authority
The bill intends to set up a Carbon Credit Trading and Benefit Sharing Authority. The proposed authority shall have wide-ranging powers and responsibilities and bear the weight of providing policy directions, regulating and providing oversight over carbon trading business in Kenya, ensuring fair and equitable sharing of benefits among the stakeholders, ensuring the development and protection of investor protection standards and promoting the development of the carbon credit trading sector in Kenya.
In addition, the authority shall be tasked with enhancing the capacity to adopt carbon finance instruments, ensuring compliance with carbon-credit trading conditions, facilitating access to information by the public with due regard to confidentiality restrictions and enhancing the capacity development of local communities.
3. Registration and regulation of carbon credit trading businesses
Under the Bill, public or private entities may engage in either the voluntary carbon markets or the carbon compliance markets. Projects in both markets shall be carried out through Carbon-Trading Purchase Agreements, and, according to the Bill, such agreements should aim to promote the mitigation of greenhouse gas emissions and incentivize and facilitate the participation in the mitigation of greenhouse gas emissions by both public and private bodies. The aforementioned objectives closely mirror the “Principles guiding trade in carbon markets” under the Climate Change (Amendment) Bill.
Should the Bill see the light of day, every business entity engaged in the trade of carbon-credit shall take out a carbon-credit trading permit, which shall be issued by the authority. The application for a permit should provide the area in respect of which the permit is sought (ideally supported by an agreement with the land owner), evidence of prior informed consent of the local community, an environmental impact assessment report and a benefit-sharing agreement, among other things. The permit, once issued, shall be valid for seven years and shall be renewable.
4. Community development and benefit-sharing agreements
The Bill provides that all carbon credit projects shall be undertaken through a community development and benefit-sharing agreement to be signed with the community. The Bill defines “community” to mean a group of people living around the area where a carbon-credit trading business is conducted or a group of people who may be displaced to make way for a carbon-credit trading business.
5. Provisions relating to benefit sharing
It appears that the Bill’s principal intention is to enable sharing of the carbon-credit cake by all stakeholders, and Part IV of the Bill is the gravamen in this respect, with the affected community potentially getting the biggest share. To put this into context, 45% of the benefits should go to the communities where the carbon resource is either rangeland, soil or community land. In situations where the resource involves the soil, forests, biodiversity and genetic resources, renewable energy or public land, the community shall hold the right to 40% of the benefits accruing. 30% of the benefits shall also go to the community where the resource is private land or surface/groundwater. Across the board, the project proponents will collect 10% of the accruing benefits across the different carbon resources. Both levels of government will also have a claim of the right to certain percentages of the benefits.
In contradistinction, the Climate Change (Amendment) Bill provides that all carbon-credit projects shall be undertaken through Community Development Agreements. Such agreements shall provide an annual social contribution of at least 25% of the aggregate earnings of the previous year to be managed and disbursed for the benefit of the community. The phrasing of this particular subsection implies that the project proponents need not pay the communities directly, as long as they manage and disburse the aforementioned percentage for the benefit of the community.
The Verdict: is the Carbon-Credit Benefit-Sharing Bill better than the Climate Change(Amendment) Bill?
The Carbon-Credit Benefit Sharing Bill has a raft of advantages, some of which make it feel superior when compared to the Climate Change Amendment Bill. Viewed through the lenses of the communities, the Carbon Credit Benefit Sharing Bill is the better of the two bills because it gives communities the biggest share of the pie.
However, the radical approach to sharing the benefits of carbon-credit trading is not without detriment. The Bill’s biggest undoing is that it focuses on carbon-credits as a business while ignoring the fact that the industry exists within the wider climate change. The fact that the Bill vests the Cabinet Secretary in charge of Finance rather than the Cabinet Secretary - Environment, Climate Change & Forestry exemplifies this pigeonholing.
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 us on sarinke@mckayadvocates.com.
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