The Jostle For Regulation of The Kenya's Carbon-Credit Industry
Introduction
Carbon-credits are a market-based approach to reducing greenhouse gas emissions where countries and companies purchase carbon-credits to compensate or offset for their greenhouse gas emissions. A carbon-credit is a token representing the avoidance or removal of greenhouse gas emissions, measured in tonnes of carbon dioxide (CO2) equivalent.
As the global focus on climate change intensifies, Kenya has emerged as a key player in the carbon-credit industry. Based on the Voluntary Carbon Market Overview 2022 by ClimateFocus, Kenya ranks eighth, globally, amongst countries selling carbon-credits from nature-based projects. Moreover, Kenya accounts for approximately 20 of the total value of carbon-credits issued in Africa. According to a Kenya Private Sector Alliance Report, Kenya has the potential to earn up to USD 600 Million annually from the voluntary carbon-market industry by 2030. The potential notwithstanding, the growth of the Kenya carbon-market industry has been bogged down by the absence of a regulatory framework for the carbon-market industry.
Competing Bills
In order to open up the carbon-market industry, the Kenya’s Ministry of Environment, Climate Change & Forestry developed the Climate Change (Amendment) Bill 2023 whose objective is to incorporate carbon-credits into the existing Climate Change Act 2016. The Bill was recently approved by the Cabinet and should be tabled in Parliament for debate imminently. Contemporaneously, the National Assembly’s Budget and Appropriations Committee recently approved the Carbon-Credit and Benefit Sharing Bill 2023 for formal introduction to parliament.
Highlights of the Climate Change (Amendment) Bill 2023
The Climate Change (Amendment) Bill 2023 proposes regulation of the carbon-market under the existing Climate Change Act 2016. Some of the key highlights of the Bill include:
Definitions of terms related to the carbon-credit market
The lack of legal characterization has been one of the biggest stumbling blocks to the growth of the carbon-credit industry so far. The Bill intends to introduce definitions for new terms such as carbon markets, carbon budgets, carbon standards and nature-based solutions, among others.
Establishment of a carbon-registry
The Bill seeks to establish a carbon registry whose custodian shall be the Designated Natural Authority, also to be incorporated. The Registry shall include all carbon-credit projects and projects implemented to reduce greenhouse-gas emissions, a REDD and Carbon registry, carbon budget and greenhouse gas reduction units, the number of carbon-credits issued and transferred by Kenya, the number of carbon-credits issued to emission-reduction projects and projects recognized by Kenya.
Other provisions
The Bill contains the following key provisions:
Policy Directions - policy directions shall be issued by the Cabinet Secretary in charge of Environment, Climate Change & Forestry. The policy directions should cover the carbon market in general and define carbon reduction credits, carbon sequestration credits that take CO2 out of the atmosphere, technologies and projects to be whitelisted and emission credits that have not been taken into account among others;
Principles of the trade in the carbon market - the Bill provides principles to be followed by those engaging in the carbon market. Such principles include a general objective that transactions in carbon trading shall aim at reducing greenhouse gas emissions, accounting for mitigation outcomes in terms of carbon dioxide equivalents, careful recording and documentation of emission reduction for every carbon offset scheme and a condition that all carbon offset projects shall ensure that emissions are kept out of the atmosphere for a reasonable period;
Preconditions for participation in the carbon markets - according to the Bill, any participation in the carbon markets should arise out of a bilateral or multilateral trade agreement, trading with a private entity, or in the voluntary carbon market. Pursuant to this, the Cabinet Secretary is empowered to enter into multilateral or bilateral agreements with another state party to trade carbon for emission reductions or removals, with a private entity to offset carbon emissions or to enter into any agreement to trade in a carbon market which is established or overseen by an internationally recognized entity;
Environmental impact assessment for carbon-trading projects - the Bill proposes that all authorized carbon trading projects be required to undergo environmental and social impact assessment in accordance with the Environmental Management and Coordination Act. REDD+ projects will undergo separate REDD+ standard assessments.
Roles of both the national and county governments - the Bill tasks both the national and county governments with jurisdiction over the area where a carbon-credit project is situated with a responsibility to oversee and monitor the negotiation of Community Development Agreements (CDAs) with the project proponents and stakeholders. In addition, both levels of government are tasked with enforcing the community rights negotiated under any CDA.
Contents of CDAs - the Bill identifies the communities impacted by carbon-credit project as key stakeholders. In this respect, the Bill provides for the inclusion of the following provisions in CDAs:
a list of stakeholders including the proponents of the projects, the impacted communities and both the national and county governments;
provision of at least 25% of the aggregate annual earnings of the project to the impacted community;
the manner in which engagements with the local stakeholders, especially the impacted community will be carried out;
benefit-sharing between the project proponents and the impacted communities;
the proposed developments of communities around the project.
how reviews amendment of the CDAs will be carried out. Reviews or amendments shall be at least every two years.
Dispute resolution mechanisms - the Bill confers the Principal Secretary responsible for climate change matters with the role of resolving disputes in the first instance. Where a dispute is not resolved within 30 days of submission, it shall be referred to the National Environmental Tribunal
The Carbon Credit Trading and Benefit-Sharing Bill 2023
Unlike the Climate Change (Amendment) Bill 2023, the Carbon Credit Trading and Benefit Sharing Bill 2023 has a bias towards ensuring a fair and equitable sharing of benefits accruing from carbon-credit projects among stakeholders. The Bill seeks to establish a Carbo Credit Trading and Benefit Sharing Authority which is tasked with issuing policy directions and guiding both the national and county governments with respect to the carbon markets. The Authority will also issue carbon trading permits to businesses intending to engage in carbon-credit trading in Kenya. Aside from the Authority, the Bill also seeks to establish a Carbon Credit Trading Tribunal to resolve disputes arising out of the trade.
Conclusions
The carbon-credit industry presents Kenya with a unique opportunity to combat climate change, protect natural resources, and drive sustainable economic development. However, the existing confusion within the market, which is best exemplified by the two competing Bills at play currently, needs to be resolved for progress in the market.
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.