Carbon Trading in Kenya

Aug 1, 2023 | Bussines, Investments, Law, Our Highlights, Research

Carbon trading involves a market-based system designed to reduce the greenhouse gas emissions that contribute to global warming, especially carbon dioxide, by creating a financial incentive to do so. One may wonder how does this market work? Where does carbon offsetting fit into the picture?

Transactions involve buying and selling carbon credits permits between countries, which allows the holder of the carbon credits to emit a certain amount of carbon dioxide and other greenhouse gases (GHGs). In Kenya particularly, this trade dates back to 2014, when a group of 60,000 smallholder farmers in the Western region under the Kenya Agricultural Carbon Project (KACP) earned carbon credits for sustainable farming. These carbon credits had been issued under the Sustainable Agricultural Land Management (SALM) carbon accounting methodology. This resulted in Kenya being considered a rich carbon offset sink.

Consequently, Kenya adopted a National Climate Change Action Plan under the Climate Change Act of 2016, whose purpose was to regulate carbon trading in Kenya, and whilst doing so, guide the country towards achieving low-carbon, climate-resilient sustainable development. This strategy fell short of its target as it never specifically addressed how trading in carbon credits, as a climate change response, will be regulated in Kenya; Carbon trading was an almost opaque undertaking due to Kenya’s absence of requisite laws and limited regulatory framework. Nevertheless, Kenya still intended to commit to voluntary cooperation under Article 6 of the Paris Agreement to govern its engagement in the carbon market.

Thereafter, the Ministry of Environment, Climate Change, and Forestry developed the Draft Climate Change (Amendment) Bill, 2023, which was envisioned to factor in carbon markets as well as compensate where the initial Climate Change Act of 2016 failed to measure up. This Bill seeks to adopt and imbed an Environmental, Social, and Governance (ESG) corporate culture, furthering Kenya’s performance on various sustainability and ethical issues.

In doing so, the Bill proposed that the National Climate Change Action Plan (NCCAP) adopts different methods for engaging carbon markets. To begin with, there is a proposal for having an annual carbon budget, which shall be informed by the National Greenhouse Gas Inventory and guide on emission allocation for Nationally Determined Contributions and trading. The Bill further seeks to introduce reviewing and recommending the level of compliance with international climate commitments and identify priority actions to explore carbon trading. As aforementioned, Kenya was lacking in its regulatory framework, particularly on carbon trading exploration. This, hopefully, will not be the case anymore as the National Climate Change Action Plan has been tasked to prepare proposals and plans for the pursuit of carbon trading.

Additionally, the Bill has introduced a regulatory framework meant to govern participation in carbon markets, such as establishing a National Carbon Registry and regulating the creation and trade in carbon credits. This establishment oversees carbon credits transactions and management. Moreover, a mandatory environmental and social impact assessment under the Environmental Management and Co-ordination Act, 1999, for each carbon trading project has been introduced. Essentially, this is to monitor any form of environmental degradation that may result from carbon trading.

In conclusion, the Bill will anchor the legal framework to guide domestic and international carbon markets and investments and enhance access to climate finance through Nationally Determined Contributions. In the long run, it is expected that Kenya’s social innovation, economic development, and sustainable governance of natural resources will spur.