As a continuation of our series: Forging a Sustainable Future, we continue to highlight Kenya’s progress in becoming a world leader in combating climate change.
We have highlighted, in our previous newsflashes, the key provisions of the Climate Change (Amendment Bill), 2023 (the Climate Change (Amendment) Bill). The proposed amendments in the Climate Change (Amendment) Bill mainly deal with issues pertaining to carbon trading and it is essential for businesses to comprehend these provisions in their pursuit of carbon projects, including the development, structuring and financing of carbon transactions.
The Carbon Credit Trading and Benefit Sharing Bill, 2023 (the Carbon Credit Trading Bill or the Bill) has since joined the fray. It was introduced to one of the committees of the Kenyan Parliament (the National Assembly Budget and Appropriations Committee (BAC)) as a private members bill by one of Kenya’s Parliamentarians.
The Carbon Credit Trading Bill contains provisions that are similar to the Climate Change (Amendment) Bill. Our first newsflash on the proposed legal developments pertaining to the Climate Change (Amendment) Bill is available here and the second is available here. Despite similarities and possible overlaps between the Climate Change (Amendment) Bill and the Carbon Credit Trading Bill, this article highlights the proposed developments of the Carbon Credit Trading Bill.
The Carbon Credit Trading Bill aims for the establishment of:
a regulatory framework for the trading of carbon credits and benefit sharing in carbon credit trading;
a carbon credit trading and benefit sharing authority and to provide for its functions;
a provision for the registration and regulation of the carbon credit trading business and for connected purposes; and
a carbon credit trading tribunal.
It is hoped that once the Bill is enacted, it may have the following benefits:
Enhanced capacity of the country to adopt carbon financing instruments.
Enhance fair and equitable sharing of benefits amongst stakeholders.
Regulate and providing oversight over carbon credit trading business in Kenya.
Providing of an appeal mechanism in case of disputes arising from carbon trading operations.
Provide a revenue raising measure through issuance of carbon credit trading permits.
The Carbon Credit Trading Bill provides for the following key provisions:
Carbon Trading
The Carbon Credit Trading Bill proposes the following definition of carbon credit trading: the process of buying or selling verified or certified carbon emissions, reductions and removals in accordance with internationally recognised carbon credit standards.
The forms of carbon trading would include the business of a carbon credit trading exchange or any other activity as may be prescribed by regulations. The Carbon Credit Trading Bill further provides that a private or public entity may engage in carbon credit trading business in any of the following markets - (a) voluntary carbon market; or (b) carbon compliance market.
The Carbon Credit Trading Bill proposes that a carbon credit trading business project be implemented though a carbon credit trading purchase agreement that shall aim to - (a) promote the mitigation of greenhouse gas emissions while fostering sustainable development; and (b) incentivize and facilitate participation in the mitigation of greenhouse gas emissions by authorized public and private entities.
The Carbon Trading Authority
The Carbon Credit Trading Bill proposes the establishment of an authority to be known as the Carbon Credit Trading and Benefit Sharing Authority (the Carbon Trading Authority).
The Carbon Credit Trading Register
The Bill proposes that the Carbon Trading Authority establish and maintain an up-to-date computerized registry system to be known as the Carbon Credit Trading Register (the Register) which shall be a public document and may be inspected by an interested person upon the payment of a prescribed fee.
Carbon Trading Permit
If the Bill is enacted, any person or company that intends to carry on carbon credit trading business in Kenya would be required apply for a renewable seven (7) year trading permit from the Carbon Trading Authority. The Carbon Credit Trading Bill prohibits persons from engaging in carbon trading business in Kenya unless the said license is obtained.
Community Development and Benefit Sharing Agreement
The Carbon Credit Trading Bill requires every carbon credit trading business project to be implemented through a ‘community development and benefit sharing agreement’ which agreement ought to be recorded in the Register.
The Bill defines the ‘community development and benefit sharing agreement’ as a contract entered into between an entity engaged in the carbon credit trading business and a community and that defines the manner in which revenue accruing from the use of natural resources shall be shared out among the stakeholders being the Carbon Trading Authority, national government, county government, local community, proponent and land owner.
If enacted, the Carbon Credit Trading Bill would require a private or public entity engaged in carbon credit trading business to, prior to implementation of a project, sign a community development and benefit sharing agreement with the community.
The community, under the Bill, has been defined as - (a) a group of people living around the area where carbon credit trading business is conducted; or (b) a group of people who may be displaced to make way for carbon credit trading business.
The definition of community is not comprehensive as it does not clarify what exactly is meant by ‘a group of people living around the area where carbon credit trading business is conducted’. The definition should be improved to provide, with specificity, what exactly entails ‘living around the area where carbon credit trading business is conducted’ e.g., by providing a radius within which a community is considered to be ‘living around the area where carbon trading business is conducted’.
Community Rights and Compensation
The Carbon Credit Trading Bill proposes the community shall have the right to - (a) be informed through an appropriate communication strategy prior to carrying out of any carbon credit trading business, activities and operations within their county; (b) make any inquiries, interrogate planned activities which directly or indirectly affect their interaction with the ecosystem during the preliminary phase of awarding of carbon credit trading business permits for consideration; (c) be adequately compensated for land taken over for carbon credit trading business or operations in accordance with relevant land laws and the Constitution; (d) be compensated by any private or public entity engaged in carbon credit trading business who causes environmental damage or pollution; (e) be compensated for any related injury and/or illness arising directly or indirectly from the activities of a private or public entity engaged in carbon credit trading business, if the entity was in a position to take measures to prevent the occurrence of the same; (f) be compensated for damage to property and lost source of revenue or livelihood as a result of carbon credit trading business, activities and operations taking place in their immediate surroundings; (g) be educated and sensitized on carbon credit trading business, activities and operations within their county; (h) be educated and sensitized on carbon credit trading business, activities and operations within their county; and (i) be able to participate in planning for corporate social responsibility projects that are to be implemented within the permit area by persons engaging in carbon credit trading business in consultation with the national government and a county government.
Benefit Sharing
The Carbon Credit Trading Bill proposes that the benefit accruing from a carbon credit trading project under it shall be shared in accordance with the following benefit sharing ratio:
Carbon Resource | Beneficiary | Benefit Sharing Ratio |
Rangelands | Authority | 5% |
National Government | 25% | |
County Government | 15% | |
Community | 45% | |
Proponent | 10% |
Carbon Resource | Beneficiary | Benefit Sharing Ratio |
Forests, biodiversity and genetic resources | Authority | 5% |
National Government | 30% | |
County Government | 15% | |
Community | 40% | |
Proponent | 10% |
Carbon Resource | Beneficiary | Benefit Sharing Ratio |
Soil | Authority | 5% |
National Government | 25% | |
County Government | 15% | |
Community | 45% | |
Proponent | 10% |
Carbon Resource | Beneficiary | Benefit Sharing Ratio |
Community Land | Authority | 5% |
National Government | 25% | |
County Government | 15% | |
Community | 45% | |
Proponent | 10% |
Carbon Resource | Beneficiary | Benefit Sharing Ratio |
Public land | Authority | 5% |
National Government | 30% | |
County Government | 15% | |
Community | 40% | |
Proponent | 10% |
Carbon Resource | Beneficiary | Benefit Sharing Ratio |
Private land | Authority | 5% |
National Government | 10% | |
County Government | 5% | |
Community | 30% | |
Proponent | 10% | |
Land Owner | 40% |
Carbon Resource | Beneficiary | Benefit Sharing Ratio |
Surface and Ground Water | Authority | 5% |
National Government | 35% | |
County Government | 20% | |
Community | 30% | |
Proponent | 10% |
Carbon Resource | Beneficiary | Benefit Sharing Ratio |
Renewable energy including wind, solar and geothermal | Authority | 5% |
National Government | 25% | |
County Government | 15% | |
Community | 40% | |
Proponent | 10% | |
National Research Fund | 5% |
Based on the above ratios, it appears that the Bill has not fully considered incentivising private investment in carbon projects. It is crucial for Parliament to consider increasing the proponent’s revenue ratio so as to encourage private investment into carbon projects.
The Carbon Credit Trading Bill further provides that at least forty per cent (40%) of the benefit assigned to county governments as illustrated above shall be utilised to implement local community projects and sixty per cent (60%) of that benefit shall be utilised for the benefit of the entire county.
Where a carbon resource transcends more than one county, the Carbon Trading Authority will, in consultation with the affected counties, determine the ratio of sharing the benefit amongst the affected counties taking into consideration - (a) the contribution of each affected county in relation to the carbon resource; (b) the inconvenience caused to the county in the exploitation of the carbon resource; and (c) any existing benefit sharing agreement with an affected entity.
Environment, Health and Safety
The Carbon Credit Trading Bill proposes that all carbon credit trading business and projects for implementation shall be subject to a social and environmental impact assessment to be submitted to the Carbon Trading Authority and to the National Environment Management Authority prior to being issued with any permit by the Carbon Trading Authority.
Dispute Resolution
The Carbon Credit Trading Bill proposes that disputes between parties to a carbon credit trading purchase agreement arising from carbon credit trading operations be resolved through alternative dispute resolution mechanisms in the first instance as may be provided for in the by the carbon credit trading agreement. If any difference or dispute remains unresolved, either party shall have the right to serve upon the other party a detailed statement stating the issues in dispute and either party shall have the right, to have such difference or dispute be resolved through arbitration in accordance with the United Nations Commission on International Trade Law arbitration rules adopted by the United Nations Commission on International Trade Law.
Carbon Credit Trading Tribunal
The Bill proposes the establishment of a Carbon Credit Trading Tribunal (the Tribunal). The Tribunal will have appellate jurisdiction to hear and determine all matters referred to it, relating to the carbon credit trading sector arising under the Bill or any other law.
Conclusion
These are the key features of the Carbon Credit Trading Bill which we hope you have found insightful. As highlighted above, the Carbon Credit Trading Bill contains provisions that are similar to, contradict and/or aim to address the same legislative issues that the Climate Change (Amendment) Bill aims to address. The Carbon Credit Trading Bill and the Climate Change (Amendment) Bill therefore need to be harmonised into one piece of legislation in order to avoid having conflicting pieces of legislation. We expect this issue to be raised and addressed once Parliament presents the Carbon Credit Trading Bill for public participation.
Notwithstanding the above, the Carbon Credit Trading Bill represents a significant step towards the development and implementation of a robust regulatory framework governing carbon markets in Kenya, enhancing climate governance, addressing climate change impacts, and fostering sustainable development in Kenya. It lays the foundation for coordinated and inclusive climate action, reflecting Kenya’s commitment to combating climate change and safeguarding its environment and future generations.
For further information please contact Walid Khan or your relationship partner at Africa Law Partners.