Kenya, as a signatory to the Paris Agreement (having ratified it on 28 December 2016), stands at the forefront of global efforts to combat climate change and pursue sustainable development. In full realisation of the challenges posed by climate change, Kenya, recognising the importance of establishing a robust carbon trading legal framework, published The Climate Change (Amendment) Bill, 2023 (the Bill). The Bill illustrates Kenya’s commitment to achieving the global goal under the Paris Agreement of limiting global warming to well below 2 degrees celcius above pre-industrial levels.
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In this article, we highlight the key provisions of the Bill that are essential for businesses to comprehend in their pursuit of carbon projects, including the development, structuring and financing of carbon transactions.
The Bill, if enacted into law, will amend The Climate Change Act, Number 11 of 2016 (the Act). The objects and purpose of the Bill is to provide for, among others:
the development, management, implementation and regulation of mechanisms to enhance climate change resilience and low carbon development for the sustainable development of Kenya;
the guidance in the development and implementation of carbon markets and non-market approaches in compliance with international obligations;
the guidance and policy direction on carbon markets to the national and county governments, the public and other stakeholders; and
benefit-sharing mechanisms in carbon markets.
The Bill outlines provisions to establish a robust regulatory framework for carbon trade within the country. Here are some ways in which the Bill intends to regulate carbon trade:
Carbon Market Policy: The Bill provides that the National Climate Change Council (the NCCC) shall provide guidance and policy direction on carbon markets to the National and County Governments, the public and other stakeholders (the Carbon Market Policy). The Carbon Market Policy shall cover all carbon markets and prescribe:
carbon reduction credits that aim to reduce emissions from current sources through projects;
removal or sequestration credits that take carbon dioxide out of the atmosphere and either use or store it via afforestation, reforestation, nature-based solutions or technology-based removal;
technologies and projects on the whitelist;
emission credits not taken into account, including— (i) previously used emission credits; (ii) emission reductions that have been achieved in violation of human rights; (iii) the emission reductions have had significant negative social or environmental impacts; (iv) emission reductions that were achieved before 01 January, 2013; and (v) emission reductions that were registered before 01 January, 2013.
Principles governing trade in carbon markets: The Bill provides that trade in the carbon market shall be guided by the following principles:
transactions in carbon trading as carried out under the Act shall aim towards a reduction of greenhouse gas emissions as per the prescribed carbon standards;
mitigation outcomes reported under the requirements of the Act shall be accounted for in tonnes of carbon dioxide equivalent;
carbon offset projects shall ensure that emissions are kept out of the atmosphere for a reasonable length of time; and
emission reductions shall be carefully recorded and documented for every offset scheme, utilizing appropriate accounting terms, corresponding adjustments, and location of offset as required by the UNFCCC and other standard bodies.
Participation in trade in Carbon Credits: The Bill provides that a carbon trading agreement should promote the mitigation of greenhouse gas emissions while fostering sustainable development and incentivize and facilitate participation in the mitigation of greenhouse gas emissions by authorized public and private entities. The Bill specifies that an initiative authorising trade in carbon credits shall be:
as a result of a bilateral or multilateral trading agreement entered into by the Cabinet Secretary;
as a result of trading with a private entity entered into by the Cabinet Secretary with the approval of the Cabinet; or
in a voluntary carbon market established or overseen by an internationally recognized entity, approved by a recognized credible international body entered into by the Cabinet Secretary with the approval of the Cabinet.
Carbon Market Governance: The Bill intends to set up a regulatory body known as the ‘Designated National Authority’ (the Authority) to be appointed by the Cabinet Secretary. The Authority shall be responsible for authorising and approving participation in projects under the Paris Agreement.
National Carbon Registry: The Bill intends to set up the National Carbon Registry (the Registry). The Authority shall be custodian of the Registry. The Registry to be established shall include:
carbon credit projects and programmes implemented to reduce greenhouse gas emissions in Kenya;
a REDD+ Carbon registry;
authorisations granted to participate in initiatives/projects/programmes under the Act;
the carbon budget and the greenhouse gas reduction units;
the amount of carbon credits issued or transferred by Kenya;
the amount of carbon credits issued to emission reduction projects and programs recognized by Kenya from national greenhouse gas registry account;
the transfer of carbon credits and any carbon credits issued or recognized by Kenya from a national greenhouse gas registry account;
the cancellation of carbon credits and any other carbon credits issued or recognized by Kenya from a national greenhouse gases registry account; and
any other carbon credits issued or recognized by the Kenya from a national greenhouse gases registry account.
Environmental Impact Assessment: The Bill provides that Carbon trading projects authorized under the Act shall be required to undergo an environmental and social impact assessment in accordance with the Environmental Management and Coordination Act, Number 8 of 1999. Moreover, the Bill provides that reducing emissions from deforestation and forest degradation and the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries projects are required to undergo REDD+ safeguard standards assessment.
Community Development Agreements:The Bill, if passed, will require every project undertaken under the Act to be implemented through a Community Development Agreement (the CDA). The Bill provides that the National Government and the respective County Government where the project is situated shall oversee and monitor the negotiation of the CDAs with project proponents and the stakeholders. Additionally, the National Government and the respective County Government where the project is situated will be mandated to enforce the community rights negotiated under a CDA. The CDA shall provide:
a list of stakeholders of the project including: project proponents, the impacted communities, the National Government and the County Government where the project is being undertaken;
provision of an annual social contribution of at least twenty five percent (25%) of the aggregate earnings of the previous year to the community, to be managed and disbursed for the benefit of the community;
manner of engagement with local stakeholders, especially the impacted communities;
sharing of the benefits from the carbon markets and carbon credits between the project proponents and the impacted communities;
proposed development of communities around the project; and
manner of its review or amendment, which shall be at least every two (2) years.
The Bill further provides that the CDA shall take into consideration and aim to improve the economic, social and cultural wellbeing of the community around the project be recorded in the Registry.
In addition to the above, the Bill provides for the inclusion of trade in carbon markets in the National Climate Change Action Plan.
These are the key features of the Bill which we hope you have found insightful. While we fully recognise that the Bill may require amendments, the 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. The Bill 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, Benedict Nzioki or your relationship partner at Africa Law Partners.