Much Ado About Carbon Trading in Kenya (Part 1)

Introduction

This is Part One of a two-part series, delving into the legal framework governing carbon projects and carbon trading in Kenya, and a thorough examination of the key proposed legislations in the sector

The inaugural Africa Climate Summit held in Nairobi was recently concluded. In its wake, there has been interest in Kenya’s carbon regulatory landscape.

Before we delve into Kenya’s carbon trading laws, we shall first share an overview of key terms and concepts in carbon trading.

Terms and Concepts in Carbon Trading

• Carbon trading (also known as emissions trading) is a means of controlling pollution. It allows parties to buy and sell carbon credits or rights to emit certain pollutants within a regulated framework. The buying and selling happens in what can be termed as a carbon market
• Carbon markets are trading systems in which carbon credits are sold and bought. There are two types of carbon markets that trade in carbon credits:
  • Voluntary carbon markets, which trade in carbon credits that are generated by activities and projects that are not approved or regulated under specific rules or frameworks; and
  • Regulated carbon markets (also known as compliance markets), which trade in carbon credits issued under mandatory schemes or frameworks. Each mandatory scheme sets out which type of credits are valid for compliance.

We note that voluntary carbon markets globally are facing challenges that have to do with a lack of single global standard for evaluating and certifying carbon credits and lack of a centralized registry to record all carbon credit transactions on voluntary carbon markets which creates risks of double counting.

1. The term carbon credit is used differently in different situations. In the voluntary carbon markets, a carbon credit is a certificate showing the certified reduction, avoidance or removal of one metric tonne of carbon dioxide (CO2) or other greenhouse gas (GHG) emissions from the atmosphere. In regulated carbon markets a carbon credit usually represents a right to emit one tonne of CO2 and is used in compliance with the rules of scheme. Carbon credits can be categorized as originating from:
   • Carbon reduction or avoidance projects that reduce existing GHG emissions e.g. switching to renewable energy; or
   • Carbon removal or sequestration projects that physically remove CO2 from the atmosphere. These projects include tree planting and reforestation initiatives.
2. The terms “carbon credits” and “carbon offsets” are sometimes used interchangeably but they are distinguishable. Carbon offsetting involves offsetting the CO2 or other GHG released by an activity by reducing, avoiding or removing CO2 emissions from the atmosphere through another process or activity. For example, a tree planting scheme could offset the CO2 emissions of a business.

The Current Framework for Carbon Trading In Kenya

Presently, Kenya has no laws that govern carbon trading or carbon markets. In terms of international treaties and conventions, Kenya has ratified:

• The UN Framework Convention on Climate Change (UNFCCC) which is the key international climate change convention. It seeks to combat climate change by stabilising GHG emissions.
• The 1997 Kyoto Protocol to the UNFCCC which imposed legally binding GHG reduction commitments on certain parties to the UNFCCC.
• The 2015 Paris Agreement which aims to limit global warming to an increase of 1.5°C above pre-industrial levels. It also requires certain parties to make nationally determined contributions to cut GHG emissions.

The Climate Change Act, 2016 of Kenya, provides a legal framework for promoting climate resilience and low carbon economic development. As Kenya’s first framework climate change legislation, it aims to:

• integrate climate change considerations into decision-making processes at all levels of governance;
• regulate greenhouse gas (GHG) emissions;
• develop a national climate change action plan;
• promote sustainable development; and
• establish the National Climate Change Council which shall be responsible for coordinating climate change activities in Kenya.

However, most of the Climate Change Act’s provisions have not been implemented to date because the organs created under it have not been set up. Moreover, it has no provisions on carbon trading or carbon markets.

Please contact Divinah Sarange Ongaki (dso@smc-legal.com or info@smc-legal.com) in case you require any clarification on the contents of this memo.