This is the second part of SMC’s two-part series on the regulatory framework of Carbon Trading in Kenya. In this segment, we cover the laws and Bills that speak to carbon trading proper.
The Bill was passed into law on 1st September, 2023 and is now the Climate Change Amendment Act 2023. It seeks to enhance the regulation of climate change activities by introducing measures to regulate carbon trade and incorporate carbon markets.
The highlights of the Act are as follows: the Act has managed to:
- introduce various definitions in respect of carbon trading such as “carbon credit”, “carbon market” and “carbon project”.
- empower the national and county governments to apply the law in all sectors to provide guidance in development and implementation of carbon market development and foster public participation in this.
- empower the Cabinet Secretary with establishing a REDD+ registry and other sector registries that will feed into the National Carbon Registry. This is a good step as registries can help ensure confidence, integrity, transparency, and efficiency of information relating to emission reduction programs, and any units and payments issued for them.
- to introduce a new section to the Climate Change Act that touches on regulation of carbon markets.
The Act authorizes the Cabinet Secretary to enter into an agreement with a private party to offset carbon emissions.
The Act mandates that every carbon trading project must undergo an environmental and social impact assessment. Where the project is land-based, it must be implemented through a community development agreement which shall outline the relationships and obligations of the proponents of the project in public and community land where the project is developed. Such agreement shall be overseen by national and relevant county government and recorded in the National Carbon Registry.
Project proponents must distribute to the community of 40% of total project earnings for land-based projects and 25% for non-land based projects.
The Act also creates penalties of KES 500,000,000 and prison terms of 10 years on conviction for persons who:
- willingly conducts unauthorized trade in carbon credits;
- knowingly gives false or misleading information with respect to environmental or financial gains from the carbon market investment;
- manipulates carbon credit measurements in order to claim addition measurements;
- engages in money laundering through carbon trading;
- knowingly sells carbon credits to unauthorized entities; and
- fails to maintain carbon records.
SMC’s criticisms of the Act are as follows:
- As a pre-requisite to implementation of carbon projects, the Climate Change Council needs to have been set up, the National Climate Change Action Plan and a whitelist of carbon projects need to have been approved. The carbon registries must also be in place. There is no real way to anticipate how long the government will take to implement.
- The Act places the responsibility of approval of measurements, reporting and verification of greenhouse gas emissions with the Cabinet Secretary. It is doubtful whether the Cabinet Secretary will have capacity to do this and will likely rely on foreign expertise.
- The Act does not speak on the procedures for verification and certification of carbon removals projects whether by the Cabinet Secretary or independent third parties;
- The Act does not really provide for how the registries will be run.
There is a draft bill in the offing called the Carbon Credit Trading and Benefit Sharing Bill, 2023 (the CCTBS Bill). It seeks to create a regulatory framework for trading of carbon and sharing of benefits accrued thereunder.
The CCTBS Bill proposes to:
- establish the Carbon Credit Trading and Benefit Sharing Authority which will be responsible for regulatory oversight over carbon trading business in Kenya. It will equitable sharing of benefits to all stakeholders.
- establish a Board of the Authority which shall be empowered to register carbon trading business, regulate and supervise carbon trading projects and businesses, develop guidelines for carbon credit trading business and accredit carbon credit auditors.
- have carbon credit trading business be implemented through a carbon credit trading purchase agreement and a community development and benefit sharing agreement. The community development and benefit sharing agreement shall contain provisions such as the list of stakeholders, the rights and obligations of private and public entities and the local community, monetary benefits accruing and dispute resolution mechanisms.
- have entities undertaking carbon trading business apply for a carbon credit trading permit with the Carbon Credit Trading and Benefit Sharing Authority which once issued shall be valid for 7 years. As a prerequisite to obtaining the permit, businesses will have to tender, inter alia, a lease agreement for the land where the carbon project is implemented, proof of prior informed consent of the community and approval of a social and environmental impact assessment report and the community development and benefit sharing agreement.
- to establish the carbon credit trading register which shall be maintained by the Carbon Credit Trading and Benefit Sharing Authority which registry shall contain details of carbon projects, carbon credit trading permits issues and/or revoked carbon credit trading purchase agreements and community development and benefit sharing agreements in place.
- The Bill seeks to establish a dispute resolution body called the Carbon Credit Trading Tribunal which shall have appellate jurisdiction in carbon credit trading related disputes.
SMC Criticisms of the CCTBS Bill are:
we note that there is some duplication between the Climate Change (Amendment) Bill, 2023 and the Carbon Credit Trading and Benefit Sharing Bill, 2023. For example the Climate Change Bill requires that the community development agreement and carbon projects to be registered in national carbon registry and the Carbon Credit Trading and Benefit Sharing Bill requires the same things be registered in the carbon credit trading register.
The Carbon Credit Trading and Benefit Sharing Bill, 2023 has no actual provisions on the mechanisms of benefit sharing.
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.