Kenya is no stranger to carbon trading. In fact, the Berkeley Carbon Trading Project Voluntary Registry database ranked Kenya as the second largest source of voluntary carbon market credits in Africa in 2022, after the Democratic Republic of the Congo.
In the world of carbon markets, you will undoubtedly encounter references to Article 6 of the Paris Agreement which stipulates how States Parties must cooperate in mitigating and adapting to climate change.
Article 6.2 is of particular importance because it provides for the international transfer of climate change mitigation results under bilateral agreements, while Article 6.4 opens up financial support to developing countries through instruments such as the Paris Agreement’s accreditation mechanism. Together, these provisions form the basis for the transfer of credits in internationally compliant carbon markets.
In an effort to boost carbon market penetration, Kenya amended its climate change law in 2023 to allow trading in carbon credits in three ways.
First, Kenya can enter into bilateral or multilateral agreements with other state parties. Second, Kenya can enter into agreements with private entities to offset carbon emissions. Third, Kenya can participate in voluntary carbon markets.
Although voluntary market participation currently dominates the carbon market in Kenya, carbon markets subject to international compliance under Article 6 of the Paris Agreement are rapidly expanding around the world.
There is a growing trend of countries in Africa signing bilateral agreements based on Article 6.2 with demand for carbon credits driven by countries such as Singapore, Japan and Switzerland.
For example, in November 2022, Ghana launched a project to achieve authorized emissions reductions in exchange for payment of carbon credits by Switzerland.
Kenya has the opportunity to equally benefit from increased participation in compliant international carbon markets, but some critical factors must be taken into account.
The first is the issue of delegation.
Emissions reductions that have been authorized to be transferred by the government of the selling country (host country) may be sold to another country (investor country), but only the investing country may count the emissions reductions toward its nationally determined contributions (NDC).
This avoids double counting. Licensing therefore increases demand for carbon credits from investing countries and generates revenues for the host country.
The result is that Kenya will not count authorized carbon credits in its NDCs, meaning it will have to look elsewhere to meet its NDC obligations.
Second, host countries like Kenya would be well advised to prioritize trading carbon credits from hard-to-mitigate sectors, such as the energy, cement, steel, or transportation industries, as emissions reductions will be difficult to achieve without financing from investing countries.
This will have a dual benefit for Kenya, as it will serve the dual goals of achieving its NDCs through emissions reductions financed by investing countries and using its budget to increase its emissions reduction efforts.
Furthermore, assuming that the cost of cutting emissions from hard-to-mitigate sectors is lower in Kenya than in the investing country, this would allow companies in the investing country to achieve greater emissions reductions for the same dollar amount, which is an added advantage for global companies. Climate change.
Third, host countries should ensure that they establish a fair benefit-sharing mechanism for local communities to extract value from carbon projects developed in their regions.
In this regard, as far as Kenya is concerned, what is required is compliance with the benefit-sharing rules set out in the Carbon Markets Regulations 2024 including the need to implement a community development agreement where a carbon project is implemented on public or community land.
We also point out that the regulations stipulate the payment of annual social contributions by the carbon project developer to this community, based on a percentage of the net profit from the previous year.
Fourth, host countries like Kenya should consider mapping carbon removal or reduction projects that are ideal for specific locations and sectors, to encourage the uptake of such projects.
While there are many carbon projects related to agriculture and forestry in Kenya, there are other types of projects that could be taken into consideration such as blue carbon projects for coastal lands and wetlands, and clean water projects for example providing filtered water to avoid emissions associated with boiling water.
Provided that the above considerations are taken into account, Kenya can benefit significantly from transferring credits into compliant international carbon markets.
Kenya’s recent amendments to the Climate Change Act and introduction of regulations are a step in the right direction but there is also a need to equip implementing agencies and sensitize carbon market actors on the legal status and opportunities offered by participating in international compliance carbon markets.
Kamau is Managing Partner, Nyabira Partner, Muigai Director and Wanjiku Associate at DLA Piper Africa Kenya, IKM Advocates
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