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Kenya: Insights on the Climate Change (Carbon Markets) Regulations, 2024: Key highlights

30 May 2024
– 7 Minute Read
| ESG

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Overview

  • The long-anticipated Climate Change (Carbon Markets) Regulations, 2024 (the Regulations) have been officially gazetted by the Cabinet Secretary for the Ministry of Environment, Climate Change and Forestry (the Ministry) representing yet another significant milestone in the establishment of a structured framework for the implementation of carbon projects in Kenya.

The long-anticipated Climate Change (Carbon Markets) Regulations, 2024 (the Regulations) have been officially gazetted by the Cabinet Secretary for the Ministry of Environment, Climate Change and Forestry (the Ministry) representing yet another significant milestone in the establishment of a structured framework for the implementation of carbon projects in Kenya.

The Regulations have been developed following extensive discussions and consultations between stakeholders and the Ministry since the enactment of the Climate Change (Amendment) Act in September 2023 which amended the Climate Change Act (the Act). The Regulations aim to, among other objectives, offer clarity on the governance and institutional framework for the regulation of carbon projects and outline the procedure and requirements for developing carbon projects in Kenya.

Key highlights of the Regulations include:

Governance and Institutional Framework

  • Designated National Authority (DNA) – The Act appoints the DNA as the entity responsible for authorising and approving participation in projects under the Paris Agreement. The Regulations emphasise the pivotal role that will be played by the DNA in facilitating the development and implementation of carbon projects, elaborating further on its responsibilities, which include:
    1. considering and making determinations on carbon project concept notes and issuance of letters of no objection;
    2. issuance of letters of approval to project proponents;
    3. monitoring registered carbon projects and project proponents’ compliance with the Regulations;
    4. providing guidance on operationalising Article 6.2 of the Paris Agreement and the rules, modalities and procedures of Article 6.4 of the Paris Agreement (including approval and authorisation of activities and the project proponents);
    5. providing guidance on the application of corresponding adjustments and project eligibility;
    6. maintaining a list of recognised carbon standards.

The head of the DNA is also the designated National Registrar of the National Carbon Registry established under the Act. The DNA shall maintain and update registries of all carbon projects in various sectors including energy, transport, agriculture, forestry and land use, industrial processes and product use, and waste.

  • Climate Change Directorate – The Regulations have also expanded the functions of the Directorate to include (i) advising the government on measures and control of carbon market activities being carried out by stakeholders to ensure compliance with the Regulations, and (ii) coordination and mobilisation of sectoral stakeholders for the effective control and management of carbon markets.
  • Committees – The Regulations further establish a multi-sectoral technical committee, comprised of membership drawn from ministries, counties, departments and agencies in all sectors of the Intergovernmental Panel on Climate Change, to provide technical advice to the DNA on carbon project assessments.

The DNA shall also appoint specific ad hoc committees, comprised of members from the multi-sectoral technical committee, to review the project design documents submitted by project proponents, provide recommendations to the DNA and provide technical advice to the DNA on carbon projects.

Participation in Carbon Markets

The Regulations provide better guidance on the requirements for the implementation of carbon projects addressing several issues that lacked clarity in both the Act and earlier drafts of the regulations:

  • Community Development Agreements (CDA): whilst the Act stipulates that every land-based project is to be implemented through a CDA, outlining the relationships and obligations of the proponents of the project in public and community land, it was not clear whether CDAs were necessary for projects undertaken on private land. The Regulations make it clear that CDAs are necessary only where the carbon project is undertaken on public or community land;
  • Nationally Determined Contribution (NDC): carbon projects shall be required to indicate if they are intended to contribute to the country’s NDC. In this regard, the Regulations emphasize the prohibition against double counting of mitigation outcomes. This ensures that emission reductions and removals are carefully recorded and documented for each offset scheme, preventing any instance of the same carbon credits being counted more than once;
  • Ongoing carbon projects: there was uncertainty regarding the integration of ongoing or existing carbon projects into the new legal framework. The Regulations address this by acknowledging these projects and providing a structured approach for their transition. Specifically, ongoing projects have a two-year grace period to align with the regulatory provisions and must undergo an environmental audit within six months of the Regulations coming into effect; and
  • Annual social contribution: since the enactment of the Act, there has been a considerable debate surrounding the contentious issue of annual social contributions and their distribution. The Act established the contribution requirement based on a fixed percentage (40% for land-based projects and 25% for non-land-based projects) of the aggregate earnings of a carbon project (total income in a carbon project without adjustment for inflation, taxation or types of double counting) which many considered to be impractical and potentially detrimental to the development and growth of the nascent carbon market. The Regulations clarify that:
    1. the annual social contribution to the community shall be as set out in the Act for carbon projects on public and community land. However, in each case, the contribution shall be applied taking into consideration the cost of doing business (i.e., 40% of the aggregate earnings of the previous year less the cost of doing business in respect of land-based projects and 25% of the aggregate earnings of the previous year less the cost of doing business in respect of non-land-based projects);
    2. the management and disbursement of the benefits for the community shall be undertaken by a community project development committee in the manner set out in the CDA; and
    3. a private carbon project on private land shall not be required to disburse the annual social contributions set out in the Act.

In addition to the above, further carbon project requirements set out in the Regulations include:

  • Environmental and social impact assessment: carbon projects must undergo an environmental and social impact assessment in accordance with the environmental management legal framework;
  • Certification, validation and verification: each carbon project must be subject to certification of international standards by a recognized international body and validation by an independent auditor and each result must be verified for compliance with the Act and the Regulations;
  • Free Prior Informed Consent (FPIC): FPIC must be documented for all community land-based carbon projects; and
  • County letter of support: carbon projects will now be required to obtain a letter of support from the respective county where the carbon project shall be undertaken.

Procedures for Developing Carbon Projects

To develop a carbon project, a project proponent/developer must follow several key steps outlined by the new Regulations. This process involves obtaining necessary approvals at various stages, including the initial project approval, submission of a detailed project design document, and authorisation for international transfers. Developers must also commence project activities within a specified timeframe to avoid cancellation.

Fiscal and Non-Fiscal Incentives:

The Regulations indicate that the Cabinet Secretary may provide fiscal and non-fiscal incentives to project proponents to support the development of carbon projects. This is a significant provision aimed at encouraging investment and participation in carbon markets. No specific incentives are set out in the Regulations, but this will be a welcome development to grow the Kenyan carbon markets if implemented.

Conclusion

The gazettement of the Regulations underlines Kenya’s continued commitment towards a low-carbon and climate-resilient future and the Government’s determination to establish Kenya’s carbon markets. Credit must also be given to the Ministry for considering the concerns and views expressed by numerous stakeholders regarding both the Act and previous iterations of the regulations. These Regulations offer better clarity on the implementation of carbon projects and provide guidance on the approval and authorisation process to develop carbon projects in the country.

As the carbon markets regulatory landscape evolves, Bowmans will continue to monitor the implementation of the Regulations and provide timely and relevant updates on any regulatory/practice developments impacting businesses in the carbon trading sector.