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Kenya: Revised Climate Change (Amendment) Bill advances the carbon trading agenda

16 August 2023
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As Kenya gears up to host the inaugural Africa Climate Summit and the Africa Climate Week in September, significant strides in the development of the regulatory framework continue to be observed with the introduction of the Climate Change (Amendment) Bill, 2023 (the Draft Amendment Bill) in the National Assembly. This follows the initial publication and extensive public participation process of the Draft Amendment Bill undertaken by the Ministry of Environment, Climate Change and Forestry (the Ministry) in April and May 2023 following which the Cabinet considered and approved the Draft Amendment Bill in July 2023. As noted in our previous update, the initial Draft Amendment Bill was a significant step in the right direction but required some amendments as became evident in the public participation process. Below we consider some of the key changes which have been introduced to the Draft Amendment Bill.

The distinction between types of carbon projects

The Draft Amendment Bill proposes to introduce a distinction between carbon projects that is: (i) land-based projects; and (ii) non-land-based, and a distinction in their respective requirements:  

Requirement

Land-based projects

Non-land-based projects

A Community development agreement with the community

Required where the project is under development in public or community land.

Not expressly stated as required in the Draft Amendment Bill, however, reference has been made to the annual social contribution of the aggregate earnings to be managed and disbursed for the benefit of the community for non-land-based projects.

Annual social contributions to be managed and disbursed on behalf of the community.

At least 40% of the aggregate earnings of the previous year.

At least 25% of the aggregate earnings of the previous year.

Dispute resolution in the first instance

As set out in the Community Development Agreement in the first instance and be resolved within 30 days.

If not subject to a Community Development Agreement, be resolved through alternative dispute resolution in the first instance.

Dispute resolution if not resolved in the first instance

If not resolved within 30 days, it would be referred to the National Environmental Tribunal

 

Whilst the distinction of carbon projects is indeed a positive step, it is surprising and worth noting that the Draft Amendment Bill does not go a step further to define the terms land-based or non-land-based projects. In the absence of a definition, the term “land” has been defined in the Constitution of Kenya, 2010 to include: (i) the surface of the earth and the subsurface rock; (b) any body of water on or under the surface; (c) marine waters in the territorial sea and exclusive economic zone; (d) natural resources completely contained on or under the surface; and (e) the air space above the surface. This is a broad definition, and it is therefore unclear whether the drafters intended to distinguish forestry and agricultural projects, from blue carbon projects.

Parliament should consider amending the Draft Amendment Bill to provide clarity on what constitutes land-based and non-land-based projects to avoid confusion and disputes which would hinder the development of projects in this nascent but promising sector.  

Requirement for a Community Development Agreement

The Draft Amendment Bill now clarifies that a Community Development Agreement will be required in the context of every land-based project. This is a significant change from the initial Draft Amendment Bill, which had proposed that all projects be implemented through a community development agreement which would make Kenyan projects less competitive internationally than those in other countries given not all carbon projects deal directly with a “community”.

The Draft Amendment Bill has defined community as “a consciously distinct and organized group of users of community land who are citizens of Kenya and share any of the following attributes: (a) common ancestry; (b) similar culture or unique mode of livelihood; (c) socio-economic or other similar common interest; (d) geographical space; (e) ecological space; or (f) ethnicity. Whilst the inclusion of this definition is a positive step in eliminating ambiguity on what constitutes a community for purposes of carbon projects, the inclusion of “community land” within the definition gives room for multiple interpretations and considerations on how to approach land-based projects particularly those on private land. This would be a fundamental point for Parliament to address especially as benefit sharing continues to feature prominently in relation to various projects and it is widely appreciated that community “buy-in” is key for the success of projects in Kenya.

The mandatory period for review or amendment of a Community Development Agreement has also been extended from 2 years to 5 years.

Annual Social Contribution

The share to be managed and disbursed for the benefit of the community under the Community Development Agreements is another significant change as the initial Draft Amendment Bill had proposed the contribution be at least 25% of the aggregate earnings. During public participation, it was argued differing views were deliberated upon and many stakeholders appeared to align on the fact that the amount should not be fixed and should be open for negotiation on a case-by-case basis. The current version of the Draft Amendment Bill has increased the contribution for land-based projects to at least 40% whereas the share for non-land-based projects has been retained at the rate of at least 25%.

The Draft Amendment Bill defines aggregate earnings as the “total of all income in a carbon project without adjustment for inflation, taxation or types of double counting.” The annual social contribution is likely to be a key expense for carbon credit projects undertaken in the country. The definition of aggregate earnings suggests that the amounts would not be based on profits and would not allow for adjustments that may arise due to double counting.

Conclusion

It is promising that some of the comments and suggestions proposed by stakeholders during the public participation process were taken into account by the Ministry and have been factored into the Draft Amendment Bill. The amendments introduced have resulted in better clarity on certain issues. Parliament on 16 August 2023 invited members of the public to submit comments on the Draft Amendment Bill by 22 August 2023. Many will be optimistic about further improvements being made to ensure that the implications of the Draft Amendment Bill are carefully considered and feasible for the implementation of carbon projects. The Kenyan government has indicated that it hopes for Kenya to be a market leader in the carbon space and it is therefore key for any proposed legislation to facilitate the establishment and growth of carbon projects in the country and not create impossible hurdles that kill the industry in its infancy.