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What the carbon – A snapshot of the recent developments in Kenya’s carbon space

16 March 2023
– 8 Minute Read
| ESG

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The Bowmans ESG and Projects, Energy & Infrastructure teams continue to make strides as thought leaders in various sectors, including in the Environment, Climate Change & Natural Resources Practice which specializes in, among other matters, carbon transactions. The lawyers in the team continue to advise on various aspects of carbon projects, including the development, structuring and financing of carbon transactions.

We hope that you will find the features informative. If you require any further information, please do not hesitate to contact either Aleem Tharani, Christina Nduba-Banja or Matthew Arrumm.

Christina Nduba-Banja, Matthew Arrumm, Esther Kimanzi and Jessica Mutemi

The global carbon markets continue to experience intensified activity as public and private sector actors scale up efforts to meaningfully support climate action. Kenya is also playing a leading role in this regard (see our previous article here) as it seeks to position itself as a world leader in combating climate change.

COP 27 – Kenya leading by example?

The 27th Conference of Parties to the United Nations Framework Convention on Climate Change (COP27) saw various commitments and pledges towards climate change, climate finance and other areas of environmental concern (including the elusive and long-awaited loss and damage fund to compensate countries vulnerable to the climate crisis).

Kenya took bold steps during the COP27 to reaffirm its commitment to lowering the carbon footprint with the following significant announcements:

  • Commitment to work with the African Carbon Markets Initiative (ACMI) launched during COP 27 – the ACMI aims to increase Africa’s participation in voluntary carbon markets, create employment opportunities in Africa and enhance the climate finance needs of African countries. Kenya’s President highlighted the intent of his government to work with the ACMI (and other like-minded initiatives) in substantially expanding carbon markets and carbon credit opportunities in Kenya and even described carbon credits as the next significant export for the country.
  • Green investment projects:
    • Kenya and the UK agreed to fast-track six green investment projects worth KES 500 billion (approx. USD 4 billion) to accelerate the flow of climate finance into the country. These include:
      • A 35MW geothermal plant at Menegai developed by Geothermal Development Company (GDC) and Globeleq is set to mark the full development of a geothermal field discovered by GDC. Bowmans is pleased to be advising Globeleq in relation to this project.
      • A 40MW solar plant expansion at Malindi constructed by Globeleq with financing from British International Investment, which is aimed at expanding the solar plant in Malindi and adding battery storage to support the system.
      • A multipurpose dam to be constructed by GBM Minerals Engineering Consultants Limited under a public-private partnership on Tana River to generate 1,000MW of hydroelectric energy capacity and irrigation, which will incorporate power supply for clean energy and water supply for agricultural irrigation.
      • A green regeneration project of central Nairobi will be designed by the UK government and Atkins – a UK engineering and project management consultancy firm. The project will be anchored around a new central rail station connected to the Bus Rapid Transit and is intended to incorporate the latest innovations in green building technology and planning.
      • A climate-smart-crop and agro-industrial processing system to be developed by a joint venture between United Green and Kisumu County to create a climate-resilient agriculture hub at Lake Victoria as well as provide jobs and income for farmers; and
      • The provision of guarantees by the UK government, through the Private Infrastructure Development Group, in collaboration with CPF Financial Services and other private investors. These guarantees are intended to de-risk investments and provide the much-needed climate finance to support infrastructure projects in Kenya.
  • The Government of Kenya and Fortescue Future Industries (FFI) also announced a deal to fast-track Kenya’s development of a 300MW capacity generation green ammonia and green fertilizer facility. Through the binding framework agreement intended to encourage investment in developing sustainable green industries in Kenya, FFI and Kenya will work together to reduce the cost of fertilizer, increase the country’s food and economic security and eliminate its reliance on imported polluting fertilizers. Bowmans is pleased to have advised FFI on this landmark agreement.

Post COP 27 – Recent developments

Following COP 27, the following ongoing developments have taken place which may be key for Kenya’s nascent carbon markets:

  • Creation of the State Department for Environment and Climate Change – as part of his reorganisation of government in January 2023, the President created a State Department for Environment and Climate Change under the Ministry of Environment, Climate Change and Forestry. The creation of this office is intended to underlie the government’s commitment to protecting Kenya from the adverse effects of climate change. We expect this office to be key in providing policy guidance and direction in the developing carbon markets, particularly as the government seeks to scale up voluntary carbon markets.
  • The Natural Resources (Benefit Sharing) Bill, 2022 (the Natural Resources Bill) – the recently published Natural Resources Bill seeks to provide a legislative framework for the establishment and enforcement of a system of benefit sharing in natural resource exploitation. If enacted, the Bill will (among other things) influence the structuring of emissions reduction purchase agreements and arrangements with project participators in carbon projects, particularly from a benefit-sharing perspective. The Bill will also significantly impact the implementation of projects in natural resources as defined under the Bill, including water projects and renewable energy projects.
  • Publication of the draft National Green Fiscal Incentives Policy Framework (Green Fiscal Policy) – the recently released draft Green Fiscal Policy, developed by the National Treasury, provides guidelines aligned with Kenya’s commitments towards a low carbon climate resilient development path. To attain this, the draft Green Fiscal Policy contains ambitious fiscal and economic instruments, including the possible introduction of carbon tax, loan concessions and subsidies in Kenya. The key 11 sectors set to benefit under the draft Green Fiscal Policy due to their role in Kenya’s green economy are; food, agriculture and nutrition security; health and sanitation; water and blue economy; forestry, wildlife and tourism; human settlement and infrastructure; electricity; clean cooking; transport; manufacturing; disaster risk management; and waste management. The draft Green Fiscal Policy outlines major sector-specific fiscal actions to be pursued by the government in driving the green development agenda within each of these key sectors. For instance:
    • Forestry sector: the government intends to inter alia incentivize tree growing and management on both private land and public land through fiscal actions such as permitting the cost of seed preparation, certification, nursery registration and tree planting on public land to be an allowable expense for tax computation and awarding tradable carbon credits for companies that invest in tree planting. Further, in implementing the carbon tax scheme, the government is key in considering opportunities for companies to reduce their tax liability by purchasing offsets from forestry projects.
    • Energy sector: to promote the growth of the renewable energy sector – the Government has made bold statements within the draft policy, which it seeks to pursue, including the provision of targeted incentives for private investment in geothermal electricity generation and other productive uses. The fiscal incentives envisage concessional funding and public support for early-stage investments in geothermal resource assessments, enabling private investment where geothermal is most promising.
    • Human settlement and infrastructure sector: in seeking to ensure stakeholders are involved in infrastructure development whilst integrating climate-related considerations, the Government seeks to provide fiscal incentives for using recycled materials in infrastructure development, among others. This includes providing incentives for building materials locally manufactured using more than 40% recycled content.
    • Waste sector: to promote the greening of the waste management value chain and maintain the path to a circular economy (see our previous article here), the Government intends to provide various fiscal actions amongst them: incentivizing the adoption of extended producer responsibility (EPR) regulations (already codified in the Sustainable Waste Management Act – see our previous article here); and providing incentives to promote private sector involvement in the waste management sector including tax incentives.

In conclusion:

The ongoing developments in the sector may be the impetus required to set the country on a path of sustainable development practices with growing investments in climate-focused infrastructure projects, the development of more projects with nature-based carbon solutions and a stronger voluntary carbon trading market in Kenya.

Concurrently, the government has also highlighted that it is accelerating the development of a legal framework for carbon markets to ensure quality, transparency and high integrity. Proper stakeholder engagement will be key in developing the legal framework to ensure an appropriate regulatory framework is in place to enhance the sector and positively influence its growth.

Bowmans will continue to keep an eye on and update you on the developments made in this regard.