Executive summary

Kenya recently published the Climate Change (Carbon Markets) Regulations, 2024 (the Regulations), established under the Climate Change Act (Cap. 387A) to provide a framework for the implementation of carbon projects in Kenya. The Regulations are aimed at providing a framework for implementing carbon projects, encouraging greenhouse gas emissions reduction, and supporting Kenya's Nationally Determined Contribution (NDC) under the Paris Agreement.

The Regulations apply to participants in voluntary and compliance carbon markets. They have identified key principles that are to be adhered to in the implementation of carbon markets. These include:

1. Each transaction in a carbon project results in a reduction or removal of greenhouse gas emissions.
2. Mitigation outcomes are accounted for in tons of carbon dioxide equivalent.
3. Emissions from carbon projects must be kept out of the atmosphere for a reasonable period.
4. Each offset scheme must be properly documented.
5. Each carbon project must adhere to environmental integrity.

Under the Regulations, the Designated National Authority is tasked with ensuring that there is no double counting of mitigation outcomes by applying corresponding adjustments to carbon projects.

This Alert highlights the key provisions in the Regulations.

Detailed discussion

Designated National Authority

A central aspect of the Regulations is the creation of a National Authority (Designated National Authority) responsible for overseeing carbon market transactions, ensuring compliance with the Regulations, and preventing double counting of emissions reductions. The Authority is also expected to maintain a list of recognized carbon standards and to provide guidance on the application of corresponding adjustments and project eligibility.

The Authority is to be supported by the Climate Change Directorate and a multi-sectoral committee that will coordinate with stakeholders, advise the government on measures and activities being undertaken by stakeholders, engage the public and promote research activities.

The multi-sectoral committee will draw membership from ministries, counties, departments and agencies comprising all sectors of the Intergovernmental Panel on Climate Change to provide technical advice to the Designated National Authority on carbon project assessment. Members of the committee are to be nominated by the respective sector cabinet secretaries and the council of governors and must possess technical expertise in energy, transport, agriculture, forestry and land use, waste management, industrial processes and product use, among other requirements.

Carbon Registry

The head of the Designated National Authority shall be the National Registrar of the National Carbon Registry. The functions of the Registrar shall include keeping, maintaining and updating the registers, implementing measures to ensure confidentiality of data and submitting quarterly register reports to the cabinet secretary.

The registries are to be maintained and updated sector-wise; the sectors include energy, transport, agriculture, forestry and land use, industrial processes and product use and waste. These sector registries are to be headed by sector registrars appointed by the cabinet secretary. Each sector registrar's functions include keeping and maintaining a sector register of carbon projects, implementing measures that ensure the confidentiality of collected information and submitting quarterly reports to the National Registrar on the information maintained in the sector register.

Carbon markets

The Regulations govern the trading of carbon credits and provide the requirements that each carbon project must meet. These include: complying with the provisions of the Act and the Regulations; adhering to specific standards and safeguards; obtaining certification and validation by independent auditors before project kick-off and at conclusion; being aligned with national laws, policies and strategies; indicating how the project will contribute to the NDC; indicating project ownership; and involving local communities where the carbon project is undertaken on public or community land.

The project is also expected to indicate the project's anticipated employment creation and describe how the project will ensure environmental integrity, sustainable development and poverty alleviation.

The Regulations further provide that a project proponent shall be a legal entity with the financial capacity to undertake a carbon project; they should also demonstrate relevant knowledge and expertise in undertaking carbon projects and adherence to all applicable legal requirements necessary for the operation of carbon projects. The project proponent must disclose to the Designated National Authority information relating to the project costs, expected emission reductions or removals at the application and issuance stages and adherence to all applicable legal requirements in operating carbon projects.

Each carbon project is to undergo an environmental and social impact assessment that adheres to sector-specific standards and safeguards. Prior to commencement, each carbon project shall be subjected to certification of international standards by a recognized international body and validated by an independent auditor, with each result verified for compliance with the Act and Regulations.

Incentives

The Cabinet Secretary in charge of Environment, Climate Change and Forestry may, in consultation with the Cabinet Secretary responsible for finance, provide fiscal and/or non-fiscal incentives for project proponents to support the development of carbon projects.

Notably, several tax incentives are available for carbon-related projects, such as a lower corporate income tax rate of 15% for the first 10 years from the year of commencement of operations for a company operating a carbon-market exchange or emission-trading system certified by the Nairobi International Financial Centre Authority.

Annual social contributions

One significant aspect of the Regulations is a requirement for social contributions. Specifically, land-based projects must allocate 40% of their earnings to community development, while non-land-based projects must contribute 25%, with an additional 25% directed toward the Climate Change Fund.

A private carbon project on private land will not be required to disburse the annual social contributions, however. 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 Community Development Agreement.

Funds to be paid into the Climate Change Fund

The Designated National Authority must remit to the Climate Change Fund 50% of the corresponding adjustment fees set out in the Second Schedule and 25% percent of the aggregate earnings payable for non-land-based carbon projects.

Next steps

Stakeholders should familiarize themselves with the Regulations and assess their impact on current and future operations.

The Regulations provide a legal framework for the operation of carbon markets in Kenya with the aim of facilitating the country's transition to a low-carbon economy and meeting its international climate commitments.