Understanding Carbon Credits in Kenya

Navigating Kenya’s Carbon Credit Landscape: A Legal Overview

4^th May 2025

Understanding Carbon Credits and Offsets

In the Kenyan context, carbon credits represent a quantifiable unit, equivalent to one metric tonne of carbon dioxide (or an equivalent amount of other greenhouse gases), that has been prevented from entering the atmosphere. This reduction, sequestration, or avoidance of emissions generates a credit. A carbon offset is the action taken to compensate for emissions made elsewhere through the reduction or removal of greenhouse gases. Carbon credits, therefore, serve as certified evidence of these emission reductions or removals.

The Anchoring Legal Framework

Kenya’s commitment to addressing climate change is firmly rooted in its legal framework, primarily the Climate Change Act, 2016. This Act lays the groundwork for an enhanced national response to climate change and establishes mechanisms for achieving low-carbon climate-resilient development. It also mandates the integration of climate change considerations into national development planning and decision-making processes.

Significant amendments in 2023 to the Climate Change Act introduced Part IVA, specifically dedicated to the “REGULATION OF CARBON MARKETS”. This legislative update provides the explicit legal basis for engaging in carbon market activities within Kenya.

Further detailed provisions are outlined in the Climate Change (Carbon Markets) Regulations, 2024 (Legal Notice 84 of 2024), which came into effect on May 17, 2024. These regulations offer a comprehensive framework for the implementation of carbon projects, addressing various aspects including social contribution and the registration process.

International Commitments

Kenya’s engagement in carbon markets is also driven by its obligations under international environmental agreements, including:

• UN Framework Convention on Climate Change (UNFCCC): Ratified on August 30, 1994.
• Kyoto Protocol: Ratified on February 25, 2005.
• Paris Agreement: Ratified on December 28, 2016, and entered into force on November 4, 2016.

Kenya’s Nationally Determined Contribution (NDC), updated on December 31, 2020, outlines the country’s climate action targets, aligning with both domestic needs and international commitments under the UNFCCC and the Paris Agreement. Kenya intends to utilize voluntary cooperation mechanisms under Article 6 of the Paris Agreement to facilitate the implementation of its NDC.

Types of Carbon Projects in Kenya

The regulatory framework recognizes various categories of carbon projects:

• Carbon reduction credits: Projects focused on decreasing emissions from existing sources.
• Removal or sequestration credits: Initiatives aimed at removing carbon dioxide from the atmosphere through methods such as afforestation, reforestation, nature-based solutions, and technology-based removal.
• Land-based carbon projects: Activities related to land use, land management, and ecosystem conservation or restoration that reduce greenhouse gas emissions or enhance carbon sequestration. These projects require community development agreements if undertaken on public or community land.
• Non-land-based carbon projects: Projects utilizing technologies that do not require land to reduce greenhouse gas emissions or remove carbon dioxide, such as household or institutional green technologies (e.g., solar lighting, efficient cookstoves) and green transport.
• Projects listed on the whitelist: Specific projects approved under the regulatory framework.

Kenya’s experience includes projects under the Clean Development Mechanism (CDM), particularly in renewable energy (geothermal and wind), improved cookstoves, and water purification. The voluntary carbon market also features forestry projects like REDD+, as well as initiatives in agriculture and the blue economy.

Regulatory Framework and Key Institutions

The regulation of carbon markets in Kenya involves several key institutions operating within the established legal framework:

• The Climate Change Act, 2016 (as amended): Provides the overarching legal structure.
• The Climate Change (Carbon Markets) Regulations, 2024: Offer specific rules and guidelines for project implementation and trading.
• Policy Direction: Issued pursuant to the Climate Change Act to guide the development of carbon markets.
• National Climate Change Action Plan (NCCAP) 2023-2027: Identifies carbon markets as a crucial finance stream and outlines necessary enabling actions.

Key institutions involved in the governance of carbon markets include:

• The Cabinet Secretary (responsible for climate change affairs): Holds significant responsibilities, including appointing the Designated National Authority (DNA), approving international transfers of mitigation outcomes, and authorizing the establishment of registries. The Cabinet Secretary can also issue operational guidelines and provide non-fiscal incentives.
• The Designated National Authority (DNA): Appointed by the Cabinet Secretary, the DNA is responsible for market mechanisms under Article 6 of the Paris Agreement. It acts as the custodian of the National Carbon Registry and is responsible for authorizing and approving participation in projects under the Paris Agreement. The DNA receives project applications and requests for authorization of international transfers, applying corresponding adjustments to prevent double counting.
• The Climate Change Directorate (CCD): Advises the Cabinet Secretary on various matters, including the carbon budget for trading and international transfers.
• The National Carbon Registry: Established and maintained by the DNA, this public registry includes information on carbon credit projects, authorizations, the carbon budget, and carbon credit transfers and cancellations.
• Sector Registrars: Appointed by the Cabinet Secretary for specific sectors (energy, transport, agriculture, forestry and land use, industrial processes and product use, waste), they maintain sector-specific carbon project registers.
• National Environmental Management Authority (NEMA): Recognized as Kenya’s DNA under the UNFCCC framework, NEMA assesses whether projects contribute to sustainable development under the CDM.

Registration Process for Carbon Projects

The process for developing and registering carbon projects is detailed in the Climate Change (Carbon Markets) Regulations, 2024:

1. Application: The project proponent submits an application for project approval to the DNA, using the prescribed form (Form PCN), accompanied by minutes approving the project and the required fees.
2. Letter of No Objection: If the DNA is satisfied with the application, it issues a letter of no objection within fourteen days, providing a registration number for the project.
3. Project Design Document (PDD): Following the letter of no objection, the proponent submits a detailed PDD outlining the project description, baseline and monitoring methodology, the carbon credit period, and compliance with the chosen accepted carbon standard.
4. Review and Recommendation: Within seven days of receiving the PDD, the DNA submits it to an ad hoc committee for review. The committee recommends approval or rejection to the DNA, providing reasons for rejection if applicable.
5. Approval: Based on the committee’s recommendation, the DNA makes the final decision to approve or reject the project.
6. Authorization (for International Transfer): Project proponents seeking authorization for international transfer of mitigation outcomes can apply to the DNA. With the Cabinet Secretary’s approval, the DNA may authorize the transfer, specifying details such as credit volume, authorization period, intended use, acquiring party, and any conditions. This authorization confirms that Kenya will not count these emission reductions towards its NDC and will apply corresponding adjustments.
7. Commencement: Approved projects must commence implementation within twelve months of receiving the letter of approval. Failure to do so may result in the cancellation of the approval.

Furthermore, an environmental and social impact assessment (ESIA) is mandatory for all carbon trading projects authorized under the Climate Change Act, in accordance with the Environmental Management and Coordination Act. Existing carbon projects established before the 2024 regulations have a two-year window to comply with the new rules and must undertake an environmental audit within six months.

Key Timeframes:

• Issuance of the Letter of No Objection: Within fourteen days of application receipt.
• Submission of PDD to the ad hoc committee: Within seven days of PDD receipt.
• Commencement of project activities after approval: Within twelve months.

Professionals Involved:

The regulations stipulate that project proponents must be legal entities with the financial capacity and relevant expertise in undertaking carbon projects. The application form includes roles such as Sponsor, Intermediary, or Technical Advisory, indicating the need for technical and legal expertise throughout the project development and registration process.

Free, Prior, and Informed Consent (FPIC)

Free, Prior, and Informed Consent (FPIC) is a fundamental requirement, particularly for land-based carbon projects. The Climate Change Act explicitly prohibits the recognition of emission reductions achieved through violations of human rights or without obtaining FPIC.

The Carbon Markets Regulations, 2024, mandate that project proponents provide documented evidence of FPIC for all community land-based carbon projects. For projects on public or community land, a community development agreement is required, ensuring the involvement of local communities from the project’s conceptualization and development stages. The template for the Community Development Agreement includes a section confirming that the proponent has consulted with the community and obtained their FPIC in accordance with Kenyan laws and applicable carbon standards.

Examples of Carbon Projects and Funds Generated

Kenya has a notable history in carbon markets:

• Under the Clean Development Mechanism (CDM), 20 projects and 29 Programmes of Activities have been registered, generating over 12.3 million Certified Emission Reductions (CERs). Key sectors include renewable energy (geothermal and wind), improved cookstoves, and water purification. KENGEN’s six CDM projects, for instance, had the capacity to displace 0.66 million tonnes of carbon dioxide annually, generating up to 500 million shillings annually until 2012.
• In the voluntary carbon market, Kenya hosts 72 activities across forestry, agriculture, and the blue economy, including 51 Gold Standard, 19 Voluntary Carbon Standard, and 2 Plan Vivo projects. Kenya is recognized as a leader in the forestry segment of African voluntary carbon markets, exemplified by the Rukinga REDD+ phase I project. As of 2017, there were 14 Gold Standard Verified Emission Reduction (VER) projects in the pipeline, with six registered, delivering over 2 million tonnes of emission reductions annually, many of which were cookstove projects.

The regulations emphasize the sharing of benefits and earnings from carbon markets between project proponents and impacted communities. For land-based projects, the community contribution must be at least forty percent of the aggregate earnings. For non-land-based projects, this contribution is at least twenty-five percent. The regulations also outline various fees associated with the registration process. Notably, fifty percent of the corresponding adjustment fees and twenty-five percent of the aggregate earnings for non-land-based projects are directed to the Climate Change Fund. Project proponents are required to submit annual reports detailing financial information, including credit sales, prices, buyer details, revenue, operating expenses, and the annual social contribution to the community.

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Disclaimer: Please note that this document provides a general overview of the legal framework for carbon credit registration in Kenya based on the information available. It is not intended to constitute legal advice. Specific circumstances may require consultation with legal professionals to ensure full compliance with applicable laws and regulations.

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