Overview Of The Kenyan Climate Change (carbon Market) Regulations 2024

Introduction 

Effective 17th May 2024, the Climate Change (Carbon Markets) Regulations (the Regulations) usher in a significant step towardsthe implementation of carbon projects and participation in the carbon market. The Regulations give effect to the Climate Change (Amendment) Act 2023 (the Act) which amended the Climate Change Act 2016. With the gazettement of the Regulations, Kenya is set for a transparent, efficient and compliant carbon market hence becoming a leader in sustainable development and environmental stewardship. 

Governance Framework for Carbon Trading in Kenya 

The Regulations provide guidance to  individuals and businesses interested in carbon markets, trading and projects alike. The Regulations seek to foster a comprehensive guide to understanding and navigating the carbon trading landscape whilst leveraging the opportunities in the evolving carbon market.  

To sustain approvals as well as the regulation of carbon projects, the National Environmental Management Authority (NEMA) was appointed by the Cabinet Secretary to Environment, Climate Change and Forestry vide Gazette Notice No. 7621 of 2024  as the Designated National Authority (DNA) for market mechanisms and any other mechanisms derived from Article 6 of the Paris Agreement, with effect from 12th June, 2024. 

As a pivotal role of the DNA in facilitating the development and implementation of carbon projects, its other responsibilities will encompass: 

1. Issuance of letters of approval to project proponents; 
2. Evaluation of carbon projects concept notes and issuance of letters of n0 objection; 
3. Providing guidance on operationalization of the rules and procedures of the Paris Agreement including approval and authorisation of activities and project proponents; 
4. Maintaining a list of recognised carbon standards; 
5. Providing guidance on the application of corresponding adjustments and project eligibility; 
6. Continuous monitoring of registered carbon projects and project proponents’ compliance with the Regulations. 

Essentially, the Regulations will be a game changer in the following: 

1. Ensuring Compliance- project proponents will ensure their projects comply with local and international laws thus mitigating risks of penalties or project misalignments and disruptions due to non-compliance. 
2. Initiation of Carbon projects- with the necessary framework in place, it will be easy to navigate legal requirements ensuring that proposed projects adhere to environmental standards and regulatory expectations from the formulation to implementation stages. 
3. Market penetration- as carbon markets exists in various jurisdictions, compliance with global standards as aligned in the Paris Agreement would enable access to international markets, funding as well as global partnerships. 
4. Visibility- compliance with the Regulations as well as global standards would enhance long-term visibility of the carbon project hence attracting investors and stakeholders seeking to tap into environmentally sustainable projects. 

Notable highlights of the Regulations

1. Transitional Framework 

Existing projects are required to -within two years, achieve compliance with the Regulations while ongoing projects must undergo an environmental audit within six months of the Regulations taking effect to facilitate updated standards. 

As such, the Regulations seek to promote continuity and alignment with enhanced market and environmental integrity standards to ensure seamless transition of current projects towards the new regulatory landscape without interruption.

2. Streamlined Institutional Framework 

Through a clear and structured carbon project development pathway, the Regulations guide proponents of carbon projects to begin by submitting their detailed concept note to  NEMA. Once approved, they will receive a letter of no objection as a preliminary approval. Subsequently, NEMA will issue a final approval letter once the project design documents have been approved. Such approved projects are to be initiated within 12 months with provision for extension and they must adhere to mandatory annual reporting progress and carbon issuance notifications.  

This process ensures all carbon projects meet stringent criteria hence enhancing the environmental integrity of Kenya’s carbon market and strengthening credibility.

3. Alignment with Global Agreements 

• Paris Agreement Compliance- in adherence to Article 6, the Kenyan Regulations outline detailed procedures for the international transfer of mitigation outcomes such as double counting risks where project proponents are required to pay a corresponding adjustment fee. 
• Whitelists and Guidelines- the DNA facilitates operationalization of Article 6 and maintains a whitelist identifying preferred technologies and activities eligible for bilateral cooperation, ensuring transparency and adherence to international best practices in carbon trading and emissions and reduction efforts. 

As such, alignment with international standards enhances credibility and appeal to international investors ensuring the Kenyan market is well integrated towards best practices.

4. Supporting Institutional Framework 

By introduction of an institutional framework to support the implementation and oversight of carbon projects in Kenya, the Regulations provide thus: 

• National Carbon Registry the registry ensures accurate tracking and reporting of carbon credits generated by approved projects. 
• Sector Registries- NEMA is mandated to coordinate with sector-specific registries to ensure comprehensive oversight and alignment across diverse sectors involved in carbon emissions reduction efforts. 
• Climate Change Directorate- functions of the Directorate have been expanded where it will also advise the government on measures and control of carbon market activities and coordination of stakeholders for effective control and management of carbon markets. 
• Designated National Authority- serving as the primary authority responsible for oversight of the carbon project process, it is mandated to authorize and monitor carbon projects. 
• Ad Hoc Committees- project-specific committees comprising of experts from ministries, counties, departments and agencies to undertake review of project documents and provide technical expertise. 

The head of the DNA will also be the designated National Registrar of the National Carbon Registry established under the Act. The DNA is mandated to 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 management. 

 5. Equitable Benefit Sharing Mechanisms 

The Regulations take a community interest-based approach in the carbon projects to promote social equity, ensuring they have tangible benefits through the following: 

• Community Development Agreements (CDA)- these provide specific social contributions and their disbursements as stipulated in the Regulations towards ensuring transparency and fair compensation actively involving communities in the benefits derived from carbon projects 
• Nationally Determined Contributions (NDC)- carbon projects intending to contribute to the country’s NDC will be required to indicate this to avoid double counting of mitigation outcomes to ensure careful documentation of emission reductions and removals for proper recording of carbon credits. 
• Mandatory Contributions- non-land-based projects allocate at least 25% while land-based projects allocate 40% of earnings, post business costs. The contribution from land based projects shall be governed by the terms of the Community Development Agreement entered into as between the project proponent and the respective community. The allocation from non land based projects shall be remitted  to the Climate Change Fund. 

 6. Non-Compliance Measures 

To uphold market integrity, the Regulations seek to ensure accountability, transparency and trustworthiness in Kenya’s carbon trading practices, by employing stringent penalties. Minor offences such as failure to submit annual reports attract fines of up to Ksh. 20, 000 or 6 months imprisonment. Serious offences involving unauthorized trading of carbon trading, money laundering or providing false information will mean offenders will face fine of Ksh. 500,000,000 or imprisonment of up to 10 months. 

Additionally, further carbon project requirements under the Regulations feature: 

• Certification, validation and verification- proposed carbon projects will be subject to international standard certification by a recognized international body and validated by an independent auditor and the final verdict verified for compliance with the Act and the Regulations. 
• Free Prior Informed Consent (FPIC)- this must be documented for all community land-based carbon projects 
• Environmental and Social Impact Assessment- carbon projects must under assessment in accordance with the environmental management legal framework. 
• County letter of support- proposed carbon projects will now be required to obtain a letter of support from the respective county where the carbon project shall be undertaken. 

Conclusion 

The Regulations provide for much needed clarity and understanding of carbon projects and their implementation by providing guidance on theauthorisation process to develop carbon projects in the country. The gazettement of the Regulations therefore underlines Kenya’s commitment towards a low-carbon and climate resilient future and the Government’s determination to establish Kenya’s carbon markets. 

As Kenya sets itsambitious goals to lead the way as a champion in climate change action in the Region, we at CM Advocates continue to monitor the implementation of the Regulations and provide timely and relevant updates on the regulatory and practice developments impacting businesses in the carbon trading sector. For more information, please get in touch with the CM Advocates Team for any clarifications and assistance on the above by contacting us on +254 716209673 or on email via law@cmadvocates.com