Speed up regulations to catalyse Kenya’s carbon markets, speakers say

Kenya could earn billions of dollars from the global market in carbon credits but needs to finalize the regulations needed to achieve that potential, according to speakers at Diamond Trust Bank’s Sustainability and Economic Forum.

Despite being the first country in Africa to enact the Kenya Climate Change Act in 2016 to help tackle climate change, it amended the law in 2023 to include carbon markets and published the first set of regulations in May 2024.

Speakers at the 4th DTB Economic and Sustainability Forum in Nairobi said there is still some work to be done to realize the opportunities in the carbon market for Kenyans.

They said the solution would be to speed up the enactment of the needed regulations to enable financial institutions to hold potential borrowers to a standard as they seek to invest in the nascent sector.

Paul Muthaura, the CEO of the Africa Carbon Markets Initiative, said Kenya can use its position as a leader in technology and digital systems in Africa to lead the continent in carbon trading.

“We now have a fairly solid legal framework. The law is only the first step and with robust public participation, we can truly live up to our potential,” said Mr Muthaura.

Dr Jackson Koimburi, head of the Circular Economy and Climate Change at the Kenya Private Sector Alliance, said a set of challenges had made it difficult for Small and Medium Enterprises to gain from the carbon market.

He cited a lack of awareness and capacity, high transaction costs, regulation and policy caps and market volatility, where the price per ton of carbon dioxide of its equivalent varies amongst buyers, as among the factors holding businesses back. Unscrupulous buyers, evident in the price variations, and the upfront costs before an investor can enter the carbon markets have also deterred interested parties.

“Carbon markets are a low-hanging fruit compared to traditional investment routes but there is still more that needs to be done,” said Dr Koimburi.

Clarice Wambua, an Environmental Lawyer and Consultant at Cliff Decker Hofmeyer, said much of the work that needs to be done to get the carbon market going is within the government.

With the amendment to the law, Kenya’s National Designated Authority for the carbon market is the National Environment Management Authority (NEMA), but the Act needs four other regulations to become fully effective. Among these are: technical infrastructure committees, regulations to establish the national carbon registry, and carbon trading regulations.

Kenya’s carbon markets have been active since 2005, she said, but without regulations, complaints emerged about the sharing of revenues with communities where the projects are located.

Reshma Shah, Lead for Carbon Markets at FSD Africa, said the majority of carbon credits issued in Sub-Saharan Africa in 2023 were from forestry (50 percent) and land use (40 percent).

The region however faces challenges such as a complex regulatory environment, verification and reporting, market volatility, initial costs and investment, project selection and visibility, reputation and credibility risks, integration with business strategy, and limited awareness and knowledge.