The global effort aimed at addressing the harmful effects of climate change has gained impetus over the last decade. Indeed, countries and organisations across the globe have progressed from making mere pledges to reduce greenhouse gas emissions, to actively creating and implementing policies and legislation aimed at achieving the same. Most notably, institutional frameworks have been established to encourage the achievement of net zero emission targets.

The Paris Agreement of 2015 has been instrumental in advancing the role of voluntary cooperation and market-based approaches in this regard. This article focuses on the realisation of Article 6 of the Paris Agreement (Article 6) in Kenya. Article 6 creates a mechanism by which countries can voluntarily co-operate to achieve their emission reduction targets.

Article 6 and the Concept of Voluntary Co-operation

Carbon markets are one of the tools used by countries to reduce their greenhouse gas emissions. Carbon markets enable countries and private entities which have net-zero commitments, to buy carbon credits generated from projects which reduce or remove greenhouse gases from the atmosphere. The goal of Article 6 is to provide flexibility in achieving emission reduction targets, while also promoting sustainable development and ensuring environmental integrity.

Article 6 does this by providing various mechanisms through which voluntary co-operation by countries can be achieved. Firstly, Article 6.1 encourages party states to utilise voluntary cooperation to meet their self-defined emission reduction targets known as Nationally Determined Contributions (NDCs). Articles 6.2 and 6.3 introduce the concept of Internationally Transferrable Mitigation Outcomes (ITMOs), which are carbon dioxide offset units that can be used by party states to achieve their NDCs. The focus on voluntary cooperation and the introduction of ITMOs as a trading unit serves the purpose of facilitating a transition to the Sustainable Development Mechanism (SDM) introduced under Article 6.4, which aims to promote sustainable development, alongside efforts to mitigate greenhouse gas emissions. The Article 6.4 mechanism is intended to build on the Clean Development Mechanism (CDM) under the Kyoto Protocol of 1998. The process of transitioning CDM activities to the Article 6.4 mechanism is expected to begin in January 2024.

The other mechanism introduced under Articles 6.8 and 6.9 is the non-market-based approach, which aims to promote voluntary cooperation between countries in areas such as technology transfer, capacity building and financial and technical support.

Voluntary cooperation between countries, as envisioned under Article 6, creates a great opportunity for developing countries such as Kenya. The concept recognises the relationship between climate change and sustainable development. Further, it creates a framework that can spur the economies of developing countries by encouraging cooperation that can foster job creation, the development of projects, and the provision of water, food and renewable energy.

Given Kenya’s Vision 2030 agenda, as well as her status as a leading renewable energy producer globally, the country is a well-placed partner in the realisation of Article 6. Kenya is a signatory to virtually all major international treaties and conventions on the mitigation of climate change.

Accounting and Reporting

Article 6 calls for robust accounting to ensure the integrity of ITMOs. A major concern for investors and buyers of carbon credits is the gaps in accounting for how carbon credits are sold and thereafter retired to avoid double counting. Article 6 requires that ITMOs be subject to a rigorous accounting framework which ensures that emissions reductions are real, measurable and permanent, thereby entrenching integrity.

Within Kenya’s Ministry of Environment, Climate Change and Forestry’s (the Ministry) draft strategic plan for 2023 – 2027, strategies to enable the country to meet its climate change obligations are set out. The strategic plan envisages the development of carbon market frameworks. This is intended to accelerate climate change adaptation and mitigation programs. It also intends to provide an incentivizing framework for investment in carbon markets, as well as establish and support institutions to oversee carbon market activities in Kenya. To achieve this, a national carbon registry will be established and maintained. There will also be a deliberate effort to support carbon market sector players to effectively engage in carbon markets.

The Climate Change (Amendment) Act 2023

Currently, the guiding statute on carbon trading in Kenya is the recently passed Climate Change (Amendment) Act, 2023 (the Amendment Act). The Amendment Act builds on the Climate Change Act, 2016 which provided measures to achieve lower carbon emissions but fell short of creating an institutional framework for carbon trading. This gap precipitated the need to bolster existing legislation, thereby ushering in the Amendment Act.

The Amendment Act is the first major policy step Kenya has taken to operationalize Article 6. The Amendment Act introduces a national carbon registry, which is a central database with up-to-date information on all carbon credit projects in Kenya, authorisations granted to project developers, Kenya’s carbon budget and the greenhouse gas units available to trade, as well as the amount of carbon credits issued and transferred in Kenya and the cancellation and retirement of all carbon credits issued within the country.

The Amendment Act regulates the trading of carbon credits and ITMOs, whether they occur through private equity transactions, the voluntary carbon market or bilateral and multilateral trade agreements. It is anticipated that the national carbon registry will be part of a raft of measures that will bolster investor confidence in carbon offset projects in Kenya, as well as encourage Kenyan firms to participate in carbon trading. These measures are intended to create transparency in the generation and transfer of carbon credits.

The Amendment Act also envisions the creation of a national authority which will be the custodian of the national register. This body will authorise and approve participation in carbon offset projects that fall under the Paris Agreement. Furthermore, it will monitor and report on carbon offset projects. This will assist in meeting the requirements of Article 6 on robust reporting.

Further Policy Initiatives on Reporting

The Ministry’s draft strategic plan for 2023 – 2027 proposes the creation of a Climate Change Mitigation and Knowledge Management Directorate (the Directorate). The Directorate will be tasked with coordinating the creation and application of guidelines for the processes and regulations governing the carbon market. It will also co-ordinate a national climate change knowledge and information system and evaluate and report on Kenya’s compliance with international responsibilities. This system will facilitate voluntary cooperation between Kenya and other countries. This will be achieved by improving the institutional framework for carbon trading and creating transparency in the transfer of carbon credits and ITMOs.

Benefit Sharing

The Paris Agreement is conscious of the nuances between climate change mitigation, equitable access to sustainable development and the eradication of poverty. Parties engaging in carbon trading are encouraged to make provisions for benefit sharing with local communities and ensure environmental integrity.

Following the enactment of the Amendment Act, a project developer hoping to commence a carbon offset project in Kenya will be required to do so through a Community Development Agreement (CDA), which outlines the connections and responsibilities of the project’s proponents to the public and community and where the project is being developed. This provision works to cushion the impacted communities and to ensure environmental protection and the equitable distribution of funds generated from carbon offset activities. For land-based projects, the Amendment Act requires a provision in the CDA for annual social contributions of at least forty percent (40%) of the project’s aggregate earnings, while for nonland-based projects, the requirement is that at least twenty-five percent (25%) of the project’s aggregate earnings should count towards the annual social contribution to the community.

Under the Amendment Act, the CDA should contain information relating to the stakeholders of the project, the annual social contribution of the aggregate earnings of the previous year of the community to be disbursed and managed for the benefit of the community, how the project developers will engage local stakeholders, how the benefits from carbon markets and carbon credits will be shared between the project proponents and impacted communities and the proposed socio-economic development around community priorities, among other things.

Environmental Integrity

Article 6 provides that all voluntary cooperation projects must ensure environmental integrity, particularly because developing countries are vulnerable to resource exploitation.

Kenya’s commitment to environmental protection is established in the preamble of the Constitution of Kenya, 2010, which explicitly provides that the environment is the country’s heritage, which it is determined to sustain for the benefit of future generations. Further, the Amendment Act requires all carbon offset projects to undertake an Environmental Impact Assessment before obtaining approval.

Conclusion

Kenya has made great strides in enacting and proposing legislation to facilitate a conducive environment for carbon trading. Once instituted, this regulatory environment is expected to encourage stakeholders across the carbon trading value chain to leverage the opportunities offered by Article 6 in carbon trading projects within the country. By recognising and harnessing the potential of carbon trading as a means of voluntary cooperation, Kenya is a step closer to meeting its sustainable development and emission reduction goals. Carbon trading is a useful tool in mitigating climate change and its growth ought to be encouraged.