INTRODUCTION
This
paper is concerned with the legal, policy and institutional framework for carbon
trading in Kenya. It seeks to interrogate the law and regulations governing
carbon trading and the institutions involved in the actualization of carbon
trading.
Carbon
trading as a concept can be traced from the negotiation and eventual signing of
the Kyoto Protocol. The Kyoto Protocol is an international law that legally
binds all its signatories to reduce emissions into the atmosphere. It was first
adopted in December 1997 and entered into force in February 2005.The first
commitment period applied between 2008 to 2012, the second commitment period
applies to emissions between 2013 to 2020.The amended Kyoto protocol that
includes the second commitment period has not yet entered into force. It
however has the legal strength that was in the initial protocol[1].The
protocol establishes three means through which all signatories are obligated to
meet their targets. These are:
·
Clean
Development Mechanisms;
·
Joint
Implementation; and
·
International
Emissions Trading, the latter being the subject concern of this analysis.
Clean
Development Mechanisms
Clean
Development Mechanisms is provided for under Article 12 of the Kyoto Protocol.
It allows for Annex B parties (developed states) to implement projects in developing
states that reduce emission. These projects earn credits that are equal to one
tonne on carbon dioxide and can be counted towards meeting the target in the
Protocol. It provides for developed countries an alternative means of reducing
their emissions[2].
Joint
Implementation
This
is provided for in Article 6 of the Protocol. It permits for Annex B parties to
implement projects individually or in partnerships with developing states that
aim to increase the number of emissions sinks. These projects include the increase
of forest cover and earn the Annex B parties emission reduction units. These
units are used to offset emissions that are in excess of the emission targets
set[3].
International
Emissions Trading
Parties
under the Protocol have obligations assigned to them according to their levels
of emissions; those with commitments to reduce emissions are provided for in
Annex B. These commitments to reduce emissions are expressed in the form of
allowed emissions or assigned amount units[4].
Emissions’ Trading is carried out under a market approach called ‘CAP and TRADE’. All parties that have
obligations to reduce their individual amount of emissions set a cap on their
emissions .This means that once a
party exceeds its cap, it will have to purchase the difference between their
cap and their emission. This is the ‘cap’ aspect of the market
approach. The ‘trade’ aspect of the market approach is instanced where those
parties who have managed to emit less than their cap have emission units to
sell. Carbon is the most emitted greenhouse gas in the world this has led to
the notion that it is the only gas emitted. This is how the term ‘carbon
trading’ in reference to emissions trading came about.
HOW DOES EMISSION
TRADING WORK
In
the international arena, Emission Trading is provided in the Kyoto Protocol’s
Article 17[5]. Emission
targets for developed countries are expressed as levels of allowed emissions or
assigned amounts.These amounts are expressed in tonnes known informally as ‘Kyoto Units’[6]. The
unit of trade in the emission trading is known as carbon credits. As carbon financial instruments, they can be bought
and sold in international markets at the prevailing market prices[7].Carbon credits are what are generated by
developing parties and are bought by developed parties who have exceeded their
assigned amounts.
There
are two kinds of markets:
1. the compliance
market; and
2. the voluntary
markets.
In
the Compliance Market, obligated parties are bound by the Protocol
to buy carbon credits to offset their exceeded assigned amounts.
The
Voluntary Market is mostly used by large multinational companies who do
not have the obligation to offset any excess assigned amounts. However, they
buy carbon credits because of their carbon
footprint and for corporate social responsibility reasons[8].
LEGAL FRAMEWORK FOR
CARBON TRADING IN KENYA
There
are legislations operational in Kenya that establishes the legal framework for
carbon trading. These are:
a) The Constitution of
Kenya (2010);
b) Kyoto Protocol to
the United Nations Framework Convention on Climate Change (“Kyoto Protocol”);
c) Energy Act(No. 12
of 2006) and Energy Management Regulations (2012); and
d) Environmental
Management and Coordination Act (No. 8 of 1999) (EMCA)
THE CONSTITUTION OF
KENYA
There
is no express mention of carbon trading in the Constitution of Kenya. However:-
·
Article
2(6) provides that every treaty and convention that Kenya is a party are part
of the law of Kenya. This includes the Kyoto Protocol and well as the United
Nations Framework Convention on Climate Change, ‘UNFCC’ under which the Kyoto Protocol was concluded.
·
Article
42 provides that every person has the right to a clean and healthy environment,
while Article 69(1) provides for protection of the environment for the benefit
of future generations. These rights and protections are to be achieved through
the State’s sustainable exploitation and conservation that ensures not only
protection but also the accrual of benefits that are to be shared out
equitably. When read together with the Energy Act (2006), these provisions are
understood to make reference to carbon emission trading as well as other means
of sustainable utilization of the environment.
THE KYOTO PROTOCOL
Kenya
ratified the Kyoto Protocol to the UNFCC in February 2005. The Protocol came
into force on 26th May 2005. The Protocol establishes an opportunity
for carbon trading in its various provisions some of which are highlighted
below:-
·
Article
3 provides that developed states (Annex 1 parties) shall have a duty to ensure that their carbon emission
do not surpass their assigned amounts;[9]
·
Article
6 provides that carbon emission
credits can be bought, transferred or sold amongst parties to the Protocol[10]. Kenya as a Developing State does not
have an assigned amount; it is only obligated by the Protocol to ensure that
there is utilization of renewable sources of energy. These include the
use of solar and geothermal energy instead of hydroelectric power, use of
energy efficient charcoal stoves as well as reforestation among others. Kenya
is therefore able to generate carbon credits that it can sell to developed
states that need the credits to offset their excess carbon emissions;
·
Article
12 provides for the clean development mechanism under which carbon credits
maybe traded from environmental friendly projects. This Article also provides
for the elaboration of modalities and procedures with the objective of ensuring
transparency, efficiency and accountability through independent auditing and
verification of the said projects’ activities; and
·
Article
17 also provides for the provision of relevant principles, modalities, rules
and guidelines in particular for verification, reporting and accountability for
emissions trading. This Article also cautions that carbon trading is merely
supplemental to other domestic actions for the purpose of meeting quantified
emission limitation and reduction commitments.
THE ENERGY ACT
(2006) AND THE ENERGY MANAGEMENT REGULATIONS (2012)
The
Energy Act 2006 in section 103(2) (g) avails to the Minister (now Cabinet
Secretary) of energy and petroleum, the
power to harness opportunities for clean energy. This includes the
various forms of generation of carbon credits and their sale in the world
market. Whereas the Act does not specify in what form this generation should
take place, various stakeholders in the energy sector have implemented projects
that have successfully generated credits. The Kenya Electricity Generating
Company (KENGEN) for example has registered six CDM projects. These projects
will ensure the displacement of 0.66 million tonnes of carbon dioxide annually.
The projects were documented to have earned the company up to 500 million
shillings annually until 2012[11].
The Energy
Regulations provides for clean development mechanisms which permit the roll out
of emission reducing projects in developing states. Section 8(2) that
“An owner or occupier to whom these Regulations apply may investigate the
inclusion of the relevant components of an energy investment plan into a
project to be registered under the clean development mechanisms or any other
carbon finance mechanism which may be in place from time to time,” It is
notable that although it provides for the creation of carbon credits, it is
neither mandatory nor is it enforceable against energy producers who fail to do
so. These projects are expected to earn the developing states carbon credits
that can be traded in world markets the returns of which are beneficial to a
production state (non Annex B party)[12].
ENVIRONMENTAL
MANAGEMENT AND COORDINATION ACT (EMCA)
The
Environmental Management and Coordination Act (EMCA) establish the National Environmental
Management Authority. NEMA is tasked with the coordination of various
environmental activities that will ensure sustainable utilization of
environmental resources[13].The Act
enables the Authority to do this through the requirement that all projects that
have a bearing on the environment proceed after issuance of an Environment
Impact License[14].
The license is issued after an environmental impact assessment in which NEMA
investigates the benefits and possible hazards that the project may have on the
environment. This ensures that NEMA is cognizant of ongoing projects and can
monitor them in order to ensure sustainable and beneficial utilization of the
environment. The Act however makes no reference to carbon emission credits
generation but works hand in hand with other legislations that make reference
to carbon credits generation.
POLICY FRAMEWORK OF
CARBON TRADING IN KENYA
The
Ministry of Finance in fiscal year 2011/2012 prepared a National Policy on Carbon
Investments and Emission Trading. This was in response to the advancements that
were being made in the carbon credits trade and the need to have a mode of
regulation of carbon trading that was already ongoing. The ministry of finance
circular that was issued on carbon trading thereafter laid out the following
strategy:
·
That
all new carbon credit eligible projects in all sectors must be implemented in
accordance with Clean Development Mechanisms. This was in order to facilitate the project’s approval
by the executive board of the United
Nations Framework Convention on Climate Change;
·
All
carbon credits generated would be used for the recapitalization of the projects
and could only be traded in with the direct approval of the Treasury[15].
This
policy strategy was aimed at ensuring that the Treasury remained in control of
carbon trading in Kenya and had a centralized database of all projects that
were capable of generating carbon credits.
The
National Policy on Carbon Investments and Emission Trading also recognized the
need to have a forum for the private investors’ involvement in carbon trading
in Kenya and Africa. This led to the establishment of Africa Carbon Exchange
(ACX) headquartered in Nairobi in 2010. The ACX was founded in order to:
·
provide
the players in the carbon market with an opportunity to exchange ideas on the
best practices of the trade;
·
to
build and utilize capacity in the carbon trade industry;
·
to
collectively gather, analyze and disseminate information to the industry
players; and
·
to
offer interactive forums between governments and agencies involved in the
formulation and implementing of climate change policies[16]
INSTITUTIONAL
FRAMEWORK
There
are both public and private industry players in the carbon trading industry:
the government and private companies respectively. The Government through the
various ministries is responsible for the projects proposals implementation and
sale of carbon credits. The Ministry of Finance is in charge of the overall regulation
of carbon trading because it is the ministry charged with overall financial
system in the country.
The
National Environmental Management Authority (NEMA) established by the
Environmental Management and Coordination Act (EMCA) is Kenya’s Designated
National Authority. It is the national authority responsible for assessing
whether a prospective project contributes to sustainable development under the
Clean Development Mechanism (CDM). NEMA alongside the Ministry of Finance ensures
that a project is a viable venture to generate carbon credits. In addition, NEMA
maintains an updated website with background information on the CDM[17].
PARTICIPATION IN
CARBON TRADING
Any
person who wishes to sell carbon credits has to have a project registered under
the UNFCC as CDM Project. The process of registration of a project undergoes
the following broad steps:- [18]
·
Project
Development;
·
Project
Validation;
·
Project
Registration;
·
Project
Implementation;
·
Project
Monitoring;
·
Project
Verification;
·
Credit
Issuance; and
·
Commercialization
The
review and guidance of a project to qualify as a CDM Project is carried out by
UN third party project auditors referred to as Designated Operational Entities.
This is in co-ordination of NEMA as Kenya’s
Designated National Authority.
CONCLUSION
It
is commendable that there has been progress in carbon emissions trading and
that Kenya is a pioneer in East and Central Africa region. Carbon trading
offers great prospects for social and economic empowerment of the people of
Kenya especially in areas where no viable agriculture can take place. For these
reasons, the legal, policy and institutional framework for carbon trading
should be streamlined. It is recommended that stakeholders initiate discussions
towards the drafting and eventual enactment of an independent legislation
expressly dealing with carbon emissions trading.
We trust that the
above will be useful in your decision making processes regarding
carbon/emissions trading. However, should you have any further queries
regarding carbon/emissions trading in Kenya, please do not hesitate to contact
us at info@stralexgroup.co.ke or
on + 254 715 310 677 for clarification.
Yours
faithfully,
For: Strategic
Legal Solutions Group Limited
.png)
Teddy Okello, through Centre for Environmental Law & Policy – a
participating consultancy firm in the SLS Group of consultancies.
[1] http://unfccc.int/kyoto_protocol/items/2830.php
accessed 23rd September 2013 0800hrs
[2]http://unfccc.int/kyoto_protocol/mechanisms/joint_implementation/items/1674.php
23rd September 2013 0800hrs
[3]Supra note 2
[4]http://unfccc.int/kyoto_protocol/mechanisms/emissions_trading/items/2731.php
-accessed 24th September 2013 at 1045hrs
[5]The Conference of the
Parties shall define the relevant principles, modalities, rules and guidelines,
in particular for verification, reporting and accountability for emissions
trading. The Parties included in Annex B may participate in emissions trading
for the purposes of fulfilling their commitments under Article 3. Any such
trading shall be supplemental to domestic actions for the purpose of meeting
quantified emission limitation and reduction commitments under that Article.
[6]http://unfccc.int/kyoto_protocol/registry_systems/items/2723.php-accessed
24th September 2013 1045hrs
[7]http://www.danfonds.com/index.php?id=52
accessed September 24th
2013 105hrs
[8]http://www.carbonafrica.co.ke/our-services/carbon-markets.html
- accessed 23rd September 1000hrs
[9] The Parties included in Annex I shall, individually or jointly, ensure
that their aggregate anthropogenic carbon dioxide equivalent emissions of the
greenhouse gases listed in Annex A do not exceed their assigned amounts,
calculated pursuant to their quantified emission limitation and reduction
commitments inscribed in Annex B and in accordance with the provisions of this
Article, with a view to reducing their overall emissions of such gases
by at least 5 per cent below 1990 levels in the commitment period 2008 to 2012
[10] For the purpose of meeting its commitments under Article 3, any Party
included in Annex I may transfer to, or acquire from, any other such Party
emission reduction units resulting from projects aimed at reducing
anthropogenic emissions by sources or enhancing anthropogenic removals by sinks
of greenhouse gases in any sector of the economy, provided that:
(a) Any such project has the approval of the Parties involved;
(b) Any such project provides a reduction in emissions by sources, or an
enhancement of removals by sinks, that is additional to any that would
otherwise occur; It does not acquire any emission reduction units if it is not
in compliance with its obligations under Articles 5 and 7; and
(d) The acquisition of emission reduction units shall be supplemental to
domestic actions for the purposes of
meeting commitments under Article 3.
[11] http://www.kengen.co.ke/index.php?page=business&subpage=cdm
[12] Definitions: 3.In these Regulations, unless the
context otherwise requires—“clean development mechanism” means a mechanism that
allows emission-reduction projects in developing countries to earn certified
emission reduction (CER) credits each equivalent to one tonne of CO2, which can
be traded and sold, and used by industrialized countries to meet a part of their emission reduction
targets under the Kyoto Protocol
[13] Section9(2)(a)
[14] Section 63
[16] www.acxafrica/features-accordion.html
-accessed 24th September 1530hrs
[17] http://www.ke.boell.org/downloads/Can_Carbon_Credits_Help_Kenya_Become_Green.indd.pdf-accessed 24th September 2013 1540hrs
[18]
http://carbonmarketwatch.org/learn-about-carbon-markets/cdm-project-cycle/
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