Kenya presents carbon market regulations

The recent announcement of the Climate Change (Carbon Markets) Regulations 2024 (the ‘Regulations’) on 17^vol May 2024 set the stage for a regulatory review of Kenya’s coal project development and engagement with global carbon markets. The Regulations were enacted following a law-making process that began last year with the Climate Change Amendment Act 2016 (the “Act”) and signal Kenya’s readiness to intensify its efforts to seize the opportunities presented by global carbon markets.

The purpose of the Regulations is to provide a framework for the implementation of coal projects (the “Project”); create incentives to support greenhouse gas emission reduction and removal targets in line with nationally determined contributions; and provide guidelines for the annual social contribution to coal projects.

Coal project development process

The regulations, which apply to both voluntary and compliant emissions markets, establish a project approval process that begins with the applicant submitting a draft design concept to the successful applicant, issued together with a letter of no objection issued by the Designated National Authority ( DNA) within fourteen days. The process ends with the issuance of an approval letter by DNA after the applicant submits a draft project document.

Project proponents must attach supporting documentation to their applications, including all necessary state and county government approvals, as well as any required contracts and agreements with third parties. They are also obliged to pay fees for submitting a Project application and administrative fees specified in Annex II of the Regulations.

The regulations are technology and sector neutral in that they do not prohibit Projects from any particular sector or technology, although they require Projects to be consistent with national priorities, social, cultural and environmental safeguards and all relevant sector-specific standards and safeguards. Importantly, all Projects must be developed based on a recognized carbon standard, and DNA is obliged to maintain and update a list of these carbon standards.

Once the Project Approval Letter is received, the Project Proponent must commence the Project within twelve months (or apply for additional time), notify DNA of the award of Carbon Credits for their Project, and submit annual reports on the progress of their Project.

Institutional framework

DNA has a key role to play in the implementation of the Regulations as it is the entity responsible for authorizing and approving Projects. In this role, DNA appoints a project specialist ad hoc committees review project documents and monitor compliance of registered Projects and project applicants with the Regulations.

The cabinet secretary in the ministry responsible for climate change has the authority to designate a DNA by press advertisement, but this has not yet been done, although it is expected that the designation will be one of the first mandates to bring the regulations into force.

DNA is to manage the National Carbon Register (the “Registry”), which will maintain records of Projects implemented in Kenya; permissions granted; the amount of carbon credits issued or transferred by Kenya; transfer of carbon credits and any carbon credits issued or recognized by Kenya from the National Greenhouse Gas Registry account; and canceling carbon credits.

DNA, as the National Registrar, is also obliged to cooperate with sector registrars of sectoral carbon dioxide emission registers that may be established in the sectors of energy, transport, agriculture, forestry and land use, industrial processes and the use of products and waste. The Act requires the Secretary of the Cabinet to develop regulations governing the operation of the Register.

Sharing the benefits

Pursuant to the Act, an annual social contribution to communities where projects are implemented on public and community land is mandatory. The specified amount required is at least forty percent of the prior year’s total profits less carrying costs for onshore projects and at least twenty-five percent of the preceding year’s total profits less carrying costs for non-land projects.

In case of onshore projects, the annual social contribution shall be included in the Community Development Agreement (CDA) entered into under the Act and prescribed in the Fourth Schedule. For non-land projects, DNA makes an annual community contribution to the Climate Change Fund.

Article 6 of the Paris Agreement

The Rules of Procedure set out Kenya’s principles of engagement in Art. 6 of the Paris Agreement. Project supporters can now apply for authorization for the international transfer of climate change mitigation results and the application for an authorization letter is set out in Annex Six.

The DNA may, after receiving and considering the application, issue an authorization with the consent of the Cabinet Secretary. Appropriate adjustments will be applied to all such authorizations to prevent double counting and project applicants will be required to pay the appropriate correction fee.

DNA is obliged to issue guidelines regarding Art. 6 section 2 and 6 section 4 and it is expected that these guidelines will be issued over time to provide even greater clarity on Kenya’s requirements to engage in Art. defines as “a non-binding, non-exhaustive periodic list of activities or technologies that are likely to deliver the mitigation results foreseen by the Nationally Determined Contributions and which are therefore preferred by the Government of Kenya in the framework of bilateral cooperation under Article 6 section 2“

Transitional requirements

Project promoters involved in the project before the Regulations enter into force are obliged to comply with the provisions of the Regulations within two years from the date of entry into force of the Regulations. Ongoing projects (those in Kenya and developed before the entry into force of these Regulations) are required to conduct an environmental audit within six months of the entry into force of the Regulations.