Kenya unveils carbon market regulations

Coal project development and management process

All carbon projects, whether aimed at voluntary markets or regulatory compliance, must be subject to the project approval process set out in the regulations. The process begins with the applicant submitting a design concept note, after which the successful applicant receives a letter of no objection from the Designated National Authority (DNA). The process ends with DNA issuing an approval letter after the applicant submits a draft project document. After receiving a letter of approval for a coal project, the project proponent must begin the project within 12 months (or apply for additional time). Project proponents must also notify DNA of all carbon credit awards and submit annual reports on the progress of their carbon project.

Institutional framework

An extensive institutional framework is now in place to provide oversight of coal projects in Kenya. In particular, as the entity has been given responsibility for approving and approving coal projects, DNA has a key role to play in implementing the regulations. In this role, DNA establishes special ad hoc committees selected from the larger multi-sector technical committee to review design documents. DNA also monitors registered coal projects and project applicants’ compliance with regulations. DNA is to manage the National Carbon Registry and, as National Registrar, is also required to work with registrars of sectoral carbon emission registers that may be established in the energy, transport, agriculture, forestry and land use, industrial process and product use, and waste sectors.

Sharing the benefits

Pursuant to the Act, an annual social security contribution is obligatory for communities where coal projects are implemented on public and municipal lands. The specified amount required is at least 40% of the previous year’s total profits, less carrying costs for onshore coal projects; and at least 25% of the prior year’s total profits, less the costs of doing business related to non-onshore coal projects. For land-based projects, details of the annual community contribution and how it will be paid will be included in the Community Development Agreement (CDA) between the project proponent and the relevant community. The CDA must be in the form prescribed in Schedule Four of the Regulations. For non-land projects, DNA makes an annual community contribution to the Climate Change Fund.

Article 6 of the Paris Agreement

The Regulations set out some of Kenya’s principles of engagement in Art. 6 of the Paris Agreement, specifying the form that a project applicant should use to apply for authorization for the international transfer of climate change mitigation results and the authorization form that the DNA applicant for authorization will issue to the project. It is clear from the Regulations that appropriate adjustments will be applied to all such permits to prevent double counting and project applicants will be required to pay the appropriate adjustment 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 greater clarity on Kenya’s requirements for engagement in Art. technologies preferred by the Government of Kenya for bilateral cooperation under Article 6 section 2.

Crimes and penalties

If the project applicant commits an offense specified in the Regulations, e.g. failure to submit an annual progress report, the applicant will be liable to a fine of not more than KES 20,000 or imprisonment for a period not exceeding six months, or both. However, designers should be aware that the Act provides for more stringent penalties, including for anyone who voluntarily conducts unauthorized trading in emission allowances, knowingly provides false or misleading information regarding environmental or financial benefits from investments on the emission market, manipulates the measurement of emission allowances carbon dioxide emissions to request additional measurements, engages in money laundering through carbon trading, knowingly sells carbon credits to unauthorized entities or fails to maintain records of carbon emissions. In these cases, if convicted, the prescribed penalty is a fine not exceeding SES 500 million or imprisonment for a period not exceeding 10 years, or both.

Transitional requirements

Project providers involved in the project before the Regulations enter into force are obliged to meet the requirements within two years from the entry into force of the Regulations. However, for ongoing projects (those in Kenya and developed before the entry into force of these Regulations), please note that an environmental audit is required to be carried out within six months of the entry into force of these Regulations.

If you have any questions or require further information, please contact: Clarice Wambua at [email protected]