The Climate Change (Amendment) Act, 2023 was enacted on 1 September 2023 and came into force on 15 September 2023. The Act has two main purposes. Firstly, it amends the Climate Change Act No 11 of 2016 to provide for the regulation of carbon markets and a framework for carbon trading. And secondly, the Act introduces pioneering provisions aimed at aligning Kenyan law with its international climate commitments, thus fostering sustainable development, and fortifying the nation’s resilience to climate change impacts. The Act seeks to address gaps in the initial 2016 Act by establishing a connection between domestic climate policies and worldwide climate agreements, with a particular focus on the Paris Agreement, which is referenced by Section 2 of the Act.
The Paris Agreement has committed member states to limiting global warming to below 2 degrees Celsius and pursuing efforts to limit it to 1.5 degrees Celsius, as well as establishing a global carbon trading mechanism. While Kenya’s policies and unconditional target are rated 1.5°C compatible, according to the Climate Action Tracker, there is still significant potential for Kenya to strive for further emissions reductions in all sectors.
To ensure commitment to that effort, together with Kenya’s pledge to reach a target of 100% clean energy by 2030, (which is – surprisingly – not far off), the Act was appropriately amended.
The main takeaways from the Act
- Participation in Carbon Markets (Section 23C) – the Act offers access to carbon markets within which different players can engage. Both Government and private promoters can engage in carbon trading. Two further aspects are addressed, notably emissions reduction and carbon management – which are interrelated concepts. How does one participate in the carbon markets one may ask – the answer is through either bilateral or multilateral trading agreement vehicles. Or either between the Government and a private entity or in a voluntary carbon market. The Act also offers a complete approach to emissions mitigation through carbon reduction credits, removal or sequestration credits, technologies, and projects on the whitelist, and emphasises the significance of carbon removal and sequestration strategies (including afforestation, reforestation, nature-based solutions, and advanced removal technologies).
- Classification of Projects and Social Contributions (Section 23E) – the Act does not define land-based and non-land-based projects. It does however make a distinction between them. It would appear, at least on the face of it, that land–based projects are implemented through a community development agreement which governs the relationships and obligations of the stakeholders. The annual social contribution from land-based projects will be at least 40% of the aggregate earnings. For non-land-based projects, the annual social contribution from the project will be at least 25% of the aggregate earnings.
- Establishment of the National Carbon Registry (Section 23G) – the Act establishes a National Carbon Registry (the Registry), which will be maintained by the Designated National Authority. Kenya’s Designated National Authority is the National Environment Management Authority (NEMA).
- Community Development Agreements (Section 23E (3)) – the Act requires every land-based project to have a Community Development Agreement (CDA) in place. The CDA shall outline the relationships and obligations of the proponents of the project in public and community land where the project is under development. The CDA should also make allowance for the prescribed annual social contributions (being at least 40% for land-based projects and at least 25% for non-land-based projects). The purpose of the CDA is to set out the who, the what, the where and the how much. A “community” is defined under Section 1 of the Act, as an organised group of individuals sharing common attributes such as Kenyan citizenship, ancestry, culture, livelihood, socio-economic interests, geographical and ecological location, and ethnicity. This definition ensures that the term “community” is understood across various projects.
- Dispute Resolution (Section 23H) – any dispute under a land-based project will be subject to the dispute resolution mechanism set out in the Community Development Agreement in the first instance and be resolved within thirty days from the date the dispute is lodged. Any dispute that is not land-based is to be settled through alternative dispute resolution in the first instance. Where any of these disputes have not been resolved within 30 days the dispute is to be referred to the National Environmental Tribunal.
- Enforcement of the Amendment Act – Offences and Penalties: the Act establishes a framework for addressing a range of actions that undermine the integrity of carbon trading. These violations include: (a) willingly conducting unauthorised trade in carbon credit; (b) knowingly giving false or misleading information with respect to environmental or financial gains from the carbon market investment; (c) manipulating carbon credit measurements to claim additional measurements; (d) engaging in money laundering through carbon trading; (e) knowingly selling carbon credits to unauthorised entities; or (f) failing to maintain carbon records is an offence and one is liable, on conviction, to a fine not exceeding five hundred million shillings or to imprisonment for a period not exceeding ten years or both.
There is no denying that the Act ensures that the regulation of carbon markets is grounded in black-letter law and is part of Kenya’s Climate Action initiatives. But it is also a step in the right direction in demonstrating Kenya’s strong commitment to clean energy and climate change reforms through development of a viable carbon market.
Times like these brings to mind the old adage “a bird in the hand is worth two in the bush” because while the Act is significant from a climate change perspective, it also has a catalytic benefit with respect to climate-related commercial activities. The establishment and implementation of a strong regulatory framework is crucial as it promotes predictability, transparency and accountability within working relationships, attributes which are highly valued by investors and foreign trading partners.
As global markets increasingly demand sustainable and carbon-neutral products and services, the Act places Kenya in a key position to actively participate in global carbon transactions.
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