In 2022, the Government of Tanzania made a formal step towards the inclusion and promotion of carbon trading in Tanzania by issuing the Environmental Management (Control and Management of Carbon Trading Mechanisms) Regulations, Government Notice Number (G.N No.) 636 of 2022 (the Regulations). These efforts were made as part of the global movement to reduce greenhouse gasses emissions and enhancing environmental conservation.
Despite the Regulations only being in place for a year, some gaps were evident which impacted the practical application of the Regulations. In an effort to ensuring the Regulations are comprehensive, the Minister of State at the Vice President’s Office, Union and Environment (the Minister or Ministry) published the Environmental Management (Control and Management of Carbon Trading) (Amendment) Regulations G.N No. 721 of 2023 (the Amended Regulations). The Amended Regulations have significantly expanded the objectives initially covered in the Regulations, which now seek to mobilise climate financing from local and international sources to support the reduction of greenhouse gas emissions for purposes of fostering green investment and facilitating capacity building for mitigating and adapting to climate change.
In this article, we summarise the Amended Regulations which came into force on 6 October 2023, highlighting the key changes on how these Amended Regulations impacts carbon trading projects in Tanzania.
Key definitions and terms
Carbon Credit means the amount of one tonne of carbon dioxide or an equivalent of another greenhouse gases reduced or removed which has been verified in compliance with an International Carbon Trading Standard, also referred to as certified or verified emission reductions;
Carbon Trading means buying and selling or transfer of verified or certified of carbon emission, reductions and removals in accordance with the recognised international carbon standard.
Committee means the National Carbon Project Assessment Technical Committee established under regulation 11(1) of the Regulations;
Convention means the United Nations Framework Convention on Climate Change 1992;
Gross Revenue means revenue generated from sales of carbon credits without deducting any expenses or losses;
Mechanisms means market or non-market approach to pursue implementation of climate actions that allow higher ambition in mitigation and adaptation, promote sustainable development and environmental integrity as recognized under the Convention, Kyoto Protocol 1997 and the Paris Agreement 2015;
Property means an object owned by a person and aimed to be used in carbon trading projects to generate carbon credit;
REDD+ project means the project implemented in the context of reducing emission from deforestation and forest degradation, plus the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries;
National Carbon Registry means a repository which contains data element to the acquisition or transfer of carbon trading mechanisms that conform to national and international standards;
Registrar means a person responsible to keep and maintain the National Carbon Registry; and
Sale means an exchange or transfer of carbon credits or units for money terms.
Administration and Institutional Framework
The function of the Designated National Authority, National Focal Point, or National Authority (the Authorities) is to coordinate matters relating to environment and carbon trading projects in Tanzania. The Amended Regulations have granted the Authorities additional mandate to establish a National Carbon Registry; a repository containing data for the acquisition or transfer of carbon trading mechanisms. Additionally, the Authorities are now responsible for coordinating and conducting public awareness on carbon trading mechanisms, in line with the objectives of the Amended Regulations.
In rebalancing the administrative duties, the Amended Regulations have now delegated responsibility to the Minister who will establish a National Carbon Project Assessment Technical Committee (the National Carbon Committee), a responsibility which was previously held by the Authorities. The Amended Regulations provide that the National Carbon Committee shall serve as an advisory body to the Authorities and shall comprise of the following members:
- director of environment (the Chairperson);
- Registrar (Secretary);
- director of legal services from the Ministry;
- commissioner of external finance from ministry of finance;
- director of multilateral cooperation from the ministry for foreign affairs and
- other ten (10) members drawn from Government ministries, departments; agencies, civil society organisations, academic institutions and private sector with qualification or experience on climate change, environment, natural resource management, international cooperation, carbon trading and any other related disciplines.
The National Carbon Committee members shall serve for a tenure of three (3) years and may be eligible for re-appointment for an additional term of three (3) years. The National Carbon Committee has the mandate of regulating their own procures.
Sector ministries have the function of providing sectoral technical, administrative, and legal advice on carbon trading projects, as well as providing clearance letters and recognising Certified Carbon Emission Reduction Units from sector specific carbon trading projects. In addition to their duties under regulation 14 of the Regulations, Sector ministries shall now have authority to:
- identify and map potential areas for carbon trading mechanisms; and
- monitor and evaluate carbon trading mechanisms and submit the report to the Designated National Authority or National Focal Point.
Managing authorities, defined under the Regulations as owners of the property involved in carbon trading projects, now have the authority to enter into either a memorandum of understanding or an arrangement for the preparation and implementation of contracts related to carbon trading projects. The purpose behind this amendment is to allow Managing authorities to secure intention from interested contractors.
Whilst Proponents (persons proposing the execution of carbon trading projects) are still under a duty to submit progress reports to the Authorities on the implementation of carbon trading projects, the Amended Regulations have substantially changed the reporting obligations.
Previously, a prescribed report to the Authorities was sufficient for the purposes of assessing project progress which consisted of an annual status report and copies of five years external audit reports. Now, the Authorities will conduct periodic monitoring and evaluation of the carbon trading project to measure and assess the success and performance of the project implementation. The result of this means that Proponents can expect proactive approaches from the Authorities and, therefore, should be prepared to provide project updates and status reports.
Requirements for Carbon Trading Projects
Regulation 24 (1) of the Regulation poses a general restriction which prevents persons from operating carbon trading projects without being registered by the Registrar.
It is important to note that a violation of any provision of the Regulations is an offence and upon conviction will be liable to a fine of 10 million Tanzanian shillings (approx. USD 3,984) and 10 billion Tanzanian Shillings (approx. USD 3.9 million), and imprisonment for a term of 12 years.
Furthermore, regulation 24(2) of the Regulations sets out several requirements for the registration of carbon trading projects in Tanzania which state that the project must:
- be in line with national policies, laws and strategies;
- indicate how the project shall contribute to the Nationally Determined Contributions;
- adhere to national priority carbon trading sectors;
- obtain a letter of consent and participation of partners engaged in the project;
- obtain clearance of ownership of the property involved in the project;
- involve local communities in project implementation;
- adhere to transparency and fairness in business;
- adhere to national investment priorities, ecological, social, cultural and economic safeguards;
- disclose relevant project information including costs incurred, verified emission reductions and estimated revenues;
- indicate expected employment creation to the national experts and local communities; and
- indicate commitment to corporate social responsibility.
We note that these requirements have been significantly expanded following the Amended Regulations. Prospective Proponents seeking to operate or register a carbon trading project are required to adhere to the new requirements as introduced by the Amended Regulations, however, these will not apply retrospectively to existing carbon trading projects.
In addition to the project requirements contained in regulation 24(2), persons wishing to register a carbon trading project with the Registrar must now include a description on the benefit sharing distribution by percentage when submitting an application to the Registrar. The expectation is that carbon trading projects will contribute to Tanzania’s commitment in reducing greenhouse gas emissions, this is to be explicitly stated in the application to the Registrar.
The introduction of regulation 24(3) means that, if a Proponent indicates the intention of using carbon credits (generated in whole or in part) in a Nationally Determined Contribution of another country or elsewhere, then the Proponent must request authorisation of the transfer of credits (or units) from the Authorities, in accordance with the framework developed in line with Article 6 of the Paris Agreement 2015. The intention behind Article 6 of the Paris Agreement 2015 is to support international cooperation in achieving emission reductions through certain mechanisms. For example, Article 6.4 principally allows a company in one country to reduce its emissions through reductions and credits in another country from another company. The introduction of the Amended Regulations means that authorisation is now required from the Authorities if a carbon trading project intends to use carbon credits in another country.
Authorisation shall be assessed in accordance with prescribed methodology, procedure and standards agreed under the Paris Agreement 2015. And, after scrutiny of the Proponent’s request, the Authorities will issue a Letter of Authorisation if accepted.
After the Authorities issue their approval for the project idea, the Proponent and other project partners are required to develop a Project Concept Note. The elements of this concept note have been expanded which now requires a brief description on how the project will align itself with Tanzania’s national policies, plans, and strategies, as well as how the project will contribute to Tanzania’s Nationally Determined Contribution. As a result, Proponents must be prepared to explain its commitment to Tanzania’s emission reduction targets and how the project will adhere to the regulations and policies in place. Lastly, The Amended Regulations have also introduced a Letter of Endorsement (an authorisation letter issued by the Authorities), which is provided to a Proponent upon satisfaction of the Project Document (a document with detailed description of the carbon trading project). This change means that the Minister is no longer required to endorse the implementation of the project, vesting authority and power in the Authorities to issue a decision and provide a Letter of Authorisation.
Costs and Benefits Sharing
Several profit-sharing provisions have been revised by the Amended Regulations with the intention of providing further financial support to facilitate environmental conservation efforts. In cases where the Managing Authority is under the Local Government Authority, eight (8) per cent of the gross revenue from the sale of Certified Emission Reduction shall now be given to Local Government Authorities for conservation activities (including carbon trading), reduced from ten (10) per cent. Additionally, out of the sixty-one (61) per cent of gross revenue given to the Ministry for Regional Administration and Local Government, one (1) per cent shall now be given to the Ministry responsible for Regional Administration and Local Government, and one (1) per cent shall be given to the Regional Secretariat to facilitate coordination of carbon trading mechanisms and other environmental conservation initiatives. If in cases the Managing Authority is not under the Local Government Authorities, the standard ten (10) per cent shall apply and be used for community activities.
A welcome change for Proponents now means that Proponents will retain an additional one (1) per cent of gross revenue available out of the thirty-nine (39) per cent remaining in the project. Previously, Proponents were required to pay nine (9) per cent to the Authorities, to which this has now been reduced to eight (8) per cent. A small amendment is made which requires the Authorities to pay three (3) per cent of their entitled eight (8) per cent gross revenue to the National Environmental Trust Fund for fostering environmental conservation, including clean cooking energy and technologies. Lastly, profit sharing for non-REDD+ projects may now be negotiated between the Managing Authority and the Proponent, depending on the nature of the project. However, eight (8) per cent shall always be paid to Authorities.
As part of the Authority’s role in coordinating periodic monitoring and evaluation of registered carbon trading projects, the Amended Regulations now require modalities for monitoring and evaluation of projects that contribute to achievement of the Nationally Determined Contribution targets to be done in accordance with the Nationally Determined Contribution MRV system. Lastly, projects that are implemented under the clean development mechanism shall be required to transit to mechanisms under article 6.4 of the Paris Agreement 2015 in line with modalities and procedures agreed by the Conference of Parties serving as Meeting of the Parties to the Kyoto Protocol 1997.
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