The Carbon Credit Trading and Benefit Sharing Bill, 2023

A draft Carbon Credit Trading and Benefit Sharing Bill, 2023 (the "Carbon Trading Bill") has been approved by the National Assembly Budget and Appropriations Committee for formal introduction to parliament.

The purpose of the Carbon Trading Bill is to:

• establish a regulatory framework for the trading of carbon credits and benefit sharing in carbon credit trading;
• establish a Carbon Trading and Benefit Sharing Authority;
• provide for the registration and regulation of carbon trading business; and
• establish a Carbon Credit Trading Tribunal.

This comes hot on the heels of the recently published Climate Change (Amendment) Bill, which seeks to amend the current Climate Change Act No.11 of 2016 to provide a legislative framework for Kenya’s participation in domestic and international carbon markets in pursuance of Kenya’s obligations under the Paris Agreement. The proposed Climate Act Amendment Bill will establish a National Carbon Registry as well as provide the guiding principles governing trade in the carbon market.  

The Carbon Trading Bill, if enacted, will be applicable to the following carbon resources: rangelands, forests, biodiversity and genetic resources, soil, public land, private land, community land, surface and groundwater as well as renewable energy including wind, solar and geothermal.

The Carbon Trading Bill proposes:

• the introduction of carbon trading permits for persons intending to carry on carbon credit trading business in either the voluntary carbon market or the carbon compliance market. Carbon credit trading business under the Carbon Trading Bill includes the business of operating a carbon trading exchange
• the introduction of benefit sharing ratios between the stakeholders ie, the Carbon Trading and Benefit Sharing Authority, national government, county government, community and the proponent for the various types of carbon resources
• the establishment of a Carbon Credit Trading Register for carbon credit trading permits, carbon credit trading project, community development and benefit sharing agreements as well as carbon credit trading purchase agreements
• the introduction of greenwashing offences – it will be an offence to make: a) false statements in the required environmental and social impact assessment and b) false representations or concealment of material facts to procure or attempt to procure a carbon credit trading permit
• the establishment of a Carbon Trading and Benefit Sharing Authority which will be mandated to issue carbon trading permits, provide policy direction and guidance to both levels of governments on carbon credit trading business, regulate carbon credit trading business in Kenya, ensure fair and equitable sharing of benefits among stakeholders, ensure development of investor protection standards with respect to carbon credit trading business, and promote the development of the carbon credit trading sector in Kenya
• the establishment of a Carbon Credit Trading Tribunal with jurisdiction over disputes arising out of regulatory functions under the Carbon Trading Bill, with all disputes arising from carbon credit trading operations under a carbon credit trading agreement being referred to alternative dispute resolution mechanisms in the first instance and thereafter to arbitration in accordance with the United Nations Commission on International Trade Law Arbitration Rules

The draft Carbon Trading Bill, as currently drafted, does not have any transitional clauses and does not sufficiently address existing carbon finance projects or existing carbon trading agreements in Kenya. We would not expect the Carbon Trading Bill if enacted to apply retroactively, however, the parties to such agreements may require to align their carbon trading activities to ensure regulatory compliance.

We note that there may be some areas of overlap between the proposed Carbon Trading Bill and the proposed Climate Act Amendment Bill, particularly as regards the content of community development and benefit-sharing agreements, and the proposed benefit-sharing ratios. However, we note that the Carbon Trading Bill is at the early stages of the legislative process and may be subject to major revisions. Possibly, the legislators may see it fit to have the provisions of the Carbon Trading Bill and the Climate Act Amendment Bill enacted as an omnibus amendment to the Climate Change Act No.11 of 2016 to avoid any contradictory legislation.

Carbon finance and carbon markets in Kenya currently operate in a legal lacuna, with some uncertainty. For instance, according to recent media reports, the Kajiado County Governor, in June 2023, issued a notice revoking all carbon credit contracts between private entities and local communities in Kajiado County in Kenya. However, in light of the principle of privity of contract, the efficacy of such notice may be questionable. Hopefully, the Carbon Trading Bill and the Climate Act Amendment Bill will address investor concerns and formalise carbon credits as a commodity in Kenya.

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Read the original publication at ENSafrica.