Corporate News

Budget plan paves way for carbon trading hub

Manufacturers with high carbon dioxide emissions pay up to Sh900 per ton emitted into a set fund, which is then passed to firms involved in activities that help in reducing these gases from the environment. Photo/REUTERS
Manufacturers with high carbon dioxide emissions pay up to Sh900 per ton emitted into a set fund, which is then passed to firms involved in activities that help in reducing these gases from the environment. Photo/REUTERS 

Kenya is set to become a carbon trading hub in Africa if plans to establish a regional carbon emissions trading market prove successful.

During the 2010/2011 budget of June 10, Finance minister Uhuru Kenyatta proposed to develop a frame-work for carbon trading that would outline how to register and participate in the a scheme in which polluters would buy and sell the right to emit carbon.

The framework will also guide how revenue generated from carbon trading would be shared to ensure accountability.

“The Government will establish a carbon Emission Trading Scheme (ETS) in Nairobi to pioneer the carbon market in Africa,” said the minister.

The carbon trading scheme, which is the first in Africa, is set to improve livelihoods of many Kenyan farmers and pastoralists by generating money in exchange for trees planted.

Carbon dioxide, a green house gas responsible for damaging the ozone layer, contributes to climate change through global warming .

The carbon credit market enables entities that emit more carbon than the set limits, to buy credits from those engaged in initiatives that clean up the emissions.

The global carbon trading market is estimated to be worth Sh13 trillion according industry data provider, Carbin Point, but only a very small fraction of this, about two per cent, trickles down to Africa.

The EU’s emissions trading scheme is the largest multi-national carbon trading scheme in the world; with an objective of cutting its emissions by 20 per cent by 2020.

Manufacturers with high carbon dioxide emissions pay up to Sh900 per ton emitted into a set fund, which is then passed to firms involved in activities that help in reducing these gases from the environment.

Last year United Nations Environmental Programme (Unep) named Kenya as one of the countries in the developing world that is on the path to becoming a leader in renewable energy by 2015.

The Copenhagen deal which is to replace the Kyoto Protocol that expires in 2012, also seem to have spurred some action locally, with president Kibaki announcing the start of huge investments amounting to Sh148 billion every year in wind and geothermal power.

These are indications that carbon energy conservation and carbon trading in Kenya may pick up from this year.

“Africa needs both well coordinated regional strategies and an Africa-wide strategy,” said Mr Murefu Barasa, a fellow at Yale University’s school of forestry and environmental studies, adding that Kenya’s efforts to set up an African carbon trading market would not be achieved if the projects engaged in are not sustainable on their own.

It is a prerequisite that before a project is considered as a carbon credit selling venture it should be able to sustain it self from its core activities.

Local companies, such as Mumias Sugar Company and KenGen have made investments in electricity co-generation and geothermal development that are likely to earn them million of shillings in revenue over the years through carbon trading.

Mumias Sugar has invested in a project that uses sugar cane process waste — bagasse — to generate 35 megawatts of electricity and is likely to earn it Sh75 million annual revenue for the next 10 years from the sale of certified carbon emission to the Japan Finance Corporation.

KenGen, East Africa Portlands Cement and Muhoroni Sugar Company are also planning to venture into the carbon trading projects.

It is estimated that Kenya can produce 300 megawatts of electricity from agricultural residues such as bagasse from the sugar industry.

Kenya is also seeking to learn from Brazil — the world’s biggest exporter of sugar and ethanol made from cane — which has more than doubled output of the biofuel over the last six years to 27.5 billion litres in 2009, according to industry group Unica.

“It is our desire to learn from the Brazil’s best practices on bio-fuels in addition to other forms of renewable energy,” said Assistant Energy Minister Mohammed Mahamud, during a meeting between businesses and a government delegation from brazil which visited Kenya last week.

However, analysts have warned that such a trading system is highly complex and requires enormous resources and capacity development.

At the moment it is still not clear if the Kenyan government has the will or the resources needed to both develop and sustain such a system.

Failure by most African governments to set up a coordinating authority on climate change investment projects has been attributed to Lack of adequate skilled experts who can design proper carbon market projects.

National Environment Management Authority (Nema), which is charged with the responsibility of coordinating carbon market projects has fallen short in stimulating the Kenya’s carbon market properly by helping in projects development.

Policy guidelines

Reaching out to farmers, pastoralists and those in charge of conserving forests will be even more complex, and has not even been achieved by existing voluntary carbon markets in developed countries.

“The government should be able provide clear policy guidelines and increase budgetary allocation towards energy efficiency programmes,” said Ms Betty Maina, CEO Kenya Association of Manufacturers (KAM).

If successful, Kenya will join the global frenzy to combat climate change through creation of millions of new jobs for small scale farmers and pastoralists.

Since the carbon trading projects market is usually labour intensive, especially those that involve agriculture, it will boost employment opportunities in Kenya and Africa at large.