Kenya will set up a climate exchange platform, similar to a commodity exchange, to facilitate trading in carbon credits and open up financing for generation of renewable energy and afforestation.
The platform is being developed by the Ministry of Finance, assisted by carbon trading consulting company Bea International.
The exchange, to be known as Nairobi Climate Exchange, will be the first of its kind on the continent and will facilitate trading in carbon credits for other African countries.
“Kenya is better placed to emerge as a regional carbon emission trading hub,” said Treasury PS Joseph Kinyua. “We have started a process of establishing a carbon emission trading scheme in Nairobi to pioneer the carbon market in Africa.”
The exchange will offer banks an opportunity to finance climate change investment projects, an area they have been avoiding because of lack of understanding and expertise on profiling risks inherent in such projects, according to a survey by the International Finance Corporation (IFC).
Treasury officials said the formation of the exchange was being fast-tracked because of the high number of inquiries the country has received from foreign banks wanting to partner in trading in carbon credits. “We have been flooded with inquiries from financial institutions like HSBC Bank and JPMorgan, but we cannot engage them now until we have set rules and regulations,” said Geoffrey Mwau, the Economic Secretary.
He said they had received inquires in relation to Mau forest afforestation and generation of power using geothermal. “There are many other proposed projects,” said Mr Mwau.
Carbon credits traded in such exchanges are invested in projects that help to reduce or prevent emission of carbon dioxide into the atmosphere. Each tonne of carbon prevented from being released into the atmosphere becomes one credit.
Carbon dioxide is the principal cause of global warming, which has resulted in climate change. This has proved costly, especially for developing countries with stretched resources, like Kenya.
Rainfall patterns are changing, affecting the food growing and harvesting cycle, while some areas are becoming warmer and wetter aiding the breeding of malaria-causing mosquitos among other effects. Countries like Kenya can mitigate effects of climate change by, for example, increasing the forest cover to capture and retain water, and balance use of hydro-power with renewable energy like wind and solar.
But the country will require money to develop such projects. One way of raising money for such projects is when carbon-emitting companies in Europe and the US finance emission reduction projects in other countries as per United Nations regulations.
The Nairobi Climate Exchange will make it easy for such companies to find projects they can finance and for locals to present their ideas of emission reduction projects that can attract funding. The World Bank said that its experience in financing climate change projects had shown that the exchange was one of the best ways for African countries to contribute to slowing global warming.
Kenya has already attracted the interest of international carbon trading consultants including JP Morgan Climate Care, CO2 Balance, and Carbon Africa.
The country has also been attracting interest from groups like IFC that recently committed Sh8 billion to be invested in climate change projects, while the Africa Enterprise Challenge Fund launched a Sh1.2 billion financing facility for renewable energy projects that benefit small holder farmers and disadvantaged communities across East Africa.
“Kenya has adequate human resource to run a climate exchange. By next July, the exchange should be up and running,” said Bea International executive director Patrick Karani.