Nairobi opens exchange for carbon credits

A tree nursery. Forestation projects are among the ventures that willing investors could engage in to earn carbon credits which will earn dividends at the new exchange. Photo/IRENE KIMANI
A tree nursery. Forestation projects are among the ventures that willing investors could engage in to earn carbon credits which will earn dividends at the new exchange. Photo/IRENE KIMANI 

It is now easier to trade carbon credits resulting from green energy projects and afforestation following the launch a carbon trading facility in Nairobi, the Africa Carbon Exchange.

The exchange is the stock market for environment assets, where buyers bid for and buy carbon credit certificates on offer.

“The exchange offers an opportunity for people to earn dividends for using cleaner energy and growing more trees,” said Mr Job Kihumba, the chairman of the exchange and a veteran of the Nairobi Stock Exchange.

The launch came as the Ministry of Finance gears up to open the Nairobi Climate Exchange to facilitate trading in carbon credits and open up financing for generation of renewable energy and afforestation.

“Kenya is better placed to emerge as a regional carbon emission trading hub,” said Treasury PS Joseph Kinyua.

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 inquiries in relation to Mau forest reforestation and generation of geothermal power. “There are many other proposed projects,” said Mr Mwau.

One carbon credit, also known as a Certified Emission Reduction (CER) is equivalent to one tonne of the carbon dioxide gas whose emission is prevented through use of clean energy like biogas or through planting of trees that use carbon dioxide to manufacture food.

Carbon dioxide is the principal cause of global warming, one of the greatest threats to humanity today.

The exchange has put Kenya on the global map of advance in the trading of carbon credits and will trigger more investments in development of clean, efficient energy and afforestation projects.

Kenya’s position as a carbon exchange hub of Africa is complemented by the favourable renewable energy policy that assures private investors of a ready market for wind or geothermal power that is added to the national grid.

Kenya’s feed-in-tariffs are being replicated in other African countries.

Kenya has already attracted several global carbon credits projects and trading consultants including the JPMorgan Climatecare and Bea International that will provide the required skills and knowledge to drive the exchange.

The exchange is modelled after the Chicago and Australia carbon exchanges but several aspects of the two have been domesticated, said Mr Kihumba.

The exchange is a win for prospective investors in clean energy and institutions that have shifted from using fossil fuels and wood fuel to cleaner energy with an aim to earn extra income.

To trade carbon credits, one begins by engaging a certified carbon consultant, who will advise on processes to be followed in starting a project that earns credits.

The same consultant then assists in the calculation of the amount of carbon dioxide emission averted or consumed in the case of a forestation project.

The consultant and the project owner will then apply to the National Environment Management Authority (NEMA) to verify and validate the project.

NEMA will then issue a certificate showing how many carbon credits the project is worth.

This is the certificate that the project owner will take to the Africa Carbon Exchange and offer for sale either in person or through a broker.

The exchange deals in two types of carbon credits; compliance and voluntary credits.

Compliance credits are those offered by governments and companies that are bound by the UN Kyoto Protocol to offset their carbon dioxide emissions.

These credits fetch higher prices at the exchange.

Voluntary credits are from companies, organisations and individuals who are committed to efficiency, profitability and rapid action on climate change.

They fetch lower prices. Prices for carbon credits –whether voluntary or compliance vary from country to country but one credit can fetch from $10 to $18 (Sh840 to Sh1,512).

Guarantee the market

The first buying pool at the exchange will comprise several carbon consultants who have pitched tent in Kenya and other development groups like the World Bank BioCarbon Fund and German development and investment bank KfW.

“Our role really is to guarantee the market for carbon credits on offer,” said Abbas Kitogo, KfW’s CDM Project Manager for sub-Sahara Africa.

Mr Kitogo added that the bank will also play the role of originating carbon credit projects by for example helping communities start projects that they can generate carbon credits from.

“We shall be dealing with the originators of the carbon credits directly without going through brokers,” he said.