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Ideas & Debate

Kenya’s emerging carbon trade to benefit from new regulations

Logging in Sabor Forest in Keiyo District. The Finance ministry should not be involved in administrative functions of overseeing the carbon market and its financial systems. File
Logging in Sabor Forest in Keiyo District. The Finance ministry should not be involved in administrative functions of overseeing the carbon market and its financial systems. File 

Finance minister Uhuru Kenyatta’s 2009/2010 Budget mentioned that Kenya would establish a carbon trading exchange.

The ministry has since prepared a detailed draft National Policy on Carbon Finance and Emission Trading to guide the setting up of a legal, regulatory, and institutional frameworks for developing and managing carbon trade in Kenya. The document is awaiting Cabinet review.

The policy aims to create a carbon trade sector which will tap into international climate change finances, support sustainable development programmes, provide employment and economic diversification, increase access to innovative research and technology, improve Kenya’s balance of payments, and foster involvement of the private sector in carbon investment and trading.

The proposed legal and regulatory framework for the carbon market will no doubt provide an enabling environment to accelerate inflows of developmental and private investment funds to support local climate change initiatives. Need to create a forum for the private sector’s involvement in carbon trading recently led to the establishment of the Africa Carbon Exchange (ACX). The exchange, with headquarters in Nairobi, is designed to bring benefits of carbon markets to Africa by harnessing the vast potential of the continent.

ACX plans to provide an electronic platform for trading in environmental securities. In addition to trading, ACX will be a centre for building and utilising capacity in the carbon trade industry. Similar multi-billion dollar exchanges exist in Europe, USA and Asia. ACX will enable Nairobi to host a regional and continental carbon market centre. Whereas the Finance ministry has taken the initiative to create a legal and regulatory framework for trading in carbon, the ministry should not become directly involved in administrative functions of overseeing the market and its financial systems.

It would be ideal for the ministry to create an independent carbon trade regulator similar to the Capital Markets Authority to oversee the market, ensuring financial transparency and probity while providing assurance and confidence to global funds, development partners, and private investors.

Such a carbon market regulator need not be in conflict with the National Environment Management Authority (Nema).

Role of watchdog

I see the role of Nema as that of managing both local and global standards for carbon projects to ensure that entry points meet defined global criteria.

Carbon emission activities are cross cutting and involve many ministries and economic sectors. This is why the Finance ministry will need to ensure that sufficient consultations with stakeholders are held before the market, finance laws, and regulations are enacted. There are five key economic sectors that have the largest carbon impact in Kenya. These include energy, industrial processing, agriculture, forestry, and urban waste disposal. This is why the policy guidelines proposed by the Finance ministry intend to have each economic sector define its specific policies and strategies on how to implement carbon reduction.

In Kenya, the main opportunities for green house gases reduction exist in areas with little use of fossil fuels, a major emitter of green house gases.

The main uses of fossil fuels are in both energy generation and transportation systems. Currently, about 40 per cent of grid electricity is petroleum based.

Green financing

As such any project, programme or activity that reduces this percentage through alternative lower carbon energy, or through efficient usage, stands to qualify as a carbon reduction project.

Reduced use of petroleum fuels in industry and transportation through efficiency programmes also potentially qualifies for green financing.

On the other hand, any project that increases the number of trees that absorb carbon dioxide also qualifies for consideration as a carbon project.

A lot is happening in the Kenyan carbon market with KenGen’s geothermal, wind and revamped hydro projects — together with Mumias Sugar Company’s cogeneration project — already enjoying carbon credit cash inflows.

The International Finance Corporation (IFC) and the French Development Agency (AFD) have allocated funds to finance selected private sector carbon projects through local Kenyan banks.

Humbling story

However, the most fascinating and humbling carbon trade story I have come across is about a global NGO called International Small Group Tree Planting Programme (www.tist.org) which is earning carbon cash for farmers in rural Kenya.

It is a simple and effective programme that organises farmers in small self-help clusters to plant and grow trees supported by simple human based monitoring systems.

The trees, including fruit bearing ones, are directly useful to the farmers. To motivate them, farmers are paid in advance for the carbon in their trees.

Kenya should scale up involvement in the carbon market which has become part of virtually every aspect of local and global economic activity.

Climate change and sustainable development are no longer separable, and as such we should not miss any opportunity offered by global climate change development funding.

Wachira is the director Petroleum Focus Consultants. [email protected]

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