The government is set to restrict the volume of carbon credits traded in the country, denying a free hand to public and private entities dealing in the offset units.
Carbon credits are permits that allow one to emit a certain amount of greenhouse gases, with the units purchased from owners of forests or other environmentally friendly assets.
The proposal to limit the volume of traded carbon credits is contained in a new draft of carbon trading regulations by the Ministry of Environment and seeks to align the transactions with the government’s own greenhouse gas emissions targets.
“The National Climate Change Council shall during every nationally determined contribution implementation period, upon the advice of the Cabinet Secretary as required by the Act, determine the carbon budget for trading,” reads the draft regulations which are now the subject of public participation.
The carbon budget for trading is described as the approved maximum quantity of greenhouse gas emission reductions/removals allocated for trading within carbon markets and is guided by the Paris Climate Agreement- nationally determined contributions.
Nationally determined contributions refer to voluntary plans that countries create to cut greenhouse gas emissions and adapt to climate change.
Implementation of the cap means Kenya will set a maximum quota of carbon credits tradable within a certain period after which such trades are frozen.
This comes even as Kenya is yet to fully develop a framework for sustainable linked financing and carbon credit markets.
Kenya, for instance, is yet to establish a carbon exchange which would be a regulated marketplace established under the Capital Markets Act allowing the buying and selling of certified emission reductions/carbon credits.
The Capital Markets Authority (CMA) has been working with peer regional capital markets watchdogs under the East African Securities Regulatory Authorities (Easra) to develop a regulatory framework for sustainable finance.
The framework is expected to establish standards for regulating sustainability linked issuance of securities, use of proceeds, projects evaluation and reporting.
The regulators are expected to conduct a regional study on carbon credit markets to deepen their understanding of the existing shareholders and the regulatory framework which will inform a new regional framework for domestication at national level.
Recent carbon credit deals have offered a sneak peek into the existing lucrative market for climate change initiatives.
The Kenya Electricity Generating Company (KenGen) was for instance set to receive Sh4.1 billion ($32.05 million) at the end of last year from the sale of its certified emission reductions (CERs).
The electricity generator entered a contract with Sintmond Group-a Nairobi based firm offering energy solutions, inspections and waste disposal to purchase Sh4.6 million tonnes of CERs.
The carbon credits are from KenGen’s six projects including Kiambere Hydro Power Project, Olkaria IV, Olkaria 1 unit four and five and Ngong Wind.
The sale of the CERs is expected to leave the NSE listed firm with a balance of 1.84 million tonnes of credits.
Kenya is meanwhile engaged in talks with carbon market consulting firm Suni Smart Energy to monetise the 15 billion trees that President Willam Ruto’s administration is seeking to plant within eight years.
The talks led by the Ministry of Environment, Climate Change and Forestry are aimed at inking a Sh452.2 million ($3.5 million) 10-year deal that will see the consultancy support the development of a trading platform for carbon credits across the 47 counties.