Feedback on Proposed Regulations October 2023

NCN’s Carbon Markets Working Group - Feedback on Proposed Regulations October 2023

Context

In 2023 the Nairobi Climate Network created a ‘Carbon Markets Working Group’ made up of carbon project developers, NGOs, experts and lawyers to craft a joint response to the Climate Change Amendment Bill. We welcome the Government’s proactive efforts to bring clarity to the development and oversight of carbon markets in Kenya, and want to provide collective feedback from our members to the process. Read more about our feedback to the bill here. 

After the bill was passed (unfortunately without incorporating our feedback) NCN decided to bring together a second cohort of the group to respond to the forthcoming regulations, which will govern the implementation of the bill. Below, we share the collective conclusions of our Working Group members in order to help develop the next iteration of the regulations.

Firstly, our members expressed deep concern regarding an unsustainable contribution to a “consolidated fund”: Current regulations propose that “The share of proceeds in a carbon market project where a private entity is the proponent, shall be 25% of the aggregate earnings of the previous year.” Yet the regulations don’t make it clear how “aggregate earnings” are defined – whether project costs, job creation, environmental goods and services enhancement can be counted towards the amount, or whether it’s a straight 25% deduction from revenues. If the latter, many projects will become wholly uninvestable in Kenya and developers will move overseas. We welcome an open discussion with the government to work through the practicalities of how this contribution will be applied, and what a viable amount could be. 

Secondly, our members raised issues with the cumbersome and lengthy bureaucracy involved in regulations: Whilst members welcome the introduction of various checks and balances, the proposed process is bureaucratic, involving many steps, multiple contracts with different government departments, and taking a minimum of 18 months to receive project approval. It adds barriers to entry for new developers, including the requirement that proponents have proof of previous carbon projects implementation, which excludes new market participants in what is a very young and innovative market. This requirement in particular could actually lock out more new, local Kenyan innovators from setting up projects. We recommend streamlining the registration process and providing a more open and accessible avenue for new developers.

Thirdly, our members highlighted a challenge related to the concept of carbon rights. The regulations stipulate that “carbon credits are deemed for the purposes of this Act to be the property of The Republic of Kenya”. However, carbon rights have not yet been defined in any Act, and significant work and thinking will need to go into defining carbon rights before their application in regulations such as these. To date, carbon rights in land-based projects have been linked to property rights, and thus there should be a clear distinction between private, public and community ownership and consequently carbon rights. In addition, further clarity is required in terms of what a community is and how a community is entitled to benefits when it isn’t the project proponent. Otherwise the regulations may result in the opposite effect to its intention, and actually reduce the ability of farmers and rural communities to benefit from nature-based solutions. We recommend undertaking an inclusive consultative process to define carbon rights. 

Finally, our members expressed concern about the high-penalty environment being created. The regulations contain highly punitive fines (up to 500M Ksh) and potential prison sentences (10 years) for not complying with the process, which is new and complex to navigate. Many investors and company directors will be unwilling to take such risk. We recommend reducing the penalties and providing clarity on what constitutes an offence. Regulations should provide incentives for investors to enter the market, not the opposite! 

A survey amongst our members on the potential implications of the proposed regulations found that as currently drafted, there is a high likelihood that carbon developers in Kenya will find it challenging to continue their projects locally, putting tens of thousands of jobs at risk in Kenya.

Overall, our members urge the government to embark on a revision of the Climate Change (Amendment) Act, and subsequent regulations, with extended consultation of carbon markets practitioners. The Nairobi Climate Network working group offers its continued engagement and support throughout this process.

Together, we can establish a conducive environment for continued investment, ensure a fair redistribution of benefits among stakeholders, allow Kenya to meet its Paris Agreement obligations, and show true climate leadership.