Government to support NSE introduce carbon credits trading

The Nairobi Securities Exchange (NSE) plan to introduce carbon credits trading has received a boost after the Government pledged to offer expertise and facilitation.

Speaking last week at NSE headquarters, Energy and Petroleum Principal Secretary Joseph Njoroge said the ministry is ready to support the NSE on the planned launch. “We will chip in if you (NSE) need any expert advice or facilitation from the ministry. We are more than willing to support this important and innovative idea of trading in carbon credits,” said Dr Njoroge.

A carbon credit is a permit that allows a country or organisation produce a certain amount of carbon emissions and that can be traded if the full allowance is not used.

Njoroge observed that as the world makes a shift to green energy, the idea is timely. He noted that since Kenya consumes about 90 per cent of renewable energy, the country will reap the benefits. Early this year, NSE announced plans to introduce carbon credits trading.

According to NSE Chairman Samuel Kimani, this will help local companies sell their credits to foreign buyers and manufacturers easily. “The formal trading platform within the exchange will be an easier way for companies to sell their credits to foreign buyers other than through signing emission reduction purchase agreements,” said Kimani.

He added that since Kenya produces about 600MW from geothermal sources – a level that has made it seventh largest producer in the world- trading in carbons will be a huge boost to local firms.

The concept of being paid for protecting the environment from greenhouse gases, such as carbon dioxide, methane and nitrous oxide, dates back to Japan’s 1997 Kyoto Protocol. The Protocol, an international treaty, was an extension of a United Nations’ framework on climate change that sought to commit countries to reduce greenhouse gas emissions by at least 5 per cent.

So far, KenGen, Mumias Sugar, East Africa Portland Cement and Kenya Power have reaped from the credits by negotiating one-on-one with international buyers. Mumias Sugar was the first Kenyan firm to sell carbon credits, making Sh22 million in 2010. This was followed by Kenya Power which sold 700,000 credits to Standard Bank.

The biggest beneficiary has been KenGen, which in two years to 2015 earned about Sh270 million by selling its credits through the World Bank’s Emission Reduction Purchase Agreements. According to the firm’s Chairman Joshua Choge, the revenue from the credits is shared with local communities where KenGen operates.

Derivatives

With the idea of trading at the bourse in the offing, KenGen CEO Albert Mugo sees brighter days ahead. He hopes that through the NSE, the credits could be sold at a better price. “What we are doing with NSE is to create a market where the carbon units can be traded at the exchange. We will not be going to people out there but we will now depend on market demand and supply,” said Mugo.

Despite farmers of crops like coffee and tea being eligible for ripping from the carbon credits, getting market has not been easy. It is estimated that coffee farmers alone lose about Sh20 billion annually as a result of lack of access to carbon credits market. This is according to Job Kareithi, the CEO and lead consultant at Capacity Building Consultancy.

Even KenGen boss admitted that initially, selling credits had to go through people authorised by the Kyoto protocol for them to buy the carbons. “The process was a bit hard and that is why we think when it finally comes to NSE, it will be so much easier to trade,” he said.

The bourse is working on several other projects such as Exchange Traded Funds (ETFs), derivatives and M-Akiba bond with the aim of deepening the market. Kimani said that through ETFs, traders will trade the securities such as metals, foreign currencies and commodities which track the performance of the indices.

NSE also plans to introduce a Sustainability Index for green-sensitive listed firms as well as launch green bond to fund environmental-friendly projects.