How we can foster sustainable growth through carbon credits

Carbon credits are a pivotal tool in the fight against climate change, motivating companies to transition to cleaner technologies and sustainable practices. [iStockphoto] Introduction of the 2023 Carbon Markets Regulations is a positive step towards promoting the formation, involvement, and oversight of carbon trading in Kenya. In the pursuit of climate change mitigation and sustainable development, the United Nations' Intergovernmental Panel on Climate Change (IPCC) formulated a transformative carbon credit proposal within the 1997 Kyoto Protocol agreement. This initiative was adopted at the third session of the Conference of the Parties (COP3) as a response to the urgent need to curb global carbon emissions. The Kyoto Protocol set forth binding emission reduction targets for participating nations. The concept of carbon credits therefore emerged as an innovative mechanism to incentivise emission reductions within the corporate sector. By creating a market for emissions permits/carbon credits, the system allowed companies to trade these permits, encouraging a decline in overall emissions over time. Carbon credits thus became a pivotal tool in the fight against climate change, motivating companies to transition to cleaner technologies and sustainable practices. While companies striving for emission reduction benefited from financial incentives, those facing challenges in this endeavour could still operate, albeit at a higher cost. At COP27, the Government of Kenya unveiled an ambitious vision, boldly aiming to establish the country as a preeminent exporter of carbon credits on the African continent. This strategic initiative underscores the country's commitment to environmental leadership and sustainability. By aspiring to be a key contributor to carbon credit markets, Kenya seeks to play a pivotal role in mitigating global climate change. The vision articulated during the conference reflects a forward-thinking approach, aligning economic aspirations with environmental stewardship and positioning Kenya as a frontrunner in the pursuit of a more sustainable and eco-friendly future. Subsequently, at the Africa Climate Summit, African nations championed the adoption of market-driven financial mechanisms, including carbon credits. Kenya takes the lead in Africa for carbon credit generation, contributing over 20 per cent of the continent's volumes in the last five years. Among the projects that have enabled this generation include mangrove forest regeneration, geothermal expansion and wind and solar power generation. In line with the country's dedication to sustainable development through generation of carbon credits, a segment of the earnings from these credits is allocated to vital projects. Specifically, the focus extends to backing the deployment of solar home systems, guaranteeing that communities can access clean and sustainable energy solutions. Projections suggest that the country could annually produce more than 30 million tonnes of carbon credits by 2030. With a good pricing mechanism, this would translate to considerable incomes amounting to hundreds of millions of dollars. Despite the promising potential, the government emphasises the pressing need to create frameworks that prioritise the rapid and substantial reduction of transaction costs. At present, a significant share, approximately 80 per cent, of the value linked to specific carbon credits is taken up by intermediaries, leaving only a small portion for the communities actively involved in on-the-ground initiatives. Addressing this challenge, the Africa Carbon Markets Initiative (ACMI) has been established in 2021 with the aim to ensure equitable and transparent distribution of revenue among local communities. Furthermore, ACMI endeavours to enhance the production of carbon credits, fostering projects with potential for job creation not only in Kenya, but throughout Africa. With ambitious targets of producing 300 million carbon credits annually by 2030 and 1.5 billion credits annually by 2050, ACMI seeks to profoundly influence the expansion and sustainability of the carbon credit market. The Climate Change Act of 2023 introduces a robust regulatory framework for overseeing carbon credit markets in Kenya. The Act seeks to instill an Environmental, Social, and Governance corporate culture within public and private entities, aligning with the National Climate Change Action Plan. The Act further outlines specific measures for engaging with carbon credits, emphasising community development agreements and a careful balance between benefit distribution and return on investment to incentivise future carbon projects. It establishes a National Carbon Registry to record essential aspects of carbon trading. Approval for a carbon market project, as per the regulations, involves the submission of an application with specified fees, and upon meeting requirements, the Designated National Authority issues a letter of no objection. Notably, community carbon market projects must allocate a minimum of 40 per cent of their earnings to annual social contributions. The way forward is that the government should expedite the establishment and implementation of the National Carbon Registry as outlined in the Climate Change Act 2023. This registry will play a crucial role in maintaining accurate records related to carbon credit projects, emissions reduction initiatives, and other essential aspects of carbon trading. The government should also create a framework to reduce transaction costs associated with carbon credit generation. By addressing this issue, this should see a more significant portion of the income from carbon credits directly benefiting the communities involved, rather than being absorbed by the intermediaries. Further, the government should strive to identify viable projects to increase production of carbon credit and leverage on Kenya's leadership role in Africa. The authors are policy analysts at the Kenya Institute for Public Policy Research and Analysis (Kippra)

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