CARBON MARKETS.
MMA Advocates LLP has a deep understanding of carbon market regulatory
frameworks encompassing the recently assented to law, Climate Change
(Amendment) Act, 2023. against the backdrop of the recently concluded Africa
Climate Summit and Africa Climate Week held in Nairobi as well as the objectives
of the upcoming UN Climate Change Conference (COP28) to be held in Dubai in
November 2023.
We work closely with our clients to identify potential risks and opportunities by
keeping up to date with the latest regulatory developments and trends in a
continually evolving global market.
What are Carbon Markets?
Carbon markets are a mechanism designed to reduce greenhouse gas emissions
which are essentially gases that trap heat in the atmosphere and contribute to the
negative impacts of climate change such as prolonged drought and rising of sea
levels.
Carbon markets operate on the principle of putting a price on carbon emissions to
create commercial/economic incentives for public and private entities to reduce
their carbon footprint and invest in cleaner, sustainable practices.
Ideally, by putting a price on carbon, the carbon markets encourage sustainable
environmental practices and help counties meet their emission reduction targets
under international treaties, like the Paris Agreement, which Kenya is a signatory to.
For a broader understanding, here is how a carbon market works;
- A Government establishes a limit on the total amount of greenhouse gas emission/pollution is allowed within its geographical limits;
- A grant, say permissions are created and distributed to eligible participants. This allowance represents the right to emit a certain amount of greenhouse gas;
- The participants can then buy and sell the allowances. Ideally, those who reduce their emissions more efficiently sell their surplus allowance to those who find it more challenging to reduce the emissions. If a company pollutes a lot, they need to buy more permissions, and if they do not pollute as much, they can sell their extra permissions.
- Entities are required to hold enough allowances to cover their actual emissions. If they exceed allocated allowances, they face penalties or, as expounded above, they buy additional allowances. This is the part where compliance becomes mandatory for all the key players.
- The price of the allowances fluctuates based on supply and demands and reflects the cost of emitting greenhouse gases. It is essentially like paying for pollution.
A carbon market plays a pivotal role in advancing climate action and promoting
sustainable practices by incentivizing companies to reconsider their pollution
practices, which can result in financial consequences as pollution becomes a costly
endeavor. In Kenya, the introduction of a Carbon Market is imperative as the world
confronts the dire consequences of climate change. Furthermore, it offers a
commercial opportunity for investors considering the growing demand for
environmentally friendly and carbon neutral products and services.
As mentioned above, the Paris Agreement is one of the most important international
treaties dedicated strengthen global response to the negative impact of climate
change. Ultimately, the Agreement’s goal is to motivate countries to limit global
emissions and more importantly, to hold them accountable for their actions around
reducing their carbon footprints.
Kenya as a signatory to the Paris Agreement has made significant contributions
towards fulfilling the obligations under the Paris Agreement of limiting global
temperature. The Climate Change (Amendment) Act 2023, nudges Kenya
towards the realization of Article 6 of the Paris Agreement by introducing provisions
and regulation of and participation in carbon markets.
Our upcoming Article will highlight the key aspects of the Climate Change
(Amendment) Act, 2023.
By Faith Kabora.
Disclaimer.
This communication is intended solely for informational use. Should you require legal
assistance,