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Kenya’s private sector seeks to reclaim a share of the carbon market

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Kenya’s private sector seeks to reclaim a share of the carbon market


From left to right: Kariuki Ngari, Executive Director of Standard Chartered Bank Kenya, Rebecca Miano, Executive Director of KenGen, and Peter Odhengo, Director of the Climate Finance Unit of the National Treasury, during the launch of the Report dated carbon 15 July of this year. PHOTO | DIANA NGILA | NMG

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Summary

  • Article 6.4 creates a centralized accreditation mechanism governed by the United Nations Framework Convention on Climate Change.
  • The Kenya Agricultural Carbon Project, supported by the Biocarbon Fund and SCC-VI Agroforestry, is the first project in Africa to sell carbon credits on the voluntary market.
  • Despite prevailing policy challenges, Kenya has the potential and capacity, through the private sector, to claim its share of carbon credits.

The private sector is key to realizing the aspirations of the Paris Agreement, which marks a transition in the use of international carbon markets to mitigate the effects of climate change. Article 6 of the Agreement lays the groundwork for international market-based approaches to facilitate the realization of resilience objectives communicated by countries in their Nationally Determined Contributions (NDC).

Furthermore, it establishes a decentralized mechanism through which Internationally Transferred Mitigation Results (ITMO) can be generated in one country and acquired in another.

Article 6.4 creates a centralized accreditation mechanism governed by the United Nations Framework Convention on Climate Change (UNFCCC). Similar to the Clean Development Mechanism (CDM), it establishes a carbon market under international supervision where public and private actors can participate.

Kenya is one of the countries that submitted an updated NDC progress report in accordance with the UNFCCC reporting mechanisms. The Kenya Private Sector Alliance (Kepsa) has been deliberate in its carbon market initiatives, hosting innovative projects through voluntary and compliance markets that include 16 CDM projects registered as of June 2013 in reforestation, geothermal, wind and hydraulics; 16 programs of CDM activities in the capture of renewable energies.

The Kenya Agricultural Carbon Project, supported by the SCC-VI Agroforestry and Biocarbon Fund, is the first project in Africa to sell carbon credits on the voluntary market to sequester carbon in the soil. The Kasigau Wildlife Corridor REDD (Reducing Emissions from Deforestation and Forest Degradation) project is the first activity to issue voluntary forest carbon credits.

Kepsa emphasizes that Kenya does not have access to the EU Emissions Trading Systems (EU-ETS) compliance market. The EU-ETS introduced restrictions on the use of international credits, such as certified emission reductions (CERs) of projects registered after December 2012, which are only eligible if they are hosted in least developed countries (LDCs) or in countries that have an agreement with the European Union.

Despite prevailing policy challenges, Kenya has the potential and capacity, through the private sector, to claim its share of carbon credits. To close the emissions gap and make the transition required to align the global economy with a 1.5 ° C scenario, it is estimated that annual investments of $ 6.3 trillion will be needed until 2030, and $ 6.9 trillion per year. thereafter, which implies a vital change. in financial flows, in stark contrast to incremental change.

Article 2.1 (c) of the Paris Agreement reinforces this need by directing financial flows towards low greenhouse gas emissions and climate resilient development. Progress on initiatives such as the sustainable green finance taxonomy, green bond standards, green banking regulations, and mandatory reporting related to climate change for institutional investors is a driver of sustainable capital markets.

It should be noted that there is still a large financing gap. In light of the restricted availability of public resources that has been further strained by the onset of the global Covid-19 pandemic, there is an urgent need to promote financing mechanisms that can effectively unlock large-scale private financing, while that carbon finance is delivered through international carbon markets. It has proven to be an effective means of modifying the risk-return profiles of climate-friendly investments.

To this end, to explore how to close this gap, the Kenya Climate Change Corporate Engagement (4C-Kenya) will be held on the sidelines of COP26 in Kenya, at the Safaripark Hotel, Nairobi, on November 10, 2021 , to serve as a launching pad to explore mechanisms for carbon trading, in addition to strengthening private sector engagement with its climate resilience initiatives.

In conclusion, environmental integrity will be a central principle for using the mechanisms of Article 6 of the Paris Agreement. Buyers will require that international transfers of emission reduction units made under cooperative approaches translate into at least the same, and preferably lower aggregate global emissions, eliminating the risk of transferring “hot air” or double-counting emissions reductions. .

If this is not guaranteed, trading emissions reductions could jeopardize climate action efforts and increase the cost of mitigating climate change in the long term.

Fundamentally, achieving the temperature targets of the Paris Agreement will require a massive shift and expansion of green finance flows. Recognizing that public resources alone will not be sufficient to make the transition, governments must urgently seek ways to incentivize private sector investment. In particular, by facilitating access to investments with lower abatement costs, carbon markets can play a critical role in helping countries increase ambition.

The impact of post-2020 carbon markets can be further strengthened if climate finance and carbon finance combine to support an ecological recovery in a post-Covid-19 world. Selective deployment of concessional climate finance aligned with the development needs of the carbon market can effectively promote private sector participation by eliminating investment risk or reducing market price risk.

Marangu is a communication and public policy analyst

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