By Samuel Oyugi Oriwo, Eric Magale, & Dorcas Kalele
The United Nations Convention on Climate change defines carbon trading as a ‘mechanism that enables payment of achieved emission reductions with tradable certificates issued after a regulatory authority has ascertained reduction achievement’. Carbon Credits are ‘tradeable certificates’ intended to serve as a financial incentive to support businesses operating in different sectors, to reduce or eliminate their greenhouse gas (GHG) emissions. They are intended to support businesses in combating climate change through engagement in greener, resilient and more sustainable operations. Each Carbon credit represents the reduction or avoiding the production of one metric ton of carbon dioxide (CO2) equivalent emissions or its equivalence of other Green House Gases such as methane and nitrous oxide from the atmosphere.
Carbon credits are fashioned as a market-based instrument in the sense that they can be traded in carbon markets, allowing companies that find it difficult to directly reduce their emissions, such as those who operate in high-polluting industries such as oil and gas, buy carbon credits to offset their emissions and even achieve a carbon-neutral status. By paying someone else to offset their carbon footprint, companies help accelerate the achievement of the 1.5OC global warming. Carbon markets provide the much-needed result-based and innovative financing pathways that can advance businesses’ participation in climate action and strategies.
Taxonomy of Carbon credit projects
Carbon credits arise from projects that deliver climate benefits through the reduction or removal of greenhouse gases. Carbon credit projects can be categorized as follows:
- Removal projects: These take the form of nature-based solutions and examples include reducing emissions from deforestation and forest degradation (REDD+), protection of rainforests and restoration of damaged mangroves.
- Avoidance projects: there take the form of technology-based solutions might focus on distributing clean cookstoves, solar water purification and other engineered carbon removal methods.
An example of recent carbon credit projects in Kenya are the Hongera Reforestation project and Hongera Energy Efficient Cookstoves Projects initiated by Dutch Green Business. The reforestation project, a large-scale initiative in the catchment areas of Mt. Kenya and the Aberdares, seeks to rejuvenate landscapes marred by human activities through planting of 10 million trees. Simultaneously, the Hongera Energy Efficient Cookstoves Project pioneers efficient cookstoves, reducing carbon emissions and indoor air pollution while impacting the locals. The cookstove initiative, stretching across Nyeri, Laikipia, and Nyandarua, integrates seamlessly with the parallel effort to plant millions of trees and estimates to having a remarkable 60% wood-saving efficiency, improving the health of households and saving time and money spent on wood collecting for traditional three-stone hearths. There is also a symbiotic relationship between cookstoves and tree planting whereby it contributes to environmental sustainability and also as catalyst for community development.
How carbon credits work
Accreditation and issuance of carbon credits is a collaborative endeavor involving many stakeholders. It starts with developers conducting feasibility studies, devising and establishing projects potentially recruiting investors to fund any initial cost. A viable project is then listed by a selected carbon-crediting program such (otherwise known as the standard) as Gold Standard and Verra. Accredited projects must be designed according to strict methodologies created by standards bodies. The proposed project is subsequently validated by a Verification/Validation Body (VVB) after which the carbon credit project is officially registered.
The project then goes through full implementation and with periodic monitoring of emissions as per the guidelines provided by the chosen standard. After the emissions reduction or avoidance are successfully verified by a VVB, the tradeable certificate is issued.
The project developer then trades the carbon credit through brokerages, exchanges or directly to a buyer. Buyers can make a reduction claim, whether to offset their emissions or simply to contribute towards climate action. This means the credits get taken off the standards body’s registry, also known as ‘retirement’. At this point, the retired credits can no longer be resold to another buyer. Accurate retirement records are essential because they prevent the double-counting or double-claiming of carbon benefits linked to the same credit.
Potential benefits of Carbon credits to MSMEs
Carbon projects offer more than just CO2 reduction or removal, they adopt a holistic approach that significantly impacts local economies, biodiversity and sustainability. By integrating activities like reforestation and the distribution of efficient cookstoves, these projects enhance the livelihoods of local communities. They create job opportunities, improve agricultural productivity and provide access to more efficient energy solutions. Moreover, they foster biodiversity by restoring native ecosystems and habitats ensuring a balanced and thriving environment. This comprehensive approach not only addresses environmental degradation but also promotes sustainable development and resilience more broadly.
The following benefits of carbon credits however stand out for MSMEs:
- Cost Savings: By using carbon credits, MSMEs can reduce their emissions cost-effectively. For example, projects that are technology based such as distribution of clean cookstoves, solar energy and other engineered carbon removal methods by some MSMEs are ways that can help reduce operating costs for MSMEs which helps to boost their bottom-line.
- Environmental Impact: MSMEs can actively contribute to lowering global emissions through carbon credits. The MSME sector can achieve decarbonization with the aid of climate finance, as conventional sources of climate finance alone cannot be sufficient in helping achieve
- New source of revenue: Selling generated carbon credits creates a new source of income for business.
- Enhanced reputation and Brand Image: Demonstrates SMES commitment to sustainability and environmental responsibility, attracting eco-conscious customers and investors.
- Compliance Advantage: Prepare businesses for potential future sustainability regulations.
The Future of Carbon Credits in Kenya
One of the most recent significant milestones in Kenya’s fight against climate change is the official gazettement of the long-anticipated Climate Change (Carbon Markets) Regulations 2024. The Regulations were developed through a stakeholder’s participatory approach since the enactment of the Climate Change (Amendment) Act in September 2023 which amended the Climate Change Act (2016. The Regulations act a foundation for the Kenya’s involvement in international carbon markets, providing a structured framework for the implementation of carbon projects in the country. They detail protocols for the issuance, trading, and monitoring of carbon credit project activities. The Regulations are indeed a step in the right path towards actualizing efficient operations and implementation of carbon markets in Kenya. Ultimately, the success of carbon markets in Kenya, will depend on effective implementation of the Regulations.
GDIH’s work with MSMEs
The Green and Digital Innovation Hub (GDIH) is actively involved in supporting MSMEs dealing with clean energy in Kenya through training and funding to enable them access testing services and access to finance to improve on distribution and utilization of clean energy which are cost effective and environmentally friendly. In June 2024, the Hub took several SMEs through a week-long training on Carbon Credits with a view to equip them to take up lessons and start to think of ways to green their MSMEs and make them more sustainable.
The key take-aways from the workshop was need for more collaboration among MSMEs and between MSMEs and other relevant stakeholders such as private sector and government who are critical in the life of carbon credit project. A key issue raised was around financing of carbon credit project which is a teething issue affecting the MSMEs. Another issue is technology transfer which can help MSMEs involved in different sectors to accelerate progress in establishing viable carbon credit projects.
Conclusion
Development of carbon credit projects is key in positioning businesses towards sustainability pathways and practices. Carbon credit projects provide an avenue for businesses to proactively manage their carbon footprint and potentially generate credits that can be used to offset their GHG emissions. MSMEs can leverage carbon credit projects as strategic marketing tools to showcase their commitment to environmental stewardship, position their businesses for transition to climate resilient initiatives and thus attract customers interested in ethical brands. Kenya has taken proactive steps to address climate change by enacting Carbon Credit Regulations which provides a clear pathway for caron trading, incentivizing emission reductions and encouraging environmentally-friendly investments. Even though Kenya’s carbon credit market is at its starting gates, the ingenuity and interest it has sparked among MSMEs is promising.
