Kenya’s Carbon Market Evolution: Bridging Climate Action and Economic Development

By Jer­ameel Kevins Owuor Odhi­ambo

Worth Not­ing:

• Despite this poten­tial, Kenya’s car­bon mar­ket infra­struc­ture remains under­de­vel­oped. The Cli­mate Change Act of 2016 laid the ground­work for Kenya’s car­bon trad­ing activ­i­ties, but imple­men­ta­tion has been frag­ment­ed across var­i­ous gov­ern­ment agen­cies, cre­at­ing reg­u­la­to­ry uncer­tain­ty that deters invest­ment. A 2023 assess­ment by the Stock­holm Envi­ron­ment Insti­tute high­light­ed that only 38% of Kenya’s car­bon projects have suc­cess­ful­ly nav­i­gat­ed val­i­da­tion process­es, with many stalling due to com­plex method­olog­i­cal require­ments, high trans­ac­tion costs, and lim­it­ed tech­ni­cal capac­i­ty.
• This bot­tle­neck has pre­vent­ed many com­mu­ni­ty-based ini­tia­tives from access­ing car­bon finance, with large inter­na­tion­al project devel­op­ers cap­tur­ing approx­i­mate­ly 70% of Kenya’s car­bon mar­ket val­ue, accord­ing to a recent analy­sis by the Kenya Cli­mate Inno­va­tion Cen­ter.

Kenya’s car­bon mar­ket has grown expo­nen­tial­ly in recent years, with reg­is­tered projects increas­ing from just 8 in 2012 to over 80 in 2023, accord­ing to the Unit­ed Nations Frame­work Con­ven­tion on Cli­mate Change (UNFCCC) reg­istry. These projects col­lec­tive­ly gen­er­ate approx­i­mate­ly 4.5 mil­lion car­bon cred­its annu­al­ly, val­ued at $77 mil­lion in 2023 as report­ed by the Kenya For­est Service—representing near­ly 1% of Kenya’s GDP. The major­i­ty (68%) are for­est con­ser­va­tion and refor­esta­tion ini­tia­tives, with renew­able ener­gy projects account­ing for 22% and sus­tain­able agri­cul­ture mak­ing up the remain­ing 10%, based on data from Kenya’s Cli­mate Change Direc­torate. This growth coin­cides with glob­al car­bon mar­ket expan­sion, which reached $851 bil­lion in 2023 accord­ing to Refini­tiv Car­bon Research. How­ev­er, sig­nif­i­cant chal­lenges per­sist: only 38% of Kenya’s car­bon projects suc­cess­ful­ly com­plete val­i­da­tion process­es, indige­nous com­mu­ni­ties receive less than 20% of rev­enues despite stew­ard­ing car­bon-rich ecosys­tems, and recent inves­ti­ga­tions have uncov­ered con­cern­ing over­es­ti­ma­tions in emis­sion reduc­tion claims.

The fun­da­men­tal premise of car­bon trad­ing is ele­gant­ly sim­ple yet prac­ti­cal­ly com­plex: enti­ties that reduce green­house gas emis­sions can sell these reduc­tions to oth­ers seek­ing to off­set their own car­bon foot­print. Kenya’s entry into this mar­ket builds upon decades of inter­na­tion­al cli­mate nego­ti­a­tions, from the Kyoto Pro­to­col’s Clean Devel­op­ment Mech­a­nism to the Paris Agree­men­t’s Arti­cle 6, which estab­lished the frame­work for inter­na­tion­al car­bon mar­kets. Accord­ing to the World Bank’s State and Trends of Car­bon Pric­ing 2024, glob­al car­bon mar­kets sur­passed $100 bil­lion in 2023, with vol­un­tary markets—where most of Kenya’s projects operate—growing at approx­i­mate­ly 30% annu­al­ly. This presents a tremen­dous oppor­tu­ni­ty for Kenya, where the Min­istry of Envi­ron­ment has iden­ti­fied poten­tial car­bon seques­tra­tion capac­i­ty exceed­ing 50 mil­lion tonnes annu­al­ly, pri­mar­i­ly through for­est con­ser­va­tion, agro­forestry, and renew­able ener­gy projects.

Despite this poten­tial, Kenya’s car­bon mar­ket infra­struc­ture remains under­de­vel­oped. The Cli­mate Change Act of 2016 laid the ground­work for Kenya’s car­bon trad­ing activ­i­ties, but imple­men­ta­tion has been frag­ment­ed across var­i­ous gov­ern­ment agen­cies, cre­at­ing reg­u­la­to­ry uncer­tain­ty that deters invest­ment. A 2023 assess­ment by the Stock­holm Envi­ron­ment Insti­tute high­light­ed that only 38% of Kenya’s car­bon projects have suc­cess­ful­ly nav­i­gat­ed val­i­da­tion process­es, with many stalling due to com­plex method­olog­i­cal require­ments, high trans­ac­tion costs, and lim­it­ed tech­ni­cal capac­i­ty. This bot­tle­neck has pre­vent­ed many com­mu­ni­ty-based ini­tia­tives from access­ing car­bon finance, with large inter­na­tion­al project devel­op­ers cap­tur­ing approx­i­mate­ly 70% of Kenya’s car­bon mar­ket val­ue, accord­ing to a recent analy­sis by the Kenya Cli­mate Inno­va­tion Cen­ter.

The dis­tri­b­u­tion of ben­e­fits from car­bon trad­ing rais­es sig­nif­i­cant equi­ty con­cerns. Research pub­lished in the Jour­nal of Peas­ant Stud­ies in 2022 exam­ined 24 car­bon projects in Kenya and found that indige­nous com­mu­ni­ties and small­hold­er farm­ers often receive less than 20% of car­bon rev­enues, despite being the pri­ma­ry stew­ards of car­bon-seques­ter­ing ecosys­tems. This imbal­ance under­mines the social license nec­es­sary for sus­tain­able car­bon mar­kets and risks repro­duc­ing his­tor­i­cal pat­terns of resource extrac­tion. The Kenyan gov­ern­men­t’s recent efforts to devel­op a ben­e­fit-shar­ing frame­work through the Nation­al Cli­mate Change Coun­cil rep­re­sents an impor­tant step for­ward, but imple­men­ta­tion remains in its ear­ly stages and faces sig­nif­i­cant polit­i­cal head­winds from estab­lished inter­ests in the forestry and ener­gy sec­tors.

The qual­i­ty and integri­ty of car­bon cred­its gen­er­at­ed in Kenya have come under increas­ing scruti­ny. Inves­ti­ga­tions by Car­bon Mar­ket Watch and The Guardian in 2023 revealed that sev­er­al high-pro­file for­est con­ser­va­tion projects in Kenya had sig­nif­i­cant­ly over­es­ti­mat­ed their emis­sion reduc­tions, in some cas­es by more than 50%. These rev­e­la­tions threat­en to under­mine buy­er con­fi­dence in Kenya’s car­bon mar­ket and high­light the urgent need for rig­or­ous, trans­par­ent val­i­da­tion method­olo­gies. The recent estab­lish­ment of the Africa Car­bon Mar­kets Ini­tia­tive, which counts Kenya among its found­ing mem­bers, aims to address these chal­lenges by devel­op­ing Africa-spe­cif­ic val­i­da­tion approach­es that bal­ance sci­en­tif­ic rig­or with prac­ti­cal imple­men­ta­tion in con­texts where data may be lim­it­ed and gov­er­nance capac­i­ty stretched thin.

Cli­mate finance rep­re­sents the crit­i­cal bridge between Kenya’s car­bon mar­ket activ­i­ties and broad­er sus­tain­able devel­op­ment goals. Accord­ing to Kenya’s updat­ed Nation­al­ly Deter­mined Con­tri­bu­tion to the Paris Agree­ment, the coun­try requires approx­i­mate­ly $62 bil­lion in cli­mate finance between 2020–2030, with car­bon mar­kets expect­ed to con­tribute about 15% of this sum. How­ev­er, this ambi­tious tar­get faces sig­nif­i­cant chal­lenges. Data from the Cli­mate Pol­i­cy Ini­tia­tive shows that actu­al cli­mate finance flows to Kenya aver­aged just $2.4 bil­lion annu­al­ly between 2019–2022, with car­bon mar­ket mech­a­nisms con­tribut­ing less than 5% of this total. This financ­ing gap under­scores the need for Kenya to devel­op inno­v­a­tive approach­es that blend car­bon mar­ket rev­enues with oth­er finan­cial instru­ments, includ­ing green bonds, cli­mate funds, and results-based finance mech­a­nisms.

The tech­no­log­i­cal fron­tier presents both oppor­tu­ni­ties and chal­lenges for Kenya’s car­bon mar­ket devel­op­ment. Satel­lite mon­i­tor­ing, blockchain ver­i­fi­ca­tion, and arti­fi­cial intel­li­gence are increas­ing­ly deployed to enhance the trans­paren­cy and effi­cien­cy of car­bon cred­it gen­er­a­tion. For instance, the Kenya Agri­cul­tur­al Car­bon Project, which works with over 30,000 small­hold­er farm­ers, has pio­neered the use of mobile tech­nol­o­gy to mon­i­tor soil car­bon seques­tra­tion activ­i­ties, reduc­ing mon­i­tor­ing costs by approx­i­mate­ly 40% accord­ing to a 2022 eval­u­a­tion by the Food and Agri­cul­ture Orga­ni­za­tion. How­ev­er, these tech­no­log­i­cal inno­va­tions also risk exac­er­bat­ing exist­ing divides between well-resourced inter­na­tion­al project devel­op­ers and com­mu­ni­ty-based ini­tia­tives with lim­it­ed access to tech­nol­o­gy and tech­ni­cal exper­tise. Kenya’s Sci­ence, Tech­nol­o­gy and Inno­va­tion Act amend­ment of 2023 attempts to address this imbal­ance by allo­cat­ing resources specif­i­cal­ly for cli­mate tech­nol­o­gy devel­op­ment, but imple­men­ta­tion remains in ear­ly stages.

Kenya’s pol­i­cy land­scape for car­bon mar­kets con­tin­ues to evolve rapid­ly. The draft Nation­al Car­bon Mar­kets Frame­work released in Jan­u­ary 2024 pro­pos­es ambi­tious reforms, includ­ing the estab­lish­ment of a domes­tic car­bon reg­istry, stan­dard­ized ben­e­fit-shar­ing arrange­ments, and inte­gra­tion with Kenya’s broad­er cli­mate finance archi­tec­ture. These reforms aim to posi­tion Kenya to ful­ly cap­i­tal­ize on oppor­tu­ni­ties emerg­ing from Arti­cle 6 of the Paris Agree­ment and the rapid­ly grow­ing vol­un­tary car­bon mar­ket. How­ev­er, pol­i­cy inten­tions must be matched with imple­men­ta­tion capac­i­ty. A recent assess­ment by the Nation­al Trea­sury found sig­nif­i­cant human resource and insti­tu­tion­al gaps across key agen­cies respon­si­ble for car­bon mar­ket over­sight, with par­tic­u­lar weak­ness­es in mon­i­tor­ing, report­ing, and ver­i­fi­ca­tion sys­tems essen­tial for main­tain­ing mar­ket integri­ty.

The inter­na­tion­al con­text sig­nif­i­cant­ly shapes Kenya’s car­bon mar­ket tra­jec­to­ry. The Euro­pean Union’s Car­bon Bor­der Adjust­ment Mech­a­nism, sched­uled for full imple­men­ta­tion in 2026, will fun­da­men­tal­ly alter glob­al car­bon pric­ing dynam­ics, poten­tial­ly cre­at­ing new oppor­tu­ni­ties for Kenya to link its emerg­ing car­bon mar­ket with inter­na­tion­al com­pli­ance sys­tems. Sim­i­lar­ly, the Africa Car­bon Mar­kets Ini­tia­tive aims to gen­er­ate 300 mil­lion car­bon cred­its annu­al­ly by 2030, poten­tial­ly worth $6 billion—with Kenya posi­tioned to cap­ture approx­i­mate­ly 20% of this mar­ket accord­ing to McK­in­sey analy­sis. How­ev­er, these oppor­tu­ni­ties come with sig­nif­i­cant risks. Inter­na­tion­al stan­dard-set­ting bod­ies con­tin­ue to devel­op increas­ing­ly strin­gent require­ments for car­bon cred­it qual­i­ty, poten­tial­ly rais­ing bar­ri­ers for Kenya’s mar­ket par­tic­i­pants who may strug­gle to meet these evolv­ing stan­dards.

The future of Kenya’s car­bon mar­ket ulti­mate­ly depends on its abil­i­ty to nav­i­gate com­plex trade-offs between imme­di­ate eco­nom­ic returns, long-term cli­mate resilience, and social equi­ty. Suc­cess will require a whole-of-soci­ety approach: gov­ern­ment agen­cies coor­di­nat­ing pol­i­cy frame­works, pri­vate sec­tor enti­ties bring­ing finan­cial and tech­ni­cal resources, civ­il soci­ety orga­ni­za­tions ensur­ing account­abil­i­ty and com­mu­ni­ty voice, and inter­na­tion­al part­ners pro­vid­ing capac­i­ty build­ing sup­port. Recent ini­tia­tives like the Pres­i­den­tial Cli­mate Action Task Force sug­gest grow­ing high-lev­el polit­i­cal com­mit­ment to address­ing these chal­lenges. How­ev­er, trans­lat­ing this com­mit­ment into effec­tive imple­men­ta­tion requires insti­tu­tion­al reforms that enhance coor­di­na­tion across envi­ron­ment, finance, and plan­ning min­istries, while build­ing mean­ing­ful par­tic­i­pa­tion mech­a­nisms for com­mu­ni­ties whose liveli­hoods are most direct­ly affect­ed by car­bon projects. Only through such inclu­sive, coor­di­nat­ed approach­es can Kenya real­ize the full poten­tial of car­bon mar­kets as a cat­a­lyst for both cli­mate action and sus­tain­able devel­op­ment.

The writer is a legal scriven­er