Carbon Trading Crimes in Kenya
Recent amendments to Kenya’s climate legislation have introduced an array of carbon trading offences. Cliffe Dekker Hofmeyr’s Clarice Wambua discusses what this emerging regulatory framework means for carbon market proponents.
Carbon project host countries are increasingly enacting laws and regulations to govern the development of carbon projects in their jurisdictions and to clarify the rules of engagement for how carbon credits emanating from these projects can be traded in the global carbon markets. These emerging legal and regulatory frameworks increasingly provide for offences related to the carbon markets, thereby demonstrating a growing awareness of the environmental crimes arising in the context of carbon trading.
Kenya aims to have carbon credits as one of the country’s foremost exports and is making significant legislative changes to meet this goal. The country’s overarching climate legislation, the Climate Change Act 2016 (“the Act”), was amended through the Climate Change (Amendment) Act 2023 (the “Amendment Act”). The Amendment Act commenced on 15 September 2023 and set out the framework for Kenya’s engagement with the global carbon markets. It also introduced a raft of measures to curb a variety of carbon-related offences.
“Prior to the development of this legal and regulatory framework, Kenya did not have explicit offences specifically related to participation in carbon markets.”
To operationalise salient provisions of the Amendment Act, a draft Climate Change (Carbon Markets) Regulations 2023 (the “Draft Regulations”) is under development. It elaborates on the Amendment Act and contains further offences to take note of. Prior to the development of this legal and regulatory framework, Kenya did not have explicit offences specifically related to participation in carbon markets.
Emerging Carbon Trading Offences
The Amendment Act introduces new carbon trading offences, such as:
- willingly conducting unauthorised trade in carbon credits;
- knowingly giving false or misleading information with regard to environmental or financial gains from the carbon market investment;
- manipulating carbon credit measurements in order to claim addition measurements;
- engaging in money laundering through carbon trading;
- knowingly selling carbon credits to unauthorised entities; and
- failing to maintain carbon records.
The Amendment Act sets out a stiff penalty for these offences. Specifically, a person who commits these offences is liable – upon conviction – to a fine not exceeding KES500 million (approximately USD3 million) or to imprisonment for a period not exceeding ten years (or to both).
What constitutes these offences in many cases requires a reading of the Amendment Act as well as the Draft Regulations. By way of example, what constitutes unauthorised trade is not explicitly defined in the Amendment Act. However, the Amendment Act provides for the establishment of a “Designated National Authority” (DNA), defined as the entity or organisation granted the responsibility for authorising and approving participation in carbon projects. The Draft Regulations elaborate on the process through which the DNA issues a project proponent with a letter of no objection, which approves the project concept note, and a letter of authorization approving the project design document; it may be inferred that trading without this authorisation denotes “unauthorised trade” under the Amendment Act.
“Project proponents should particularly note that the Amendment Act places a significant responsibility on company directors and other officers of a company to uphold its key provisions.”
Other Kenyan laws will also be instrumental in guiding an understanding of the offences under the Amendment Act. By way of example, the Amendment Act does not define money laundering – as such, it can be inferred that Kenya will rely on the existing legal and regulatory framework on money laundering under the Proceeds of Crime and Anti-Money Laundering Act 2009 and the Proceeds of Crime and Anti-Money Laundering Regulations 2013 in determining the scope of this offence.
There are also offences introduced under the Draft Regulations. For these offences, where a penalty is not prescribed in the Amendment Act or any other written law, the penalty in the Draft Regulations will be applicable. This is a more lenient penalty, which provides that a person who commits an offence under the Draft Regulations is liable – upon conviction – to a fine of not more than KES20,000 (approximately USD138) or imprisonment for not more than six months (or to both).
The Outlook
It is crucial for carbon market proponents to familiarise themselves with this emerging framework for carbon trading crimes in Kenya and put in place measures to manage risks arising. Project proponents should particularly note that the Amendment Act places a significant responsibility on company directors and other officers of a company to uphold key provisions of the Amendment Act.
Accordingly, where an offence is committed by a body corporate, every director or officer of the body corporate who had knowledge of the commission of the offence and did not exercise due diligence, efficiency and economy to ensure compliance with the Amendment Act is guilty of such offence. A similar responsibility is placed on partners of a partnership that commits offences under the Amendment Act.
The Amendment Act and the Draft Regulations represent Kenya’s first attempt to expressly criminalise actions that interfere with the social and environmental integrity of the carbon markets. The penalties imposed aim to deter market participants from non-compliance with the legal and regulatory framework, and their full effect can only be well understood once the Amendment Act and Draft Regulations are wholly operational.
Cliffe Dekker Hofmeyr
