by Carter Cheng
Photo: Trainers Elias Allahyari, Nicholas Ormondroyd, Alex Marcopoulos, Elise Edson, Wilf Odgers, and Ned Walker (A&O Shearman), in partnership with ILP and EAWLS, delivered a three-part training on carbon markets trading to stakeholders from Kenya
Executive Summary
For Global South countries like Kenya, carbon trading is a two-edged sword. On the one hand, it brings potential to finance carbon projects and drive national climate goals. On the other, it is riddled with structural problems such as high costs, power imbalances and difficulties for local and indigenous communities to participate meaningfully. These challenges threaten to exacerbate existing inequalities and environmental injustice.
Capacity building is essential to address this imbalance, as recently provided by the East African Wild Life Society (EAWLS), in partnership with International Lawyers Project (ILP) and A&O Shearman. This article, the first in a two-part series, illuminates the fundamental concepts of carbon trading. Part 2 will offer an in-depth discussion on the duality of carbon trading for Global South countries.
Introduction
Imagine a world where carbon becomes currency. The air we breathe, the energy we consume, the trees we plant - all reduced to figures in a massive ledger of emissions and offsets. This isn’t science fiction. It’s happening right before our eyes. It’s called carbon trading.
But here’s the paradox: on the one hand, carbon markets hold the potential to finance sustainable projects and drive national climate goals. On the other hand, the complexities of its pricing mechanisms, regulatory frameworks, and the socio-economic impacts are raising crucial questions about how Global South countries can engage effectively in carbon markets.
Kenya is caught in the middle of this paradox. In alignment with its commitment to reducing its carbon emissions by 32% by 2030, Kenya’s recent amendments to its Climate Change Act and the development of its carbon market regulations signal the country’s intention to dive deep into this new market. But at this critical juncture, the very stakeholders who are meant to drive this transition and benefit from it - from government officials to civil society and local communities - often lack the necessary know-how to navigate this new terrain and have questions about the effects.
A recent training programme led by the East African Wild Life Society (EAWLS), in partnership with International Lawyers Project (ILP) and A&O Shearman, addressed these issues. Covering topics such as the mechanics of carbon markets, relevant legal frameworks, opportunities and challenges, this initiative aimed to equip key players in Kenya’s carbon trading market with the foundational knowledge to engage meaningfully in this emerging mechanism.
What is carbon trading? How does it work?
Simply put, carbon trading is about putting a price on carbon emissions. In this system, entities which exceed their emission limits can either buy credits from those who have managed to stay within their caps or buy offsets from those who have managed to remove greenhouse gases (GHG) from the atmosphere. For offsets to be valid, they must pass the test of additionality, which means that emissions reductions would not have happened without the financial incentive provided. The trading of carbon credits and offsets allows emissions reductions to be traded like any other commodity.
There are two main types of carbon markets: compliance markets and voluntary markets. Established by governments or international organisations, compliance markets impose binding emissions reduction targets. For example, the European Union Emissions Trading Scheme (EU ETS) is one of the largest compliance markets, where industrial players are required either to reduce emissions or buy carbon credits. Operating outside the compliance market system, voluntary markets allow individuals and entities to purchase carbon credits on a voluntary basis - often as part of businesses’ corporate social responsibility initiatives.
Carbon accounting and reporting back up these mechanics. As a backbone of any carbon market, these processes are in place to measure emissions and reductions. They involve tracking emissions produced by nations, companies or individuals and ensuring that the claimed emissions reductions are accurate. The main carbon accounting standards include the frameworks provided by the Greenhouse Gas Protocol (GHGP), the Taskforce on Climate-related Financial Disclosures (TCFD), and the Global Reporting Initiative (GRI).
While the mentioned standards provide guiding frameworks on what counts as emissions and what counts as reductions, certification exists to verify that the emissions or reductions in fact happened, giving the relevant carbon credits or offsets legitimacy and traceability. Some of these certification standards include the Verified Carbon Standard (VCS), the Gold Standard, and the Climate, Community and Biodiversity Standards.
But what does this emerging mechanism mean for Global South countries? What are the opportunities and challenges lying ahead? The Kenyan story provides an example of what Global South countries may encounter in their dives into global carbon markets. Our next blog post will include an in-depth discussion on the duality of carbon trading for Global South countries.
Carter Cheng is a Legal Fellow at ILP and a Master of Public Policy student at the University of Cambridge. Carter has developed broad experiences in climate action at various UN agencies, including ESCAP, SDSN, and the UNCCD Youth Caucus. For more information or to support ILP’s work, visit our website or contact us.
Access the three-part training here:
Part 1: Concepts of Carbon Trading
Part 2: Legal Framework (International & Kenyan), Risks and Future Development Trends of Carbon Markets Trading
Part 3: Certification, Regulation and International Best Practices of Carbon Markets Trading
