If you’ve been following discussions about climate change, you’ve likely come across the term “carbon credits.”
It’s often mentioned in conversations about reducing greenhouse gas emissions or supporting sustainable projects.
But what does it actually mean?
In our collective effort to save the environment, carbon credits have emerged as one of the tools to help limit the impact of human activity on the planet.
These credits provide a way for companies and individuals to offset their emissions by supporting projects that reduce or remove carbon dioxide (CO₂) from the atmosphere.
Carbon credits are essentially permits that represent one metric ton of CO₂. Simply put, buying permission to pollute.
Companies can buy, sell, or trade these credits to either meet legal requirements or voluntarily lower their environmental footprint.
This market-based approach helps fund initiatives like reforestation, renewable energy, and sustainable farming, which all play a role in tackling climate change.
How Carbon Credits Came to Be
The concept of carbon credits originated from global efforts to combat climate change. In 1997, the Kyoto Protocol introduced mechanisms to reduce greenhouse gas emissions, including the idea of emissions trading.
Under this agreement, developed countries committed to emission reduction targets and could use carbon credits to meet them.
The Paris Agreement of 2015 further reinforced this system by encouraging countries to set their own emission reduction goals.
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It allowed nations and companies to trade carbon credits internationally to meet these targets. Over time, voluntary carbon markets also emerged, enabling businesses and individuals to offset emissions even if they were not legally required to.
This evolution has made carbon credits a key tool in addressing climate change while promoting sustainable development.
How Do Carbon Credits Work?
Carbon credits rely on two main ideas: emission limits and offsetting.
Emission limits are set by governments or regulatory bodies. For example, a factory might have a limit of 50 tons of CO₂ emissions annually.
If it emits only 40 tons, it has 10 extra credits to sell. Another factory that exceeds its limit by 10 tons can purchase these credits to stay compliant.
Offsetting works differently. Some projects actively remove CO₂ from the atmosphere or prevent its release.
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For instance, reforestation projects plant trees that absorb CO₂, while renewable energy projects, like solar farms, replace fossil fuel use.
These projects generate carbon credits that can be sold to those looking to offset their emissions.
A simple example is a logistics company that emits large amounts of CO₂ through fuel use. The company can buy carbon credits from a wind farm that produces clean energy.
This offsets its emissions by supporting renewable energy development.
How Are Carbon Credits Traded?
Carbon credits are traded in two main markets: compliance markets and voluntary markets.
Compliance Markets
In compliance markets, governments or regulatory bodies set emission caps for industries. Companies that emit more than their cap must buy credits to stay compliant.
These markets are tightly regulated, and the trade typically happens through exchanges or brokers.
For example, the European Union Emissions Trading System (EU ETS) is a compliance market where companies can trade carbon credits.
Voluntary Markets
Voluntary markets operate differently. Here, companies and individuals buy credits to offset their emissions without legal obligations.
Trading in voluntary markets often occurs directly between buyers and sellers or through online platforms.
These platforms connect buyers to projects generating carbon credits, such as reforestation programs or renewable energy installations.
Who Buys Carbon Credits?
Corporations are the largest buyers of carbon credits. Many are required to meet government regulations on emissions.
Others purchase credits voluntarily to demonstrate environmental responsibility. For example, tech companies often fund renewable energy projects to offset emissions from their data centers.
Governments also participate in the carbon credit market. Some buy credits to meet international climate agreements or reduce their overall carbon footprint.
Individuals can buy carbon credits too. If you fly often and want to reduce your environmental impact, you can purchase credits to support projects like reforestation.
However, the carbon credit trade is not without its challenges. A growing concern is the lack of clear regulation on how the market operates.
Questions have been raised about who regulates the trade, determines the terms of sale, and sets the price for carbon credits.
Critics argue that those responsible for pollution are often the ones setting the standards and prices, while the owners of the carbon credits—often from developing countries or small communities engaged in offsetting activities—receive far less than what their credits are worth.
A recent example highlights this imbalance. Saudi Arabia has agreed to buy carbon credits from Kenya at $8 per tonne, far below the recommended global price of $80 per tonne.
This pricing disparity raises concerns about fairness and whether carbon credit markets genuinely benefit the communities and projects that drive emissions reduction.
These issues underline the need for more transparency and equitable practices in the carbon credit trade to ensure that those contributing to emissions reduction are fairly compensated.
The State of Carbon Credits in Kenya
Kenya is recognized as the second-largest issuer of voluntary carbon credits in Africa, trailing only the Democratic Republic of Congo.
In 2022, it received 11 million voluntary carbon market credits, primarily from projects focused on nature-based solutions such as sustainable grassland management and forest regeneration.
The country aims to cut its emissions by 32% by 2030, aligning with its commitments under the Paris Agreement.
The Kenyan government has been proactive in establishing a National Carbon Registry, which will serve as an accounting tool for verified carbon credits and emission reductions.
This initiative is part of a broader strategy to ensure transparency and prevent double-counting of emissions reductions
Legislative Developments
Amendments to the Climate Change Act
In September 2023, Kenya amended the Climate Change Actto provide a comprehensive regulatory framework for carbon markets. Key features of the amendments include:
- Establishment of a National Carbon Registry: This registry will document verified carbon credits and ensure compliance with international obligations.
- Mandatory Environmental and Social Impact Assessments: All carbon trading projects must undergo these assessments to align with Kenya’s environmental laws
- Community Development Agreements: These agreements are required to ensure that local communities benefit from carbon trading projects, mandating at least 25% of earnings be allocated to community development
Proposed Carbon Credit Trading and Benefit Sharing Bill
A new Carbon Credit Trading and Benefit Sharing Bill is currently under legislative review. This bill aims to:
- Establish a regulatory framework for carbon credit trading.
- Create a Carbon Trading and Benefit Sharing Authority to oversee trading permits and ensure equitable benefit sharing among stakeholders.
- Introduce penalties for unauthorized trading and misleading information related to carbon credits.
Climate Change (Carbon Markets) Regulations, 2024
In addition to the amendments, Kenya published the Climate Change (Carbon Markets) Regulations, 2024, which provide detailed guidelines for implementing carbon projects.
These regulations emphasize:
- Documentation and integrity of emissions reductions.
- Clear roles for institutions overseeing carbon market activities.
- Compliance with both voluntary and compliance carbon markets.
Why Are Carbon Credits Important?
Carbon credits are a critical tool in the fight against climate change. They provide financial incentives for companies and countries to lower emissions while funding sustainable projects that benefit the planet.
For countries like Kenya, the carbon credit market brings economic opportunities and supports conservation efforts.
Projects like reforestation, renewable energy, and agroforestry not only help combat climate change but also create jobs and improve livelihoods.
However, the full potential of carbon credits can only be realized if the trade is properly regulated.
Clear and fair rules are essential to ensure that those generating the credits—often communities in developing countries—receive a fair share of the revenue.
If these regulations are implemented, countries like Kenya could benefit immensely, boosting their economies while still promoting environmental conservation.
For individuals and businesses, buying carbon credits offers a way to take responsibility for their environmental impact.
By participating in this system, you contribute to a cleaner, more sustainable future while helping address inequities in the global carbon market.
