Kenya, through the Capital Markets Authority, is positioning itself as the regional hub for carbon trading and a leader in nature-based credits in Africa. Kenya has in place the National Climate Change Action Plan which is the guiding policy on achieving this goal.
A carbon credit is a measurable, verifiable emission reductions from certified climate action projects that reduce, avoid and/or remove carbon dioxide (CO2) or greenhouse gases emissions into the environment.
Kenya has established one of Africa’s leading legal regimes for carbon markets through an enabling framework that governs the generation, verification, trading and benefit sharing of carbon credits emphasizing more on environmental integrity and community rights.
The Current Legal Framework
The governing regime is anchored on:
- Climate Change Act, 2016 – provides for development, management, implementation and regulation of mechanisms to enhance climate change resilience and low carbon development for the sustainable development of Kenya. The 2023 amendment to the Act expressly provides for regulation of carbon markets.
- Climate Change (Carbon Markets) Regulations, 2024 – provide a framework for implementation of carbon projects, create incentives to support greenhouse gases emissions reduction and removal targets in line with Nationally Determined Contribution and provide guidance on the annual social contribution for carbon projects.
- The United Nations Framework on Climate Change – ratified on 30th August 1991.
- The Kyoto Protocol – ratified in 1997 and came into force on 25th May 2005.
- Paris Agreement 2015 – ratified on 28th December 2016 which anchors Kenya’s Nationally Determined Contribution 2020 – 2030 (NDC), the central commitment to reduce greenhouse gas emission and build climate resilience. The NDC sets climate change targets, aligns domestic needs and international commitments.
- The Kenya National Climate Change Action Plan 2023 – 2027 (NCCAP III) – the binding national planning tool that operationalises Kenya’s climate law and directly shapes investment, regulation, and carbon market participation. It was launched in September 2023 and serves as the primary policy implementation instrument for delivering Kenya’s climate obligations including the NDC and long-term low emission strategy. It also aligns with Kenya’s development agenda under Vision 2030 and the Fourth Medium Term Plan.
Parliament and the State Department for Environment and Climate Change will continue to enact laws, regulations and policies towards achieving Kenya’s commitment to reducing climate change effects.
The Institutional Framework
The institutional framework is tiered as follows:
- The Office of the Cabinet Secretary Environment and Climate Change – charged with policy oversight and alignment with international conventions.
- Designated National Authority (DNA) – the National Environment Management Authority (NEMA) was appointed as Kenya’s DNA by Gazette Notice No. 7621 issued on 21st June 2024. Its core functions are project approval and supervision under Section 8(2A) of the Climate Change Act as read with Regulation 7 of the Climate Change Carbon Markets) Regulations, 2024.
- Climate Change Directorate (CCD) – is established under Section 9 of the Climate Change Act and it is the lead agency of the government on national climate change plans and actions to deliver operational co-ordination and technical support including provision of analytical support on climate change, establishment of the national registry, identify low carbon development strategies and co-ordinate actions for building resilience to climate change and enhancing adaptive capacity. It serves as the national knowledge and information management centre for collating, verifying, refining, and disseminating knowledge and information on climate change.
- National Carbon Registry – it was launched on 17th February 2026 and is housed at NEMA office in Nairobi. and is established under Section 23G of the Climate Change Act and the Regulations. Its functions are to keep, maintain and update the registers, implement measures to ensure the confidentiality of information collected under the Regulations and submit to the Cabinet Secretary, quarterly reports of the information maintained in the register.
- Sector registries – Regulation 13 of the Climate Change Carbon Markets) Regulations, 2024 provides that the DNA shall maintain and update registries of all carbon projects in the energy, transport, agriculture, forestry and land use, industrial processes and product use and waste sectors.
Emerging Kenyan Case Law & Disputes
Osman & 164 others (Suing on Their Behalf and Behalf of Residents of Merti Sub-County, Chari, and Cherab Wards in Isiolo County) v Northern Rangelands Trust & 8 others (Petition E006 of 2021) [2025] KEELC 99 (KLR)
This landmark decision was delivered by the ELC in Isiolo underscored the constitutional imperative of involving communities in decisions affecting community land particularly carbon offset and conservation projects. The decision reinforced that unregistered community land is protected under the Constitution and must be held in trust by the relevant county government until it is registered. The decision also highlights the requirement for transparent, inclusive processes for carbon market stakeholders to ensure equitable benefit sharing.
Wildlife Works Sanctuary Ltd v Commissioner of Legal Services & Board Coordination, Tax Tribunal Appeal No. E1290 of 2024
This decision provides guidance on taxation of income from sales of carbon credits generated in Kenya. The Tax Tribunal stated that carbon revenues from projects physically located and carried out in Kenya may be regarded as having accrued and derived from Kenya hence are taxable in Kenya irrespective of where the carbon credits are marketed, contracted or sold. Further, that tax assessments must be grounded in actual, verifiable income rather than projections. The Tribunal rejected the KRA’s reliance on historical monitoring reports and hypothetical carbon credit volumes stating that any income attribution or transfer pricing adjustment must have a clear statutory and evidentiary basis.
The Case for KOKO Networks Collapse
Carbon finance is not merely a market mechanism—it is a regulated sovereign function that is institutionally controlled.
KOKO generated carbon credits based on reduced charcoal use leading to reduced deforestation, indoor air pollution and increased access to clean cooking energy/fuel.
The business made revenue from the sale of carbon credits on international markets to companies seeking to offset their own emissions. Revenue from carbon credit sales was used to heavily subsidise both fuel and cookstoves for low-income households and to sustain the business.
The collapse of KOKO was triggered by failure to obtain the government’s letter of authorisation as provided under the Kenya Regulations and Article 6 of the Paris Agreement which required proper accounting of emissions reductions to avoid double counting. This meant that KOKO could not sell credits to finance the business could not monetise the emissions reductions that financed its subsidies.
The impact was immediate and severe including loss of approximately 700 jobs, disruption of clean cooking fuel supply to over 1 million households and entry into administration proceedings led by Muniu Thoithi and George Weru, the appointed Administrators.
Without access to carbon credit revenues, KOKO could no longer sell fuel and stoves at subsidised prices. The company could no longer meet its financial obligations leading to its shutdown.
The KOKO matter highlights several critical legal principles that:
- Government authorisation is central – c arbon credits are not purely private assets, their validity depends on state approval, especially for international trading.
- Regulatory risk is real and material – even well-funded, high-impact projects may fail where regulatory approvals are delayed, policy direction shifts and institutional discretion is exercised conservatively.
- Carbon revenue is legally contingent – Where a project relies predominantly on carbon credit revenue the absence of the letter of authorisation can render the entire model unsustainable.
Recommendations for Resolution of Emerging Disputes
- Increased scrutiny of carbon credit quality and methodologies
- Greater state control over allocation of carbon market participation
- Increased scrutiny on proper public participation and consent where community land is involved.
This article provides a general discussion of the law as it stands to-date and is not intended to be legal advice. For more detailed insights and professional advice, reach out to B M Musau & Co., Advocates LLP. Our team of experts is here to support your business needs and ensure you stay ahead in a dynamic economic environment.