Carbon Markets and Climate Finance in Kenya: The Legal Framework
A working legal reference for project developers, investors, landowners and communities in Kenyan carbon projects. It covers the statutory regime introduced in 2023 and 2024, the approval and benefit-sharing rules that now apply, the Article 6 authorisation gate, and the risks already tested in Kenyan courts and tax tribunals.
Why it matters now
Kenya is one of Africa’s most active sources of carbon credits, and in the past three years the government has built the statutory machinery to regulate that market rather than leave it to voluntary standards and private contracts.
Kenya’s second Nationally Determined Contribution (NDC) under the Paris Agreement, covering 2031 to 2035, raises its mitigation target from 32% by 2030 to 35% by 2035, measured against a business-as-usual scenario of 215 MtCO2e. Only 20% of that abatement is unconditional; the rest depends on international support, including carbon market participation. The NDC also states that Kenya will set aside part of its mitigation outcomes for domestic use.
What has changed is the legal terrain. Before 2023, outside the Clean Development Mechanism’s host-country approvals, carbon projects in Kenya ran with little statutory oversight: developers dealt directly with landowners, communities and international standards bodies, and no Kenyan law required project approval, authorisation of international transfers or a share of proceeds. The Climate Change (Amendment) Act, 2023 and the Climate Change (Carbon Markets) Regulations, 2024 changed that. A project now needs government sign-off at several stages, and on public or community land a minimum community share of revenue is fixed by law.
The National Carbon Registry was launched in February 2026. A national carbon exchange, promoted by the Nairobi International Financial Centre Authority, had not opened as at 24 October 2026; press reports in July 2026 put the target at the end of the first quarter of 2027.
The legal framework
Three instruments govern carbon projects in Kenya. Read them together.
Climate Change Act
Act No. 11 of 2016, now Cap. 387A. Sets up the National Climate Change Council and, under section 25, the Climate Change Fund. In its original form it said almost nothing about carbon trading.
Climate Change (Amendment) Act
Act No. 9 of 2023, in force 15 September 2023. Inserts sections 23A to 23H on carbon markets, and section 8(2A) on the Designated National Authority.
Carbon Markets Regulations
Legal Notice No. 84 of 2024, in force 17 May 2024. Holds the approval procedure, fees, benefit-sharing percentages, the Community Development Agreement and Article 6 mechanics.
What the 2023 amendments do
- Section 23C: carbon market participation may be through a bilateral or multilateral trading agreement, trading with a private entity, or the voluntary carbon market.
- Section 23D: a carbon project must undergo an environmental and social impact assessment; REDD+ projects face a separate safeguards assessment. This runs alongside the carbon approval track, not instead of it.
- Section 23E: land-based projects need a community development agreement, and sets the minimum annual social contribution (Chapter IV).
- Section 23G: establishes a public National Carbon Registry.
- Section 23H: disputes on land-based projects go first to the mechanism in the parties’ agreement, to be resolved within 30 days of being lodged, and only then to the National Environment Tribunal.
Two distinctions that run through the Regulations
First, land-based projects (land use, land management, or ecosystem conservation or restoration) versus non-land-based projects (technologies that do not need land, such as efficient cookstoves, hand-held solar lighting, water purifiers and green transport). Second, projects on private land versus projects on public or community land. Together these decide the benefit-sharing rate and whether a Community Development Agreement is required.
Registering and approving a project
Section 8(2A) of the Act requires the Cabinet Secretary to appoint a Designated National Authority (DNA) for market mechanisms. The National Environment Management Authority (NEMA) holds that role and administers the National Carbon Registry. The Registry is organised in six sector registries (energy; transport; agriculture; forestry and land use; industrial processes and product use; waste), each with a Sector Registrar appointed by the Cabinet Secretary who reports quarterly to the National Registrar at the DNA.
| Step | What happens | Time limit |
|---|---|---|
| 1. Concept note | Proponent files a project concept note with minutes of proponent meetings and the fee | If incomplete, 60 days to supply missing particulars or the application is cancelled |
| 2. Letter of no objection | DNA issues a letter of no objection or refuses with reasons | 14 days |
| 3. Project design document | Proponent files the PDD with approvals, a stakeholder report, a validation report and, for land-based projects on public or community land, the Community Development Agreement | 12 months from the letter of no objection, extendable by up to 12 months |
| 4. Technical review | DNA sends the PDD to an ad hoc committee, which reports back | Forwarded within 7 days; report within 30 days |
| 5. Approval | DNA, with the Cabinet Secretary’s concurrence, issues a letter of approval or rejects with reasons | 14 days after the committee report |
| 6. Implementation | Proponent starts project activities, or asks for more time or withdraws | 12 months from the letter of approval |
| 7. Issuance and reporting | Proponent notifies the DNA of each issuance by a recognised standard and files annual progress reports | Issuance notice within 14 days; reports yearly |
Failing to file an annual progress report is an offence under the Regulations. Projects that were already running when the Regulations began (“ongoing projects”) were not exempt: they had two years, to 17 May 2026, to comply, and six months to complete an environmental audit. Any ongoing project that has not done both is now out of time.
| Fee | Amount |
|---|---|
| Application, citizen proponent | KES 10,000 |
| Application, non-citizen proponent | KES 100,000 |
| Project design document, citizen proponent | KES 100,000 |
| Project design document, non-citizen proponent | KES 200,000 |
| Administrative fee on PDD approval, up to 15,000 credits a year | KES 150,000 |
| Administrative fee on PDD approval, above 15,000 credits a year | KES 300,000 |
| Issuance fee, first 15,000 tCO2e a year | USD 0.10 per credit |
| Issuance fee, above 15,000 tCO2e a year | USD 0.20 per credit |
| Corresponding adjustment fee | USD 4 per ITMO |
The issuance fee is payable within 30 days of sale, and the fixed administrative fee is deducted at first issuance rather than charged twice. A company counts as a citizen proponent only if it is wholly owned by Kenyan citizens, so a foreign-owned or jointly owned Kenyan subsidiary pays the higher non-citizen rates. Build that into the early budget.
Community and landowner benefit-sharing
On public and community land the community’s share is now a statutory floor, not a matter for negotiation. Regulation 29(1) sets the minimum annual social contribution, calculated on the aggregate earnings of the previous year less the cost of doing business.
| Project | Minimum annual contribution | Basis |
|---|---|---|
| Land-based, public or community land | At least 40% of aggregate earnings less cost of doing business, to the community | Section 23E; Regulation 29(1) |
| Non-land-based, public or community land | At least 25% of aggregate earnings less cost of doing business, to the community | Section 23E; Regulation 29(1) |
| Private project on private land | Exempt from the annual social contribution | Regulation 29(3) |
| Non-land-based projects | The DNA remits 25% of aggregate earnings to the Climate Change Fund | Regulation 30 |
| Any project paying corresponding adjustment fees | The DNA remits 50% of those fees to the Climate Change Fund | Regulation 30 |
Two points follow. A private project on private land carries no statutory social contribution, which changes the economics between a project on a private ranch and an identical one on community land. And the Regulations fix no separate share for county governments: the national share goes to the Climate Change Fund, and the community’s share is managed through the project’s own Community Development Agreement.
The Community Development Agreement
A CDA is mandatory for a land-based project on public or community land, and the Fourth Schedule sets out a template. It covers the parties’ objectives and obligations; a governance framework; the community projects to be funded and restrictions on use of funds; transparency, local employment and closure consultations; and review, amendment and transfer. Payments go to a Community Projects Development Account. The template caps administrative expenses as a percentage of the annual contribution but leaves the figure blank for the parties to fill, and on registered community land the accounts are managed under the Community Land Act.
The CDA Committee must have an odd number of members, including:
- a county government representative appointed by the Governor, and a national government administration representative;
- a women’s representative, two village elders and two youth representatives;
- representatives of climate-related civil society, marginalised groups, and persons with disabilities;
- a representative of the project proponent.
Members serve three years, renewable once (office-holders serve while in office). The Committee meets at least quarterly with a two-thirds quorum; its monitoring sub-committee meets no more than eight times a financial year. A grievance sub-committee handles disputes first, under a procedure with set steps and time limits, before the section 23H route applies.
In Osman & 164 others v Northern Rangelands Trust & 8 others [2025] KEELC 99, a three-judge bench of the Environment and Land Court held on 24 January 2025 that conservancies in Chari and Cherab wards, Isiolo County, had been set up without due public participation and were unconstitutional. The court found that customary land rights were protected whether or not the community land was registered, issued permanent injunctions against conservancy operations on the unregistered land, and directed steps to register it under the Community Land Act. On 1 April 2025 the same bench refused to stay or set aside the judgment; the Northern Rangelands Trust’s appeal was reported as pending. Press reports link the ruling to NRT’s northern Kenya rangelands carbon project. The lesson: confirm land status and document consent before commercial terms are agreed, not after.
Project types active in Kenya
Kenya’s pipeline is spread across several sectors, each with a different regulatory profile under the Regulations.
Forestry and REDD+
Avoided deforestation and conservation. The longest-running example is the Kasigau Corridor REDD+ project between Tsavo East and Tsavo West, covering over 200,000 hectares of dryland forest. On public or community land, the 40% contribution and the CDA apply in full.
Renewable energy
Geothermal and wind, built on Kenya’s geothermal-led grid. Often on private or industrial land, which changes both the contribution rate and the CDA analysis.
Cookstoves and household energy
Improved cookstoves, clean fuels and water purifiers, named in the Regulations as non-land-based. This is the category where a model built on future carbon revenue has already failed (Chapter VI).
Rangeland and soil carbon
Grassland and soil-carbon projects across community conservancies in northern Kenya. They sit on community land, where benefit-sharing and consent bite hardest and where the Isiolo litigation arose.
Classification is not a formality. The same activity can carry a 40% contribution, a 25% contribution or none at all, depending on whether it is land-based and who owns the land. Settle it at concept-note stage.
Article 6 and host-country authorisation
A credit generated in Kenya does not automatically count towards another country’s climate target. Under Article 6 of the Paris Agreement, the host country must authorise the transfer.
- Article 6.2 lets countries cooperate on internationally transferred mitigation outcomes (ITMOs). Each authorised transfer requires a corresponding adjustment, so the same tonne is not counted by both buyer and seller.
- Article 6.4 creates a centrally supervised crediting mechanism under the UN climate regime, the successor to the Clean Development Mechanism.
Under Regulation 23, a proponent applies on the Request for Authorisation form in the Sixth Schedule, stating the share of credits reserved for domestic use. With the Cabinet Secretary’s approval, the DNA issues a Letter of Authorisation in the Seventh Schedule form, which requires part of the credits to be made available to the Government for Kenya’s NDC. The DNA applies the corresponding adjustment, and the proponent pays the USD 4 per ITMO corresponding adjustment fee, half of which goes to the Climate Change Fund.
The clean cooking company KOKO Networks folded at the end of January 2026 after waiting months for a Letter of Authorisation that never came. Trade Cabinet Secretary Lee Kinyanjui was reported as saying the company was denied because it would take up the entire share Kenya could claim from global markets, locking out other firms. The lesson is structural: a Letter of Authorisation is a government decision, not a formality that follows from meeting technical criteria. A model that needs it carries real risk until the letter is in hand. (Account drawn from press reports.)
On 3 August 2026 the government released a carbon markets guide for Article 6 trading. As reported, it sets a national trading budget of 10 million tonnes of CO2e to 2030, with annual allocations capped at 1.67 million tonnes; prioritises energy, transport, industrial processes and waste; and excludes forestry and other land-use projects from international transfers for now. We have not yet located the official text, so confirm the detail with NEMA before relying on it.
Contracting considerations for developers
Two contracts carry most of the legal risk: the agreement with the community or landowner, and the agreement with the credit buyer.
Community and landowner agreements
Treat the CDA template as a floor, not a form to copy and file. Beyond the mandatory content, the agreement should state:
- who holds the underlying carbon rights;
- what happens to community payments if verification cuts issued credits below forecast;
- how buffer pool and reversal risk is allocated;
- what evidence of free, prior and informed consent exists, and how it will be refreshed if boundaries or activities change.
Where the land is registered, or being registered, as community land, check the agreement against the Community Land Act, 2016 as well as the Regulations.
Offtake and purchase agreements
An emissions reduction purchase agreement (ERPA) or other offtake contract should deal with, at minimum:
- whether the sale is of issued credits or a forward sale against future issuance;
- who bears a shortfall against forecast volumes;
- how verification and registry delays affect payment;
- who bears the cost and burden of obtaining a Letter of Authorisation;
- how the Regulations’ fees, especially the corresponding adjustment fee, are split.
After KOKO, and with the August 2026 carbon budget, an offtake agreement should not assume authorisation will arrive on the commercial timetable. Price the risk through conditions, price adjustment, or a right to terminate if authorisation is not obtained within a set window.
Confirm early which entity in a group is the real project developer for regulatory and tax purposes, as distinct from a Kenyan service or operating subsidiary. That question has already decided a multi-billion shilling tax dispute.
Clay Odari, Lead CounselTax treatment of carbon revenue
Kenya has one settled tax incentive for carbon market infrastructure, and open questions about how ordinary carbon credit revenue is taxed. Keep the two apart.
The settled incentive
Section 22(a) of the Finance Act, 2022 added a rate to paragraph 2 of the Third Schedule to the Income Tax Act: a company operating a carbon market exchange or emission trading system certified by the Nairobi International Financial Centre Authority pays corporate tax at 15% for the first ten years from the year it starts operating, against the standard 30%. It took effect on 1 July 2022 and is aimed at exchange and trading infrastructure, not at project developers generally.
The transfer pricing dispute
KRA assessed about KES 6.9 billion in corporate income tax and withholding tax against Wildlife Works Sanctuary Limited, the Kenyan entity linked to the Kasigau Corridor REDD+ project, after reallocating carbon credit income from its US parent to the Kenyan service entity. The Tax Appeals Tribunal set the assessment aside, finding that the US project developer carried the significant functions, funding and risks and was entitled to the revenue, and that the Kenyan entity’s service fees were at arm’s length. The Tribunal did accept that income from a Kenyan carbon project is taxable in Kenya. KRA was reported in January 2026 to have appealed to the High Court. We have not located the published decision; this account is drawn from law firm commentary.
The point generalises. Where an international developer runs its Kenyan presence as a service provider to an offshore project company, KRA will test whether that structure matches where the functions, assets and risks really sit. Functional analysis and contemporaneous transfer pricing documentation are the evidence that decided this case.
Neither the VAT Act nor any KRA guidance we have found classifies a carbon credit as goods or services, and the Wildlife Works dispute, as reported, did not decide the point. Any transaction of scale should allocate the risk of a later VAT assessment in the contract rather than assume a treatment, and revisit it as guidance develops.
Due diligence red flags
Most of the risk in a Kenyan carbon project can be found in advance. These patterns have already produced litigation, tax disputes or a corporate failure.
- Unregistered or contested community land. The Isiolo judgment turned on inadequate public participation on unregistered community land. Confirm tenure before terms are final, and again if boundaries change.
- Revenue built entirely on future international sales. KOKO shows what happens when a model assumes authorisation will arrive on time. The 2026 carbon budget makes international transfers scarcer still.
- Unclear identity of the project developer. The Wildlife Works dispute shows KRA will test group structures in this sector specifically.
- A CDA on paper only. A CDA without a working committee, a real grievance procedure or evidence of consent is a compliance gap and a likely source of dispute.
- An ongoing project that missed the 2026 deadline. Pre-May 2024 projects had to comply by 17 May 2026.
- Double counting. Cross-check the project against the National Carbon Registry and the voluntary standard’s own registry so the same credits are not claimed, or represented to investors, twice.
Project diligence checklist
Confirm these points before capital, credits or community commitments are locked in.
Confirm land tenure
Private, public or community land, and whether community land is actually registered, before relying on any consent already given.
Verify consent records
Evidence of free, prior and informed consent that is current and covers the project’s actual footprint.
Classify the project
Land-based or non-land-based, and the land’s ownership: this decides whether 40%, 25% or no statutory contribution applies.
Test the CDA
Where one is required: a properly constituted committee, a live contribution schedule and a working grievance procedure.
Track approval status
Where the project sits between concept note, letter of no objection, PDD and letter of approval, and whether the 12-month deadlines are at risk. For ongoing projects, confirm compliance by 17 May 2026.
Check proponent status for fees
Whether the proponent is wholly citizen-owned, which decides the fee rates.
Cross-check the registries
Rule out double counting against the National Carbon Registry and the voluntary standard’s registry.
Confirm any Article 6 authorisation
Whether a Letter of Authorisation has been issued, not just applied for, whether the sector is eligible under the 2026 carbon budget, and how the risk is priced.
Review the offtake agreement
How shortfalls, verification delays and the corresponding adjustment fee are allocated.
Map the group structure
Which entity is functionally the project developer, documented at the time rather than after a KRA inquiry begins.
Search for disputes
Kenya Law records of the Environment and Land Court, National Environment Tribunal and Tax Appeals Tribunal for anything touching the land, the counterparties or the project.
Frequently asked
Yes. Under the Carbon Markets Regulations 2024 a project needs a letter of no objection on its concept note and a letter of approval on its project design document from NEMA, as Designated National Authority. Credits to be transferred internationally under Article 6 also need a Letter of Authorisation.
On public or community land, at least 40% of the previous year’s aggregate earnings less the cost of doing business for a land-based project, or at least 25% for a non-land-based project (Regulation 29(1)). A private project on private land is exempt (Regulation 29(3)). These are minimums, not caps.
NEMA, the National Environment Management Authority, appointed under section 8(2A) of the Climate Change Act. It also administers the National Carbon Registry, launched in February 2026.
Income from a Kenyan project is taxable in Kenya, and the Wildlife Works dispute shows KRA will test which entity in a group really earned it; KRA’s appeal was reported as pending. The VAT treatment of a credit sale is not settled.
Yes, but it must meet the Community Development Agreement requirements, document consent, and comply with the Community Land Act, 2016 where the land is registered or being registered. A foreign-owned proponent pays the non-citizen fee rates.
The credits cannot be sold as corresponding-adjusted ITMOs. They may still be sold on the voluntary market as unauthorised credits. KOKO Networks’ failure in early 2026 shows the risk of a model that depends on authorisation.
Sources
Primary sources first. Press and law firm commentary is marked as such and used only where no primary text was available.
- Climate Change Act, Cap. 387A (No. 11 of 2016, as amended by Act No. 9 of 2023), sections 8(2A), 23A to 23H and 25Primary
- Climate Change (Carbon Markets) Regulations, 2024 (Legal Notice No. 84 of 2024)Primary
- Kenya’s Second Nationally Determined Contribution 2031 to 2035 (UNFCCC)Primary
- Paris Agreement, Article 6Primary
- Osman & 164 others v Northern Rangelands Trust & 8 others [2025] KEELC 99 (24 January 2025)Primary
- Finance Act, 2022, section 22(a) (Income Tax Act, Third Schedule)Primary
- Community Land Act, 2016Primary
- Kenya News Agency, Kenya launches National Carbon Registry system (February 2026)Government
- Wildlife Works, Kasigau Corridor REDD+ project (VCS 562 and 612)Developer
- REDD-Monitor, court refuses stay in the Isiolo conservancies case (15 April 2025)Press
- Business Daily, Why Kenya denied Koko carbon credits licence (8 February 2026)Press
- Associated Press, Kenya unveils carbon market rule book and caps the overseas sale of carbon credits (4 August 2026)Press
- Business Daily, Regulators plan to open Kenya’s carbon exchange in early 2027 (7 July 2026)Press
- Bowmans, KES 6.9 billion transfer pricing assessment on a carbon credit project set aside (January 2026)Law firm
- Cliffe Dekker Hofmeyr, Taxation of carbon credits in Kenya: the Wildlife Works Sanctuary Limited case (January 2026)Law firm
Get the structure right before the credits are sold
Tell us about the project, the land and the buyer. We will tell you which approvals apply, what the community share will be, and where the authorisation and tax risks sit.