BUSINESS OPPORTUNITIES IN CARBON TRADING IN KENYA

Introduction
The climate change industry promises to be one of the largest in the world and offers the prospect of substantial financial rewards to the Kenyan business Carbon trading (also called emissions trading) is now and established fact. At present 172 countries have endorsed the Kyoto method of arresting climate change through carbon trading trading, Kenya has been a signatory of the Kyoto protocol, the basis of carbon trading since 25th February 2005.

What is carbon trading?
Carbon trading is basically a commercialized activity that originates from protecting the earth from harmful emission of gases from industries. The concept of carbon credit is that of incentivising the units which pollute less and disincentivising the units that pollute more. The most dangerous gases thrown out by the industrial units are six in number - carbon dioxide, methane, nitrous oxide, hydroflourocarbons, perflurocarbons and sulphur hexafluoride. The group of such gases, which are responsible for removing greenery from our planet, are called greenhouse gases.

On the initiative of UN (United Nations), Kyoto protocol was signed in 11 December 1997 and it came into force from 16 December 2005. The Kyoto protocol aims to tackle global warming by setting target levels for nations to reduce greenhouse gas emission worldwide. The Kyoto protocol is an agreement by which the ratifying countries have agreed to reduce their emission of greenhouse gases. Under the protocol, initial target is to reduce greenhouse gas emission to 5.2 per cent below 1990 base level. 172 countries have signed the Kyoto Protocol. These countries and their companies are the only ones allowed to engage in carbon trading.

Almost all industrialized countries are huge buyer of carbon credit and all developing countries, where industrialization has not reached its peak, are supplier of carbon credit. Japan is the largest buyer of carbon credit while India and Brazil are amongst the largest suppliers of carbon credit. Being a developing country, Kenya is exempted from the requirement of adherence to Kyoto protocol. Kenya, however, can sell the carbon credits to the developed countries.

How it works?
A central authority fixes the limit of the amount of a pollutant that can be emitted into the environment. Now this limit becomes the permit of pollutants allowed into the environment. This permit is devised into several smaller units and distributed to several companies in the form of permit or credit or allowance. This permit or credit or allowances gives licenses to emit a fixed amount of pollutant into the environment.

Now if a company, say Mumias Sugar Ltd, is able to emit only eight units of greenhouse gases out of 10 units allotted to it, then it will be having two units of emission as ‘credit outstanding’ in its ‘pollution’ account. On the other side, if a company say Coca-cola (USA) Inc. emits 12 units instead of 10 units allotted to it then it will be having two units of ‘debit balance’ in its pollution account. Now Mumias Sugar Ltd will be able to transfer its two ‘credit balance’ to two debit balance account of Coca-Cola. So both the companies’ pollution account will be matched and the environment also is able to digest a certain scientifically fixed amount of pollutants. This transfer from Mumias to Coca-cola (USA) will be for some monetary consideration and hence it is referred as carbon trading.

Carbon credit, as defined by Kyoto protocol, is one metric tonne of carbon emitted by burning of fossil fuels. The GWP (Global Warming Potential) factors are used to convert each of the five gases (like methane, for example) that are not CO2 into tonnes of CO2 equivalent (CO2E), which is the standard of trading. To bring the buyers and sellers of carbon trading on one platform and to augment the process of carbon trading, carbon credits are traded at CO2E exchange in Britain, CDM (Clean Development Mechanism) exchange in Europe. In India recently, MCE (Multi Commodity Exchange) has announced carbon trading exchange with license agreement from Chicago climate exchange. Like the usual stock exchange, carbon credits have all spot transactions, forward settlement and options of trading. Kenya is yet to launch a carbon trading exchange, which is long-overdue.

Prices of credit trading vary and some time back was in the range of Euro six to Euro 12 per tonne of CO2. An estimate suggests that in 2004, 107 million tonnes of CO2 were exchanged through carbon trading worldwide. There is a steep penalty to the tune of Euro 40 per tonne to the companies emitting more than their quota. So companies that are having huge carbon credit can sell these to companies that are deficient in carbon credit or that have exhausted their quota for huge prices.

Big opportunity for Kenyan companies
Most of the beneficiaries of the carbon trading are those companies that are investing in renewable energy like solar, windmills, Biodiesel, Biogas. Actually by investing in such an alternative non-polluting source of energy, these companies will earn carbon credit in the form of CERs (Certified Emissions Reductions) to the tune they have not polluted the environment. These CERs will be sold by the Kenyan companies to companies, say in Japan, at market prevailing rate of CERs and make profit. Companies like KenGen and Mumias Sugar have started projects, which enhance energy efficiency and produce alternative energy and in turn may be earning CERs points. These CERs may be sold to companies in developed countries to earn approximately lift the bottom lines of the concerned companies.

In India, where carbon trading has gained popularity, several companies are adopting such alternative non-polluting sources of energy processes in their production units, which result in earning of CERs. We saw here in Kenya Bamburi Cement launch such production unit. There are huge profits to be made from carbon trading.

Carbon trading is a huge opportunity for Kenyan companies. Companies can earn CERs by adopting energy saving and environment protecting methods and in turn can earn huge incomes by selling them.

Way forward to tap opportunities of carbon trading in Kenya
There is need to establish a carbon trading exchange which is linked to the international carbon markets following the root adopted by India. The challenge here is on the Capital Markets Authority. There is also need for government support in publicizing the opportunities offered by carbon trading to companies and offering incentives to local companies to embrace it. This is a challenge that befalls NEMA and KRA.