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1、A Carbon Market Guidebook for Kenyan EnterprisesPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure Authorized 2024 International Bank for Reconstruction and Development/The World Bank1818 H Street NWWashington DC 20433Telephone:202-473-1000Internet:

2、www.worldbank.orgThis work is a product of the staff of The World Bank with external contributions.The findings,interpretations,and conclusions expressed by World Bank staff or external contributors in this work do not necessarily reflect the views of The World Bank,its Board of Executive Directors,

3、or the governments they represent.The World Bank does not guarantee the accuracy of the data included in this work.The boundaries,colors,denominations,and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territ

4、ory or the endorsement or acceptance of such boundaries.Rights and PermissionsThe material in this work is subject to copyright.Because The World Bank encourages dissemination of its knowledge,this work may be reproduced,in whole or in part,for noncommercial purposes as long as full attribution to t

5、his work is given.Attribution:Please cite the work as follows:World Bank Group and Kenya Private Sector Alliance,2024.A Carbon Market Guidebook for Kenyan Enterprises,World Bank,Washington,DC.All queries on rights and licenses should be addressed to the Publishing and Knowledge Division,The World Ba

6、nk,1818 H Street NW,Washington,DC 20433,USA;fax:202-522-2625;e-mail:pubrightsworldbank.org.Cover Photo:Daniel Kandie/Graphic Design:Kane ChongA Carbon Market Guidebook for Kenyan EnterprisesAcknowledgementsAbbreviations and Acronyms Glossary Executive SummaryAbout this GuidebookWhat is the purpose o

7、f this guidebook?Who should use this guidebook?Why was the guidebook developed?How was the guidebook developed?ContextGlobal and regional context of carbon marketsWhat are carbon projects and credits?What are the sources of demand and supply for carbon credits?Kenya and regional contextWhy does the

8、carbon market matter for Kenyan enterprises?How have Kenya and Africa participated in the carbon market in the past?What area can Kenya grow its carbon market in?What are the challenges to growing the carbon market in Kenya?What trends will shape the next decade of the market?Chapter 1.Project Conce

9、ptualization and Design1.1 How to determine if an activity is suitable to pursue carbon credits?Activities ability to avoid or remove emissionsCarbon project typesHigh-quality implementationCost-benefit comparison1.2 How to select the carbon credit standard and methodology to follow?Carbon credit st

10、andard selectionMethodology selection1.3 How to conduct a feasibility study of a carbon project?Technical feasibilityFinancial feasibilityLegal and regulatory feasibilityOrganizational feasibility1.4 How to prepare a project design document?Chapter 2.Project Financing2.1 What are the expected costs

11、to develop a project?Project conceptualizationProject development and monitoringCredit issuance and sales2.2 How to find suitable financing sources?Commercial financiersDevelopment financiers040506081213131313141515161717182121232425252628313333353636374044464849495052535356Table of Contents02A Carb

12、on Market Guidebook for Kenyan Enterprises585860606061636364666767686969707171727677777778797979808081828383848485868688902.3 How to decide among the financing mechanisms?Types of purchase agreements(non-exhaustive list)Carbon derivatives-based contract(futures and options)Equity financingDebt finan

13、cingGrant and donation financing2.4 How to mitigate project risks to have lower financing cost?Project-specific risksMacro-level risksChapter 3.Project Development and Monitoring3.1 How to get a project listed?3.2 How to validate a project?Documentation submission to a VVBDocumentation review and si

14、te visitValidation report generation3.3 How to register a project?3.4 How to monitor a project?Carbon project monitoring planMonitoring implementationChapter 4.Credit Verification and Issuance4.1 How to verify a project at the end of each period?Monitoring report submissionVVB verificationRegistry r

15、eview and approval4.2 How to have credits issued?Issuance requestIssuance levy4.3 What are the actions recommended after credits are issued?Project maintenanceSubsequent issuance cyclesChapter 5.Credit Sales5.1 What sales channels exist for carbon credits?Direct salesBrokered salesOver-the-counterEx

16、change sales5.2 How to determine the price of carbon credits?Project-specific driversMacro-level driversAnnex:Key ResourcesTable of Contents03A Carbon Market Guidebook for Kenyan EnterprisesThis guidebook was jointly developed by the World Bank Group and the Kenya Private Sector Alliance(KEPSA).The

17、World Bank Group team was led by Isfandyar Zaman Khan(Lead Financial Sector Specialist)and included Rachel Mok(Financial Sector Specialist),Lucas Belenky(Climate Change Consultant),Swee Ee Ang(Senior Financial Sector Specialist),Jeannie Crist(Senior Financial Officer,IFC),Elizabeth Kibaki-Obiero(Sen

18、ior Private Sector Development Specialist),and Hisham Osman(Senior Environmental Engineer).The World Bank team was supervised by Alwaleed Fareed Alatabani(Practice Manager,Finance,Competitiveness and Innovation,Southern and Eastern Africa)and received guidance from Marek Hanusch(Program Leader).The

19、KEPSA team included Dr.Jackson Koimbori(KEPSA Senior Circular Economy and Climate Change Coordinator),John Kalungi(KEPSA Vice Chair Land and Physical Planning),and Ebenezar Amadi(Sustainable Inclusive Business Project,Manager).A team from Boston Consulting Group supported the preparation of this gui

20、debook:Mills Schenck(Managing Director and Partner),Takeshi Oikawa(Managing Director and Partner),Katie Hill(Partner and Associate Director,Climate),Wanxuan Jiang(Project Leader),and Wouter Nientker(Senior Associate).The guidebook was designed by Kane Chong.The team would like to thank the following

21、 World Bank Group staff for providing feedback:Joseph Pryor(Senior Climate Change Specialist),Catiana Garcia-Kilroy(Lead Financial Sector Specialist),Mitik Zegeye(Climate Change Analyst),Jeffrey Delmon(Senior Infrastructure Finance Specialist),Elisson Wright(Senior Environmental Finance Specialist),

22、and Basak Odemis(Consultant,IFC).The report benefited greatly from the valuable perspectives of Kenyan authorities and stakeholders,including but not limited to representatives from the Ministry of Environment,Climate Change&Forestry,National Treasury,Capital Markets Authority,4R Digital,AirCarbon E

23、xchange(ACX),BioLite Energy,Carbonaires,Cella Mineral Storage,Ceriops Environmental Organization,Circular Impact,Climate Asset Management,Climate Impact Partners,Earthbanc,Ecosecurities,Farm to Market Alliance,Hartree Partners,Howard Kennedy LLP,KawiSafi Ventures,Kita Earth,KOKO Networks,Komaza,Laik

24、ipia Conservancies Association,Mirova,Mount Kenya Trust,NCBA Group,Octavia Carbon,One Acre Fund,Regen Organics,the Nature Conservancy,UNDO Carbon,Verra,Wildlife Works,the Deutsche Gesellschaft fr Internationale Zusammenarbeit,Japan International Cooperation Agency,Japanese Joint Crediting Mechanism(

25、JCM),Japanese Ministry of Environment,Multilateral Investment Guarantee Agency,US Agency for International Development,McKinsey,and United Nations Industrial Development Organization.The combined efforts of these organizations have helped deliver a document that we hope will support enterprises purs

26、uing carbon projects in Kenya for years to come.Finally,the World Bank would like to express our gratitude for the important and timely contribution of the Climate Support Facility(CSF)Whole of Economy Program and the Joint Capital Markets Program(J-CAP),which provided funding for the analysis and c

27、onsultations conducted for this paper.CSF and J-CAP are multi-donor programs administered by the World Bank Group.J-CAP is funded by the government of Germany and the government of Norway.The CSF Whole of Economy Program is funded by the German Federal Ministry of Economic Cooperation and Developmen

28、t.Acknowledgements04A Carbon Market Guidebook for Kenyan EnterprisesAbbreviations and AcronymsACMIAfrican Carbon Markets InitiativeACXAir Carbon ExchangeAFOLU Agriculture,Forestry,and Other Land UseAUDAvoided Unplanned DeforestationBAUBusiness as UsualCCCFCounty Climate Change FundCDM Clean Developm

29、ent MechanismCER Certified Emission ReductionCOe Carbon Dioxide EquivalentCORSIA Carbon Offsetting and Reduction Scheme for International AviationCSFClimate Support FacilityDACDirect Air CaptureDFIDevelopment Finance InstitutionD-MRVDigital Monitoring,Reporting,and VerificationETS Emissions Trading

30、SystemFPAForward Purchase AgreementFPICFree Prior Informed ConsentGDPGross Domestic Product GHG Greenhouse GasGISGeographic Information SystemGold Standard The Gold Standard for Global GoalsIC-VCMIntegrity Council for the Voluntary Carbon MarketIFCInternational Finance CorporationIRRInternal Rate of

31、 ReturnJCMJoint Crediting MechanismKEPSAKenya Private Sector AllianceMDBMultilateral Development BankMOMitigation OutcomeMRV Monitoring,Reporting,and VerificationNDC Nationally Determined ContributionNGONongovernmental OrganizationNPVNet Present ValueOTCOver the CounterPDD Project Design DocumentRED

32、D+Reducing Emissions from Deforestation and Forest DegradationSDG Sustainable Development GoalSMESmall and Medium-Sized EnterpriseUNFCCC United Nations Framework Convention on Climate ChangeVCM Voluntary Carbon MarketVCS Verified Carbon Credit StandardVVB Validation and Verification Body05A Carbon M

33、arket Guidebook for Kenyan EnterprisesGlossary1Article 6 of the Paris Agreement:Article 6 of the Paris Agreement allows countries to voluntarily cooperate with each other to achieve emission reduction targets set out in their nationally determined contributions.This means that,under Article 6,a coun

34、try(or countries)will be able to transfer carbon credits earned from the reduction of greenhouse gas(GHG)emissions to help one or more countries meet climate targets.Within Article 6,Article 6.2 creates the basis for trading in GHG emission reductions(or“mitigation outcomes”)across countries on a bi

35、lateral basis.Article 6.4 is expected to be like the Clean Development Mechanism of the Kyoto Protocol,establishing a mechanism for trading GHG emission reductions between countries under the supervision of the Conference of the Partiesthe decision-making body of the United Nations Framework Convent

36、ion on Climate Change(UNFCCC).Article 6.8 recognizes nonmarket approaches to promote mitigation and adaptation.It introduces cooperation through finance,technology transfer,and capacity building,where no trading of emission reductions is involved.Avoidance:Along with removal,avoidance is one of the

37、two major types of carbon projects.Avoidance projects prevent the release of GHG into the atmosphere that would have otherwise been emitted,such as by preventing deforestation in an area with a high rate of logging or providing renewable energy in place of fossil fuel.Carbon credit:A carbon credit i

38、s a tradable certificate that represents GHG emission avoidance or removal of one ton of carbon dioxide equivalent from the atmosphere.Carbon project:A carbon project refers to a project that contributes to GHG emission avoidance or removals from the atmosphere.Carbon projects leverage carbon credit

39、s as a financing mechanism.Clean Development Mechanism(CDM):Mechanism developed under the Kyoto Protocol for countries with emissions targets to finance emission reductions projects in developing countries in exchange for certified emission reductions,which count toward meeting Kyoto targets.Corresp

40、onding Adjustment:An accounting mechanism established under Article 6 of the Paris Agreement intended to ensure that mitigation outcomes(MOs)are not“double counted”;that is,trading of MOs should not result in more than one country using the same MO to demonstrate achievement of their nationally dete

41、rmined contribution.Crediting mechanism:A crediting mechanism designates the GHG emission reductions from project-or program-based activities,which can be sold either domestically or in other countries.Crediting mechanisms issue carbon credits according to an accounting protocol and have their own r

42、egistry.These credits can be used to meet compliance under an international agreement,domestic policies,or corporate citizenship objectives related to GHG mitigation.Crediting standards:A crediting standard outlines a set of detailed requirements that must be met for a mitigation activity to generat

43、e carbon credits using that standard.These standards are typically maintained by independent bodies and are established using expert inputs.Examples include the UNFCCCs Clean Development Mechanism,the Gold Standard,Verras Verified Carbon credit standard(VCS),and the World Banks Forest Carbon Partner

44、ship Facility.Enterprise:In the context of this guidebook,a for-profit or nonprofit organization that proposes,owns,and has the legal right to execute the underlying activities behind a carbon project.Builds on World Bank(2022),Defining Results-based Climate Finance,Voluntary Carbon Markets and Comp

45、liance Carbon Markets,World Bank(2022),What You Need to Know about Article 6 of the Paris Agreement,and World Bank(2023),State and Trends of Carbon Pricing.106A Carbon Market Guidebook for Kenyan EnterprisesKyoto Protocol:International treaty adopted in 1997 that aimed to reduce the emission of GHGs

46、 and prevent global warming.The treaty committed industrialized countries and“economies in transition”to GHG reductions;established a GHG monitoring and review system;and created a set of“market-based mechanisms,”including the CDM,that allow for emissions trading.Leakage:Risk to manage in the design

47、 of carbon projects.It refers to the case where the direct impact of a carbon reduction activity is offset by its indirect impacts.For example,protecting a forest from logging leads to an increase in logging in surrounding forests.Monitoring,reporting,and verification(MRV):Monitoring,reporting,and v

48、erification refers to the process of measuring the amount of GHG emission reduction by a specific mitigation activity over a period and independently verifying the results to ensure robustness and accuracy.Nationally determined contribution(NDC):An NDC is a national climate action plan to cut emissi

49、ons.Each country under the Paris Agreement is required to establish an NDC and update it every five years.NDCs are not legally binding unless they are transposed into national law.Paris Agreement:The Paris Agreement is a legally binding international treaty on climate change.It was adopted by 196 pa

50、rties at the United Nations Climate Change Conference in Paris,France,on December 12,2015.It began on November 4,2016.Its overarching goal is to hold“the increase in the global average temperature to well below 2C above pre-industrial levels”and pursue efforts“to limit the temperature increase to 1.

51、5C above pre-industrial levels.”Permanence:Requirement to consider in the design of carbon projects.It describes whether greenhouse gas abatement will be undone over the medium to long term.Carbon dioxide has a half-life of over 100 years,so projects that secure emissions for only a few decades may

52、not permanently and sufficiently reduce emissions.Project developer:A project developer is the organization that is developing a carbon project,is the point of contact to the relevant crediting standard,and typically has legal ownership of the resulting carbon credits.Reducing emissions from defores

53、tation and forest degradation(REDD+):Framework for emissions-limitation programs focused on preventing deforestation that was negotiated under the United Nations Framework Convention on Climate Change.REDD+credits are not allowed in the CDM but are common in the voluntary carbon markets.Registry:A p

54、latform that maintains information related to the creation,transfer,use,and cancellation of carbon credits to enable tracking.The level of sophistication of a registry system can vary,with some serving as data repositories while others may include trading functions.They include voluntary registries

55、such as Verra,Gold Standard,and Plan Vivo,and UN mechanisms like the CDM.Removal:Along with avoidance,one of the two major types of carbon credits.Removal projects aim to absorb emissions from the atmosphere to reduce potential greenhouse effects.For example,engineered methods such as direct air cap

56、ture and accelerated rock weathering can be used to absorb carbon from the atmosphere.tCOe:Ton of CO2 equivalent.Standardized unit for greenhouse gases expressing all emissions in terms of CO2 with equivalent global warming potential.Vintage:The year in which the emissions avoidance or removal under

57、pinning the carbon credit took place.Glossary07A Carbon Market Guidebook for Kenyan EnterprisesExecutive SummaryEnterprises in Kenya encompass a diverse and dynamic landscape,representing a crucial driver of economic growth and employment opportunities in the country.Small and medium-sized enterpris

58、es(SMEs),in particular,play a pivotal role,contributing significantly to the nations gross domestic product(GDP)and accounting for 90 percent of the labor force.Enterprises must scale their climate action to meet Kenyas climate mitigation and adaptation goals.However,the lack of funding has limited

59、their contribution to the climate agenda.Debt constitutes most of enterprises funding,but the price of debt remains very high and loan tenors are short.The availability of patient capital,including private equity,is also low.Carbon markets can be an important vehicle to support an enterprises climat

60、e action.Crucially,carbon markets function as a source of non-debt,results-based financing that does not require prior assets or collateral,potentially enabling enterprises in Kenya that struggle to access other sources of climate finance to grow.Despite this potential and the government of Kenyas c

61、ommitment to scale carbon markets,Kenyas participation in international carbon markets remains concentrated,with most credits issued by a handful of developers.Many enterprises also have limited understanding on how they should develop and monetize carbon credits.The purpose of this guidebook is the

62、refore to provide practical step-by-step guidance to help enterprises navigate the complex and fast-evolving landscape of carbon markets.The life cycle of carbon projects follows three key stages:(i)project conceptualization and financing,(ii)project development and monitoring,and(iii)credit issuanc

63、e and sales(Figure 1).These stages are summarized in Table 1.FIGURE 1Life cycle of a carbon projectProject Concept&FinancingCountry level authorization including corresponding adjustment as neededFeasibility StudyImplementation and MonitoringCredit VerificationProject Design DocumentationProject Reg

64、istrationCredit IssuanceProject FinancingProject ValidationCredit Sales and RetirementProject Development&MonitoringCredit Issuance&Sales08A Carbon Market Guidebook for Kenyan EnterprisesExecutive SummaryTABLE 1Overview of the guidebookThe government of Kenya recently issued the Climate Amendment Bi

65、ll,which provides the regulatory basis for carbon markets.Regulations are expected in the future to clarify how market actors can engage in carbon markets.Depending on the project type,other regulations and laws may also have to be considered(e.g.,in relation to land ownership in the case of nature-

66、based credits).It is important for enterprises to closely navigate the regulatory landscape in Kenya since it is fast evolving.Most notably,it is important to keep track of the governments expectations around Article 6 and corresponding adjustment,which can add an extra layer of approval and potenti

67、ally lead to longer timelines for project development and implementation.21.The first step is to determine whether the project is suitable for carbon credits.There are various strategic questions that need to be answered.For example,can the activity trigger a reduction in emissions from a business-a

68、s-usual baseline by either avoiding or removing emissions?Does the activity match a project type for which it is common to have carbon credits issued?Can the project satisfy the quality requirements of standards and principles in the market?2.If the project has strong carbon potential,the next step

69、would be to select the appropriate carbon credit standard and methodology to follow.Most Kenyan projects in the voluntary market are registered under two independent crediting mechanisms,the Verified Carbon Standard and the Gold Standard.3.A detailed feasibility study will then be developed in close

70、 consultation with key stakeholders.This feasibility study typically covers four components:i.technical feasibility to assess the viability of the carbon project based on established carbon methodologies and the emission reduction potential of the project;ii.financial feasibility to assess the poten

71、tial revenue,costs,and investment needed;iii.legal and regulatory feasibility to assess whether the project can comply with relevant laws,policies,and regulations;2 and iv.organizational feasibility to assess whether the enterprise has sufficient capacity to engage in carbon markets and to what exte

72、nt external support is needed.4.Once the enterprise decides to pursue a carbon credit project,a project design document(PDD)needs to be developed.This should outline how the project will be implemented and how emission reductions will be calculated and monitored based on the selected methodology and

73、 standard.Project Conceptualization11.Enterprises should carefully consider the financing costs required at different stages of the carbon project life cycle.At the project conceptualization stage,financing needs may include conducting a pre-feasibility study and a feasibility study and preparing th

74、e PDD.At the project development and monitoring stage,enterprises Project Financing209A Carbon Market Guidebook for Kenyan EnterprisesExecutive Summaryhave to dedicate resources to validate the PDD and project implementation plan,facilitate project registration,and complete project implementation an

75、d monitoring.During credit issuance and sales,resources are needed to support the verification of emission reductions,the issuance of verified carbon credits,and pre-financing of pre-credit sales.The guidebook provides preliminary estimates of the costs associated with these different activities,not

76、ing that the cost could vary across project types.2.There are various financing sources that could help enterprises attract capital for their carbon projects.This may include commercial financiers such as carbon funds,corporates with climate targets,commercial banks,and intermediaries.It could also

77、include development financiers,such as governments,impact investors,nonprofit organizations,and multilateral development banks.3.In terms of financing mechanisms,enterprises should consider the type of purchase agreement that would be used for the carbon project.This may include,for example,forward

78、purchase agreements and carbon derivativebased contracts.Carbon credits may also be linked to equity and debt financing in some cases.4.Finally,enterprises should consider potential risks that should be mitigated to lower the financing costs.This includes project-level risks(e.g.,operational,communi

79、ty,and reputational risks)and macro-level risks(e.g.,political risks,regulatory risks,and price volatility).1.The project will need to be listed under the registry of the selected carbon credit standard.This involves opening an account with the registry and submitting the necessary documentation.2.D

80、epending on the requirements of the selected carbon credit standard,project validation is usually the next step after the project is listed.Validation helps ensure that the project meets the established requirements of the standard.Validation entails three main steps:submission of documentation to a

81、 validation and verification body(VVB),review of submitted documentation and site visit by the VVB,and generation of a validation report.3.After the validation process is completed,the project is ready to be registered under the chosen standard.To initiate project registration,the enterprise prepare

82、s and submits the validated PDD and supporting documentation to the registry of the chosen carbon credit standard for review and approval.Supporting documents may include a validation report,proof of contracts,technical specifications,and stakeholder consultation reports.4.Monitoring involves measur

83、ing and tracking emission reductions for reporting at each credit issuance period.A carbon project monitoring plan is needed to track measurable parameters that will be used to calculate the projects impact.The plan will then guide enterprises on how to monitor the project and complete the monitorin

84、g report.Project Development and Monitoring310A Carbon Market Guidebook for Kenyan EnterprisesExecutive Summary1.The verification process helps ensure that carbon credits are only issued for projects that have achieved real and measurable emission reductions and that buyers can trust these credits t

85、o achieve their climate change mitigation goals.The verification process is a rigorous,multistep process designed to ensure the integrity and credibility of carbon projects.The process involves the submission of emissions data and monitoring reports to a VVB and review by the chosen registry.Given t

86、he limited presence of VVBs in Kenya and the rigor of the process,an enterprise should expect a timeline of approximately two to six months for the verification process.2.Credit issuance is the step in the carbon project life cycle where carbon credits are made available to the enterprise that devel

87、oped the project.During the credit issuance process,the enterprise that developed the project needs to submit an issuance request and pay a carbon credit issuance levy,after which the registry deposits the carbon credits in the enterprises account at the registry.Credit Verification and Issuance41.T

88、here are several channels available for enterprises in Kenya to sell their issued carbon credits,including,for example,over-the-counter direct sales or brokered sales,exchange sales,and sales on auction platforms.Each sales channel has unique advantages and disadvantages.Enterprises need to understa

89、nd the available sales channels to select a channel that fits their needs.2.Enterprises should be aware that different project and macro-level factors could influence the price of carbon.Project-specific drivers may include,for example,the projects co-benefits,the quality and environmental integrity

90、 of the project,and the project type and vintage.Macro-level drivers may include,for example,market perceptions,buyer preferences,and regulations.Credit Sales511A Carbon Market Guidebook for Kenyan EnterprisesAbout this GuidebookWhat is the purpose of this guidebook?This guidebook aims to demystify

91、the landscape of carbon(credit)markets in Kenya and share good practices across the carbon project development life cycle.It outlines the key steps involved in developing a successful carbon project and provides practical advice to enterprises on how to navigate these steps.The team,however,recogniz

92、es that the carbon market landscape is rapidly evolving and that the guidebook may need to be updated over time to reflect the latest market and policy developments in Kenya and globally.Who should use this guidebook?This guidebook is intended for enterprises interested in developing carbon projects

93、 in Kenya.It is particularly relevant for enterprises that are considering developing their first carbon project.For these enterprises,this guidebook provides practical advice on how to navigate each stage of the carbon project life cycle.For more experienced enterprises that have already started th

94、eir first carbon project,the guidebook provides further information about subsequent steps and links to resources or support available in the market.Even though the target audience of the guidebook is enterprises,this guidebook could also help financiers and authorities better understand key barrier

95、s that limit enterprise engagement in carbon markets and what actions need to be taken to address these gaps.Why was the guidebook developed?The World Bank Group and KEPSA developed the guidebook to better understand how enterprises in Kenya can benefit from carbon credits,in conjunction with other

96、financing tools.In doing so,the guidebook aims to inform World Banks broader engagement and operations with private sector enterprises by exploring how carbon credits could complement other financing instruments to scale investments for climate action in Kenya.How was the guidebook developed?The gui

97、debook was informed by a series of bilateral consultations with stakeholders,including but not limited to Ministry of Environment,Climate Change&Forestry,National Treasury,Capital Markets Authority,4R Digital,ACX,BioLite Energy,Carbonaires,Cella Mineral Storage,Ceriops Environmental Organization,Cir

98、cular Impact,Climate Asset Management,Climate Impact Partners,Earthbanc,Ecosecurities,Farm to Market Alliance,Hartree Partners,Howard Kennedy LLP,KawiSafi Ventures,Kita Earth,KOKO Networks,Komaza,Laikipia Conservancies Association,Mirova,Mount Kenya Trust,NCBA Group,Octavia Carbon,One Acre Fund,Rege

99、n Organics,the Nature Conservancy,UNDO Carbon,Verra,and Wildlife Works,the Deutsche Gesellschaft fr Internationale Zusammenarbeit,Japan International Cooperation Agency,Japanese JCM,Japanese Ministry of Environment,Multilateral Investment Guarantee Agency,US Agency for International Development,McKi

100、nsey,and United Nations Industrial Development Organization.About this Guidebook13A Carbon Market Guidebook for Kenyan EnterprisesContextContextFIGURE 2Carbon credits issueda and retiredb globally by project type,millions of creditsGlobal and regional context of carbon marketsCarbon credit markets t

101、rade“carbon credits.”Each credit represents the reduction of one metric ton of carbon dioxide equivalent(CO2e)from the atmosphere.These credits are issued to verified carbon projects by carbon credit standards such as Verra,Gold Standard,or Plan Vivo.Once issued,carbon credits can be sold in carbon

102、markets where organizations and individuals wishing to reduce their carbon footprint can buy and use credits to offset their own emissions.Carbon credits are generated through voluntarily implemented emission reduction project-or program-based activities.These projects are undertaken by for-profit o

103、r nonprofit enterprises with activities that contribute to emission avoidance or removal.Carbon projects can be managed by enterprises directly responsible for emission reduction activities(e.g.,a conservancy managing land and wildlife preservation or a waste management company with daily recycling

104、operations)or can be managed by a third-party entity specialized in developing carbon projects on behalf of enterprises.Carbon projects are common in forestry and land use,agriculture,livestock management,energy activities,waste management,industrial activities,and transportation activities(Figure 2

105、).Carbon projects are typically segmented by how they reduce emissions:avoidance versus removal,and the nature of their emission reduction activities:nature based versus tech based.Avoidance projects reduce emissions by preventing their release into the atmosphere.Removal projects reduce emissions b

106、y removing emissions from the atmosphere.Nature-based projects protect,restore,or sustainably manage ecosystems.Tech-based projects leverage technologies to avoid or remove emissions.In 2022,credit issuances for avoidance projects made up 79 percent of global VCM credits.In the future,credit issuanc

107、es for removal projects are expected to increase due to their higher perceived quality by market participants and the relevant technology becoming more commercially viable and scalable(Figures 2,3).What are carbon projects and credits?Sources:Berkeley Carbon Trading Project Voluntary Registry Offset

108、s Database(data from Climate Action Reserve,American Carbon Registry,Verra,and Gold Standard).a.When registry issued the credits;b.When a credit is claimed against an organization or individuals carbon footprint;c.Includes agriculture,carbon capture and storage,chemical processes,industrial and comm

109、ercial,transportation and waste management.Forestry&Land UseHousehold&CommunityRenewable EnergyOther c200620072008200920102011201220132014201520162017201820192020202120222005116932424669735863521241331752232982913Credits retired globally15A Carbon Market Guidebook for Kenyan EnterprisesContextFIGURE

110、 3Projected carbon credit supply by emission reduction type,billions of creditsSources:American Carbon Registry;Climate Action Reserve;Gold Standard,Verra;Carbon Offsetting and Reduction Scheme for International Aviation;International Maritime Organization;International Energy Agency;CDP;Company com

111、mitments;International Carbon Action Partnership;Fraunhofer Institute for Systems and Innovation Research;Ecosystem Marketplace;S&P Global Platts;Nori Carbon Removal Marketplace;Indigo Ag;Expert survey.The supply of carbon credit is represented by issuances from carbon crediting mechanisms,including

112、(i)those established in international crediting mechanisms established under international treaties(e.g.,Kyoto Protocol and Paris Agreement);(ii)domestic crediting mechanisms established by regional,national,or subnational governments;and(iii)independent crediting mechanisms/standards that are manag

113、ed by nongovernmental entities(e.g.,VCS,Gold Standard).There are various sources of demand,including(i)voluntary demand,mostly from private entities purchasing carbon credits to meet voluntary targets(e.g.,net zero);(ii)domestic compliance demand,for companies seeking credits to meet their obligatio

114、ns under a domestic scheme(e.g.,emissions trading scheme or carbon tax);and(iii)international compliance demand,including countries purchasing emission reductions to meet their mitigation targets under the Paris Agreement and airlines purchasing credits eligible for meeting their obligations under t

115、he Carbon Offsetting and Reduction Scheme for International Aviation(CORSIA).Demand for credits can also come from results-based climate finance,where governments or international organizations incentivize climate action by purchasing carbon credits.However,it should be noted that results-based carb

116、on finance involves the transfer of assets from one entity to another(Figure 4).3Since the rules and procedures for engaging in Article 6 have not yet been finalized,and the implications of Article 6 of the Paris Agreement on voluntary carbon markets are unclear,this guidebook focuses on the current

117、 state of play of VCMs in Kenya,while recognizing that the guidebook may need to be updated over time to respond to the evolving regulatory landscape of carbon markets.However,section 1.3 does take note of potential reporting requirements that could emerge under Article 6,including in relation to co

118、rresponding adjustment.4What are the sources of demand and supply for carbon credits?World Bank 2023,State and Trends of Carbon Pricing.World Bank(2022),What You Need to Know about Article 6 of the Paris Agreement.Article 6.2 allows countries to trade emission reductions through bilateral or multila

119、teral agreements which creates opportunities for developing countries to export carbon credits,provided that these credits are not double counted against national climate targets.Article 6.4 aims to establish a centralized mechanism for trading authorized emission reductions between countries and co

120、mpanies provided the projects are approved by the country where the projects are implemented.34Nature-based avoidanceNature-based removalTech-based removalTech-based avoidance42%31%25%202932%22%203020%47%202232%0.334%22%44%20230.343%38%25%35%20250.439%27%33%20260.540%28%30%20270.541%29%28%20280.70.8

121、1.036%24%39%20240.41%1%1%1%2%2%2%3%3%16A Carbon Market Guidebook for Kenyan EnterprisesContextKenya and regional contextEnterprises in Kenya encompass a diverse and dynamic landscape,representing a crucial driver of economic growth and employment opportunities in the country.Ranging from small-scale

122、 family businesses to large multinational corporations,Kenyas enterprise sector spans various industries,including agriculture,manufacturing,services,technology,tourism,and finance.Small and medium-sized enterprises(SMEs),in particular,play a pivotal role,contributing significantly to the nations GD

123、P and accounting for the majority of the labor force.Strategic documents,such as Kenyas National Climate Change Action Plan and the National Adaptation Plan,as well as the World Banks draft Climate Change Development Report recognize the important role that the private sector,particularly SMEs,must

124、play in achieving Kenyas NDC goals.With government initiatives aimed at supporting climate mitigation and adaptation activities in key sectors and attracting foreign investment,Kenya is positioned as a dynamic economic hub in East Africa,offering both opportunities and challenges for entrepreneurs a

125、nd investors alike.Estimates predict that the majority of financing for SMEs climate activities needs to come from the private sector,given the growing fiscal constraints and limited amount of public finance available.The financial sector,Kenyan government,and international development finance insti

126、tutions(DFIs)have mobilized capital to support SMEs,but the focus has largely been through debt instruments and de-risking products in the form of portfolio guarantees.Pricing of debt remains very high and loan tenors remain short in the SME sector due to the inherent risks of small size,limited exp

127、erience,vulnerability to shocks,and lack of collateral,making it unaffordable or inaccessible.Private equity funding for SMEs in Kenya is very low,with most funds having a regional mandate,further decreasing the countrys potential share of these resources.Why does the carbon market matter for Kenyan

128、 enterprises?FIGURE 4Sources of demand and supply for carbon creditsSource:World Bank 2023,State and Trends of Carbon Pricing.SOURCES OF SUPPLYMARKET SEGMENTSInternational crediting mechanismse.g.CDM,Art 6.4International compliance marketsCredit purchases aimed at helping countries meet their NDCs a

129、nd airlines comply with CORSIADomestic compliance marketsCredit purchases aimed at complying with obligations under carbon taxes,ETSResults-based financeCredit purchases as public policy tool for incentivizing mitigationVoluntary carbon marketCredit purchases aimed at meeting voluntary targets or co

130、mmitmentsRegional,national,and subnational crediting mechanismse.g.California Compliance Offset ProgramIndependent crediting mechanismse.g.VCS,Gold Standard17A Carbon Market Guidebook for Kenyan EnterprisesContextCarbon markets can complement other sources of financing by providing additional revenu

131、e streams that can improve the economics of a project.Crucially,for enterprises interested in exploring options to mitigate the impacts of climate change,carbon finance can function as a source of non-debt,results-based financing that does not require prior assets or collateral,potentially enabling

132、enterprises in Kenya that struggle to access other sources of(climate)finance to grow.By offering a source of non-debt finance,carbon markets can potentially help enterprises in Kenya transition to green business models with less reliance on direct government subsidies,donor support,or debt instrume

133、nts.In some cases,carbon credits could also be a tool for managing exchange rate risks,which is especially important for enterprises that are highly exposed to currency risks(e.g.,agriculture exporters).Carbon credits are generally sold in US dollars,while project development and implementation cost

134、s are likely to be partially in Kenyan shillings.Carbon credits could therefore act as a mitigant against currency risks since carbon revenues offer a hard currency cash flow for climate projects.5 While carbon financing alone may not be sufficient to develop a project,it can make a project financia

135、lly viable.For example,revenues from the sale of carbon credits can offset the costs of implementing energy efficiency measures,making projects more financially attractive.African countries have historically missed out on carbon markets but have shown growing interest in scaling their engagement in

136、carbon markets in the future.China and India accounted for 67 percent of credits generated under the Kyoto Protocols Clean Development Mechanism,while Africa represented only 5 percent.6 In the voluntary carbon market,demand for African-originated carbon credits has been growing,at a compound annual

137、 rate of 36 percent between 2016 and 2021,but the value of these credits remains low,with the retirement value of African carbon credits standing at only$123 million in 2021.7 Large economies,such as India and China,dominate voluntary carbon markets,and only a handful of African countries and compan

138、ies have been able to benefit from voluntary carbon markets to date.Voluntary carbon markets in Africa are fragmented,with a significant number of global players across the value chain.Project developers are generally small scale and limited in number,with around 100 project developers active on the

139、 continent over the past 10 years.Project developers focus on similar types of projects,with around 97 percent of African carbon credits issued in forestry and land use,renewable energy,and household devices(out of the total number of credits issued over 201622).There is limited local validation and

140、 verification body(VVB)presence and almost all credits from Africa are certified by independent standards(80 percent from Verra,20 percent from Gold Standard).Demand for African credits is largely driven by major international companies(Figure 5).Estimates by the Africa Carbon Markets Initiative(ACM

141、I)suggest that the regions participation in carbon markets is well below its technical potential,representing only 2 percent of Africas maximum annual potential for carbon credit generation.8How have Kenya and Africa participated in the carbon market in the past?OMFIF 2023,Leveraging Carbon Markets

142、to Enable Private Investment.World Bank(2018),Carbon Markets Under the Kyoto Protocol.All dollar amounts in this report are US dollars unless otherwise indicated.According to the Africa Carbon Market Initiative(ACMI),the 2030 technical potential of Africa-sourced carbon credits is estimated to be up

143、 to 2,400 metric tons of CO2e per annum based on existing,nascent,and innovative methodologies in sectors such as forestry and land use,agriculture,blue carbon,renewable energy,household devices,livestock,and waste management.ACMI(2022),ACMI Roadmap Report.567818A Carbon Market Guidebook for Kenyan

144、EnterprisesContextFIGURE 5VCM credits issued for projects in Sub-Saharan Africa in 2022,millions of creditsIn 2022,Kenya was the second largest issuer of VCM carbon credits in Africa,after the Democratic Republic of the Congo(Figure 6).Since 2011,over 59 metric tons of carbon credits have been issue

145、d to projects in Kenya,83 percent of which have been issued in voluntary markets(Figure 7).To date,most voluntary carbon credits issued in Kenya come from nature-based projects.Tech-based projects are nascent but emerging in the market.Most credits generated from Kenya in voluntary markets have been

146、 issued for forestry and land use projects.These credits have been issued to four developers,three of which are based in Kenya:Wildlife Works Carbon,Chyulu Hills Conservation Trust,and Northern Rangelands Trust.They have generated carbon credits through reducing emissions from deforestation and fore

147、st degradation(REDD+)and sustainable grassland management projects to support local environment conservation efforts.Household and communitybased credits,specifically cookstoves,are another significant type of credit generated in Kenya.The enterprises behind these credits are more fragmented and lar

148、gely rely on carbon credit revenue to achieve profitability.The primary buyers of VCM credits generated in Kenya have been corporations such as Air France-KLM,Apple,BHP,Delta Air Lines,Kering,Nedbank,Nespresso,Netflix,Shell,and Zenlen Inc.There is limited transparency on the prices paid for these cr

149、edits as they have been sold over the counter with bilateral negotiations.A small portion of credits generated in Kenya have also been sold in compliance markets,issued through the Clean Development Mechanism.Source:ACMI 2022Note:Each credit represents the reduction of one metric ton of CO2e from th

150、e atmosphere.African-origin offsets by developerMtCOe all years(20102022)*Wildlife Works Carbon LLC219765444332222Carbon Green Investments(Guernsey)Oromia Forest and Wildlife EnterpriseImpact CarbonCO2balance UK ltdRelief InternationalVestergaard Frandsen Group SAClean Air Action Corporationmyclimat

151、e FoundationCI-ENERGIESNorthern Rangelands TrustToyota Energy Services LimitedChyulu Hills Conservation TrustThe Paradigm Project*First issuance year of African based projects was 2010.Source:Data extracted from VCS,GS,CAR,ACR and Plan Vivo registries;Analysis of news articles and company websites.o

152、f African credits issued over 2010-2273%of African credits retired in 202126%BioCarbon PartnersAfrican-origin creditsby registry,2021Exchanges&marketplacesBrokersAfrica carbon exchange initiativesAfrican-origin offsets retired bybuyer,KtCOe 2021Supply(Generation)and standardsIntermediation&financing

153、DemandTop 15 project developersAStandardsBIntermediariesCTop buyers of African creditsDFunders,both public and privateE41NIFC and AirCarbonExchange initiative in Kenya699200Egyptian EnvironmentMinistry and the EgyptianExchange initiativeSouth African government and Johannesburg StockExchange2001,109

154、9007851921,16437514581%19%1%19A Carbon Market Guidebook for Kenyan EnterprisesContextFIGURE 6VCM credits issued for projects in Sub-Saharan Africa in 2022,millions of creditsFIGURE 7Carbon credits issued in Kenya for voluntary and compliance markets,millions of creditsSources:Berkeley Carbon Trading

155、 Project Voluntary Registry Offsets Database(data from Climate Action Reserve,American Carbon Registry,Verra,and Gold Standard).Note:DRC=Democratic Republic of the Congo.Sources:Berkeley Carbon Trading Project Voluntary Registry Offsets Database(data from Climate Action Reserve,American Carbon Regis

156、try,Verra,and Gold Standard);Clean Development Mechanism.Note:Percentage of total refers to all credits issued from 2011 to 2022.Forestry&Land UseHousehold&CommunityRenewable EnergyWaste ManagementDRCKenyaZambiaUgandaMalawiNigeriaTanzaniaGhanaSouth AfricaBurundiRest of Sub-Saharan Africa241143322211

157、5REDD+Sustainable GrasslandManagementAfforestation/Reforestation2011201220132014201520162017201820192020202120222.33.31.83.64.00.82.24.44.26.513.313.1Forestry&Land Use56.1%of totalCookstovesBiodigestersBundled Energy EfficiencyClean WaterCommunity BoreholesHousehold&Community32.1%of totalSustainable

158、 AgricultureAgriculture0.5%of totalGeothermalHydroelectricSolar LightingWindBiomassRenewable Energy11.2%of total20A Carbon Market Guidebook for Kenyan EnterprisesContextProjects in forestry and land use,household and community,and renewable energy produced more than 99 percent of credits in Kenya si

159、nce 2011.However,beyond these historically large sources of carbon credits,there are other project types with emission reduction potential that can be developed to expand Kenyas carbon market.Based on an assessment of resource availability in Kenya,global interest from buyers,and potential to genera

160、te high-quality credits,project types with high carbon market potential include:9 Forestry and land use:There is high potential due to large forest and wetland coverage in Kenya,with emerging opportunities driven by developments in jurisdictional REDD+and buyer preference for removal-type forestry a

161、nd land projects.Agriculture:There is high potential due to the size of the sector(approximately 33 percent of Kenyas GDP)and interest of market participants in climate-smart agriculture.Industrial processes:Kenyas industrial sector,especially the cement industry,offers significant opportunities for

162、 GHG emissions reduction.Cement manufacturing is traditionally a highly energy-intensive process,often powered by fossil fuels,which significantly contributes to the countrys overall carbon footprint.The implementation of energy-efficient technologies and practices,such as improving kiln efficiency

163、or substituting clinker(a major component of cement)with less carbon-intensive materials,can further reduce the industrys environmental impact.Waste management:There is high potential due to the large volume of waste generated and government attention with the recent Sustainable Waste Management Act

164、(2022),with emerging opportunities including composting and methane recovery in water.To unlock the potential of carbon markets in Kenya,there are critical challenges across the carbon market value chain that require stakeholders collaborative efforts to address.Local knowledge and capacity:As noted

165、 in the previous section,only a handful of Kenyan enterprises have managed to benefit from carbon markets so far.Most enterprises in Kenya have a limited understanding of carbon markets,and significant capacity building is needed to increase enterprises technical understanding of how to develop and

166、implement high-quality carbon projects.There is also limited local expertise and capacity for carbon project verification and validation,which is required to lower the barrier and transaction costs for carbon credit issuance.Project verification and validation must be completed by a third-party enti

167、ty approved by the applicable certification standard,meaning that enterprises cannot control this limited capacity but can advocate for new verification and validation entities to be approved in the region.What area can Kenya grow its carbon market in?What are the challenges to growing the carbon ma

168、rket in Kenya?Carbon capture and storage also has strong potential due to the availability of resources such as geothermal energy and basalt deposits.However,given the high up-front costs associated with these investments,these projects may not be suitable for carbon markets in the short run.921A Ca

169、rbon Market Guidebook for Kenyan EnterprisesContextBOX 1Taxation of carbon creditsSome countries are levying high taxes on revenues from selling carbon credits.Zimbabwe recently announced carbon credit proceeds will be taxed at 50 percent and Kenya published proposed amendments to its Climate Change

170、 Bill that stipulate 25 percent of aggregate earnings from carbon credit projects go to local communities.While the price of carbon credits is expected to increase in the next few years,offsetting to some degree the impact of any taxation for project developers,there is a lack of clarity around how

171、carbon credits will be taxed in Kenya and other countries in the region.Access to financing:Kenyan enterprises have limited access to affordable sources of financing for projects.This limits enterprises ability to pursue carbon projects.At the same time,financiers in the market have limited tools to

172、 de-risk investments from high-risk projects,such as insurance.Policy uncertainty:Policies and regulations related to land rights and carbon credit ownership,taxation policy,and domestic Article 6 regulation and implementation have implications for enterprises implementing carbon projects,including

173、in relation to the authorization and approval process.Currently,Kenya has passed the Climate Change Amendment Bill and is in the process of developing more detailed regulations for carbon markets,which is expected to provide further details on the expected approval process and reporting requirements

174、 for voluntary and compliance carbon markets(see section 1.3).However,these regulations are still under development,creating policy uncertainties for enterprises that wish to engage in carbon markets.Clarity on land rights and carbon credit ownership is also vital for enterprises pursuing nature-bas

175、ed projects to ensure project continuity and long-term risk mitigation.The private sector also needs clarity on how carbon credits are legally defined to address issues related to insolvency,and how to account for the purchase and sale of carbon credits on the balance sheet.Regulations related to th

176、e taxation of carbon credits could also affect the feasibility of carbon projects(Box 1).Enterprises participating in the Kenyan carbon market should remain aware of national and county-level legal,policy,and regulatory changes as they arise.Price level:Carbon credit prices in the voluntary market v

177、ary by project type and fluctuate year-on-year.It typically requires at least two years from project conceptualization until carbon credits are generated and there is little guarantee of what the price for a carbon credit will be at that time.Lack of local service providers:Most certification standa

178、rds developers,third-party verifiers,project developers,and other ecosystem actors are based outside of Africa,making it time-consuming and expensive to develop carbon projects on the continent and certify the resulting carbon credits.22A Carbon Market Guidebook for Kenyan EnterprisesContextGlobal c

179、arbon markets are constantly evolving,driven by shifting market dynamics,technology innovations,and policy developments.The future of carbon markets is hard to predict but several key trends will shape their continued evolution over the next decade:Market demand growth:Demand growth for voluntary ca

180、rbon credits is expected to be led by three key drivers:corporate commitments from companies aiming to reduce their carbon footprints,industry schemes with emission reduction targets(e.g.,CORSIA),and new trading opportunities in compliance markets that allow foreign-generated carbon credits.Focus on

181、 project quality and integrity:Carbon credit buyers are expected to pay increasing attention to project quality and integrity to mitigate reputational risk from market participation.In recent years,registries have been criticized for issuing carbon credits for projects that do not deliver accurate e

182、mission reductions as claimed.Purchasing such types of credits can expose buyers to public backlash and greenwashing accusations.Therefore,as companies and industries strengthen their commitments to climate change mitigation,robust monitoring,reporting,and verification(MRV)will be a key consideratio

183、n in credit purchasing decisions.Existing project MRV processes could be lengthy,costly,and require significant technical capacity.Digital MRV solutions are emerging to streamline MRV processes and decrease costs to make carbon markets function more efficiently(see further details in section 1.1).Pr

184、oject type shift:Perceived quality differences among project types will drive the composition of VCMs moving forward.Projects that remove emissions from the atmosphere,both nature based and tech based,are expected to command a greater share of VCM trading volumes and higher market prices.Growth of t

185、ech-based removal projects will be driven by technological advancements,leading to cost reductions for enterprises operating these projects.Article 6:Globally,governments are implementing policy frameworks and structures to cooperate under Article 6 of the Paris Agreement,creating opportunities for

186、enterprises to participate in international compliance markets.For example,Ghana and Switzerland signed the first bilateral authorizations under Article 6.2 of the Paris Agreement,paving the way for project implementation under this mechanism.As such efforts continue to grow,enterprises should remai

187、n aware of Article 6 rules and implementation may impact their carbon project activities(see further details in section 1.3).10 Policy development:To enable the growth of carbon markets,governments are developing or updating policies and regulations on land rights and credit ownership,establishing f

188、iscal policies related to carbon credits,establishing domestic project registries to ensure market transparency,and more.These policy developments are evolving in Africa.For example,Malawi recently created an agency to regulate the industry,while Zambia is looking to put in place laws on carbon mark

189、ets and negotiate with program owners to take a share of income(see further details in section 1.3).What trends will shape the next decade of the market?For example,corresponding adjustments are outlined as the main tool for avoiding double counting within Article 6.These adjustments will determine

190、which entity,a national government or private buyer,can count offset emission reductions toward their total emissions.Enterprises undertaking carbon projects should be clear on how their generated credits will be accounted for by the government to ensure buyers do not double count.Furthermore,enterp

191、rises seeking to register projects under Article 6.4 must comply with all Article 6.4 rules,even when selling credits to a private company.As such,these credits must be authorized by the country where projects are implemented,which will require engaging with the government to receive project authori

192、zation letters.1023A Carbon Market Guidebook for Kenyan EnterprisesProject Conceptualization and DesignCHAPTER 1Chapter 1-Project Conceptualization and DesignHow to determine if an activity is suitable to pursue carbon credits?1.1Before the decision is made to develop a carbon project,the first step

193、 is to conduct a feasibility study.There are strategic questions that an enterprise needs to answer to determine whether it has a suitable activity to be turned into a carbon project.A feasibility study would need to be conducted to answer the strategic questions in a comprehensive way.However,given

194、 the costs involved in such a study,it is often helpful to have a high-level understanding of the following four questions before progressing:Enterprises with projects that could avoid or remove emissions should consider carbon markets by starting to conceptualize projects.Early consideration of car

195、bon markets can ensure the chosen project activities reduce emissions in a way that will generate carbon credits.Can the activity trigger a reduction in emissions from a business-as-usual(BAU)baseline by either avoiding or removing emissions?Does the activity match a project type for which it is com

196、mon to have carbon credits issued?Can the activity satisfy the quality requirements of standards and principles in the carbon market?Would the expected resource invested into the carbon project be justified by the expected revenue?Activities ability to avoid or remove emissionsCarbon credits are iss

197、ued for either emission avoidance or removal activities.Having such activities is a prerequisite for enterprises considering developing a carbon project.Carbon avoidance activities prevent or reduce the release of emissions into the atmosphere compared to a BAU baseline.An example of an avoidance pr

198、oject is the use of efficient cookstoves,which avoid emissions by reducing the amount of wood burnt for daily cooking.Carbon removal activities remove emissions from the atmosphere.Examples of carbon removal include afforestation and reforestation,which increase the quantity of carbon held in land b

199、y planting new trees,or direct air capture(DAC),which removes emissions from the atmosphere through chemical or physical means.25A Carbon Market Guidebook for Kenyan EnterprisesChapter 1-Project Conceptualization and DesignEnterprises should look for existing activities issued with carbon credits to

200、 compare if their activities similarly avoid or remove emissions and if such avoidance or removal activities are commonly accepted by registries.In Kenya,projects issued with carbon credits are common in forestry and land use,household and community,and renewable energy,providing 56 percent,32 perce

201、nt,and 11 percent of credits issued,respectively.Carbon projects can be broadly segmented into nature-based and tech-based projects.For tech-based projects in Kenya,avoidance projects are typically decentralized and require active community engagement,whereas removal projects are more centralized an

202、d,in general,may require less community engagement.An overview of each segment with project examples in Kenya is provided next.Additional information on credit generation by projects of different types in Kenya is available in“Global and regional context of carbon markets”on page 12.Nature-based avo

203、idance and removal projects protect,sustainably manage,or restore natural ecosystems.They require significant engagement with the local communities who own or live on the land.Projects in Kenya include:Reducing emissions from deforestation and forest degradation(REDD+):Activities that lower emission

204、s by reducing deforestation or forest degradation(e.g.,Wildlife Works developed Kasigau Corridor REDD+).Afforestation,reforestation,and revegetation(ARR):Activities that increase carbon stocks by establishing,augmenting,or rehabilitating vegetative cover via planting,sowing,and assisted natural rege

205、neration of woody vegetation(e.g.,Komaza developed Komaza Smallholder Farmer Forestry Kenya).Avoided conversion of grasslands and shrublands(ACoGS):Activities that lower emissions by reducing the conversion of grasslands and shrublands ecosystems to other land uses with lower carbon densities(e.g.,B

206、oomitra developed Boomitra Grassland Restoration in East Africa through Soil Enrichment).Wetlands restoration and conservation(WRC):Activities that remove emissions by restoring wetlands ecosystems or reduce emissions by avoiding the degradation of wetlands(e.g.,Vlinder Austria GmbH developed Papari

207、ko-Restoration of Degraded Mangrove Areas in Kenya).Agriculture land management(ALM):Activities that reduce emissions on croplands and grasslands by increasing carbon stocks in soils and woody biomass and/or decreasing CO2,nitrous oxide,and/or methane emissions from soils(e.g.,Soil Carbon Certificat

208、ion Services developed Western Kenya Soil Carbon Project).Tech-based avoidance projects typically work with local communities to avoid emissions by distributing more efficient devices,e.g.,improved cookstoves,water filters,home biogas,and solar home systems and water pumps:Improved cookstoves:Activi

209、ties that replace inefficient cooking technologies with improved stoves(e.g.,Burn Manufacturing installed high-efficiency cookstoves in Sub-Saharan Africa).Water filters:Activities that provide access to clean and safe water without the need to boil the water(e.g.,Offgridsun developed Maji Safi,Mais

210、ha Bora Project).Carbon project types26A Carbon Market Guidebook for Kenyan EnterprisesChapter 1-Project Conceptualization and Design Home biogas:Activities provide access to clean energy to replace traditional cooking and lighting and reduce emissions into the air from waste decomposition(e.g.,Home

211、biogas Limited developed Homebiogas Programme in Kenya).Solar home system/solar lanterns:Activities that replace fuel-based lighting or heating systems(e.g.,kerosene lamps)with solar systems that rely on renewable energy(e.g.,MicroEnergy distributed approximately 600,000 solar lighting systems acros

212、s Kenya).Solar water pumps:Activities that replace fuel-based pumps with a cleaner source of energy(e.g.,SunCulture developed Solar Water Pump Project in Kenya).Tech-based removal projects require less community involvement and typically capture CO2 and store it safely in long-term storage.In Kenya,

213、carbon capture and storage projects are still nascent.New projects can take longer to start due to technological and financial barriers.However,there are diverse initiatives from market pioneers:Direct air capture:Activities that capture CO2 directly from the atmosphere using special materials or so

214、lvents that selectively bind to CO2(e.g.,Octavia Carbon).Carbon mineralization:Activities that provide durable storage services by injecting CO2 into volcanic rock(e.g.,Cella).Enhanced rock weathering:Activities that accelerate naturally occurring rock weathering to permanently remove CO2 from the a

215、tmosphere(e.g.,UNDO).Biomass fuel production:Activities that convert organic waste(e.g.,agricultural waste)into briquettes and pellets that provide an alternative fuel source(e.g.,Tamuwa).Biochar:Activities that convert organic waste(e.g.,agricultural waste)through pyrolysis and use resulting produc

216、ts as a soil amendment additive(e.g.,Eco-Act).As the carbon market evolves,accepted project types also change.For the most up-to-date information,refer to the latest guidelines from carbon credit standards and registries such as VCS,Gold Standard,and Plan Vivo,which dominate the voluntary carbon mar

217、ket in Kenya.Enterprises are also highly encouraged to go through documentation for specific projects of interest on the registries websites for more details.27A Carbon Market Guidebook for Kenyan EnterprisesChapter 1-Project Conceptualization and DesignEnvironmental integrity has become an importan

218、t topic as carbon markets have gained momentum globally.In recent years,carbon credits have been scrutinized for their underlying project quality and impact on emission reductions.Demonstrating the quality of carbon credits is therefore critical to protect the reputation of all stakeholders involved

219、 in the project life cycle.Even though there is no internationally agreed definition and methodology for assessing the quality of carbon credits,several voluntary initiatives have been established to guide buyers and suppliers in ensuring the quality of carbon credits.On the supply side,the Integrit

220、y Council for Voluntary Carbon Markets released the Core Carbon Principles,which highlights key principles that standards/programs should abide by to help enterprises generate high-integrity carbon credit.These principles include:1.Effective governance to ensure transparency,accountability,and conti

221、nuous improvement.2.Tracking(through a registry)to uniquely identify,record,and track mitigation activities and carbon credits issued.3.Transparency to enable the scrutiny of mitigation activities.4.Robust independent third-party validation and verification.5.Additionality to ensure that GHG emissio

222、n reductions would not have occurred in the absence of the incentive created by carbon credit revenues(Box 2).6.Permanence of GHG emission reductions should be ensured.If there is a risk of reversal,measures should be put in place to address these risks and compensate for reversals.7.Robust quantifi

223、cation of emission reductions and removals based on conservative approaches.8.No double counting,meaning that GHG emission reductions from the mitigation activity will only be counted once toward achieving mitigation targets.This covers double issuance,double claiming,and double use.9.Sustainable de

224、velopment benefits and safeguards based on industry best practices.10.Contribution toward net zero transition by avoiding the lock-in of GHG emissions,technology,or carbon-intensive practices that are incompatible with the objectives of achieving net zero GHG emissions by mid-century.On the demand s

225、ide,the Voluntary Carbon Markets Integrity Initiative(VCMI)issued the Claims Code of Practice,which aims to improve buy-side integrity by guiding companies and other actors on how they can credibly use carbon credits as part of their climate commitments.The general premise of the code is to have com

226、panies shift from making“carbon neutral claims”to following the principles for Climate Mitigation Claims Credibility and adopting the silver,gold,and platinum badges of the VCMI Claims Code.The code is based on a four-step process:1.Comply with the foundational criteria:To make an enterprise-wide VC

227、MI claim,companies must(i)maintain and publicly disclose an annual GHG emissions inventory;(ii)set and publicly disclose validated science-based near-term emissions reduction targets and publicly commit to reaching net zero emissions no later than 2050;(iii)demonstrate that the company is on track t

228、o meet a near-term emissions reduction target and minimize cumulative emissions over the target period;and(iv)demonstrate that the companys public policy advocacy supports the goals of the Paris Agreement and does not represent a barrier to ambitious climate regulation.High-quality implementation28A

229、 Carbon Market Guidebook for Kenyan EnterprisesChapter 1-Project Conceptualization and Design2.Select a VCMI claim to make:There are three tiers of claims that companies can make.Each claim requires the purchase and retirement of high-quality carbon credits proportionate to the remaining emissions o

230、nce a company has demonstrated progress toward meeting its near-term targets.Credits are not counted as internal emission reductions that a company undertakes to meet decarbonization targets.Rather,these purchases represent a contribution to both the companys climate goals and to the collective glob

231、al mitigation effort to reach net zero emissions.3.Meet the required carbon credit use and quality thresholds:VCMI refers to the CCPs and its assessment framework to ensure the quality of carbon credits.4.Obtain third-party assurance following the VCMI monitoring,reporting,and assurance framework to

232、 ensure transparent reporting and assurance of information.BOX 2Concept of additionalityaAdditionality is an essential element to ensure carbon credit quality.A proposed project activity is considered additional if it would not be implemented in the absence of the crediting mechanism(e.g.,the price

233、signal from the carbon credit market),holding all other factors constant.However,determining additionality can be challenging as it requires an assessment against a counterfactual(that is,what would have happened in the absence of the crediting mechanism).This is both challenging and has an element

234、of subjectivity.Based on the World Banks guide to developing domestic carbon crediting mechanisms,a summary of the typical tests is provided here,noting that these tests are not mutually exclusive and in practice,crediting mechanisms generally use a combination of tests to demonstrate additionality.

235、Additionality tests adopted by existing crediting mechanisms include:A regulatory surplus test,which asks whether the project activity is required by law,mandate,court order,or regulation.Required activities are deemed non-additional.Exceptions may be made when a policy or regulation is generally no

236、t widely followed or enforced.A financial or investment test,which analyzes whether the project activity is economically and financially viable.If the proposed project in question is economically viable without the carbon credit revenue,it would be deemed non-additional.This test is often operationa

237、lized in the form of an estimated internal rate of return for the proposed project relative to a contextually relevant investment benchmark.Another option is to compare the net present value of the project to a reference level.The project is considered non-additional if the internal rate of return i

238、s above the benchmark or the net present value of the project is higher than World Bank(2021),A Guide to Developing Domestic Carbon Crediting Mechanisms.a29A Carbon Market Guidebook for Kenyan EnterprisesChapter 1-Project Conceptualization and Designthe reference level.In practice,the financial addi

239、tionality test could be complex,given limited information and uncertainties around projected carbon price.The way in which these tests are structured also means that there is only a narrow corridor in which projects could go ahead:returns on projects must not be so attractive that they will happen w

240、ithout carbon credits and not so unattractive that they were unaffordable without these revenues.A barrier test,which identifies obstacles to project implementation.Additionality is demonstrated if the incentive from the crediting mechanism helps the project proponent overcome defined financial,tech

241、nological,institutional,or regulatory barriers that otherwise are preventing the project activity.A common practice test or technology/practice penetration level test,which considers the proposed projects technology or practice within its context(e.g.,sector,region,and industry).If the technology or

242、 practice is established common practice and would likely occur even without the crediting mechanism,then the project or program is deemed to be non-additional.The difficulty of demonstrating additionality varies among project types.For example,it is generally easy to show that industrial gas destru

243、ction projects are additional,as only legal mandates or carbon credits provide practical incentives to undertake them.By contrast,renewable energy and energy efficiency projects require scrutiny,as they may be undertaken even in the absence of the crediting mechanism(e.g.,because of revenues from en

244、ergy sales).Crediting mechanisms have several options to increase the likelihood that activities are additional.This can be done through program-wide requirements(e.g.,by excluding project activities unlikely to be additional,often called a“negative list”);methodologies that carefully specify their

245、applicability conditions to filter out project activities that are likely to be non-additional;and intensive project reviews at the point of registration request.Additionality can be determined on a case-by-case basis using a project-specific approach,or for a whole class of projects using a standar

246、dized approach.b In practice,the effect of a crediting project or program is typically context specific.For example,a crediting mechanism may incentivize a mitigation activity in one location or context(meaning it is additional there)but not in another.Furthermore,the additionality assessment will c

247、hange over time(meaning an activity may be additional at present but not in 5 or 10 years).This highlights the benefits of a project-specific approach to determining additionality and is one reason why standardized approaches to additionality have been difficult to develop.Project-specific approache

248、s determine additionality through a tailored analysis that typically uses a combination of tests to demonstrate that the project would not have been implemented without the crediting mechanism.In the project-specific approach,additionality tests are used as the basis for developing an additionality

249、tool,such as the Clean Development Mechanisms“Tool for the demonstration and assessment of additionality.”Standardized approaches determine additionality by applying conditions,requirements,a performance standard,a performance benchmark,or any combination of these tools.Projects must meet stated con

250、ditions and requirements,or outperform the performance standard or performance benchmark,to be considered additional.One way of implementing standardized approaches is through a“positive list,”which identifies specific activities that are deemed to be additional and eligible to use certain methodolo

251、gies.The standardized approach accepts that some non-additional projects will meet the applicability conditions and be deemed additional(false positives)and that some additional projects will not meet the conditions and therefore be deemed non-additional(false negatives).The risk of false positives

252、and false negatives can be minimized,but not eliminated.Regular review,evaluation,and refinement of the methodology(particularly the additionality tests)reduces this problem.b30A Carbon Market Guidebook for Kenyan EnterprisesChapter 1-Project Conceptualization and DesignCost-benefit comparisonFIGURE

253、 8Prices of standardized carbon credit contracts,2021 to 2023Source:S&P Global Platts,2022,by S&P Global Inc.Note:Removals is a basket assessment of carbon credits from nature-based or technological projects that remove GHG emissions from the atmosphere.Avoidance is a basket assessment of carbon cre

254、dits from projects that avoid GHG emissions.Nature-based reflects nature-based carbon credits from projects that either avoid or remove GHG emissions.Renewable energy reflects carbon credits from renewable energy projects that avoid GHG emissions.CORSIA eligible reflects carbon credits eligible for

255、use in the CORSIA program.Prices shown are monthly averages.Participating in carbon markets calls for sizable investments,including conducting a feasibility study,drafting a project design document,and paying for credit issuance fees.Some of the costs are fixed without significant variation due to p

256、roject size,while others vary by the volume of credits to be generated.It is important to form an estimation of the potential revenue generated and resources needed before deciding to enter the market.Section 2.1 elaborates on the estimated costs incurred along the carbon project life cycle.From a r

257、evenue perspective,the number of potential credits to be generated per year and the expected price per credit can provide a broad estimation of the potential revenue.11 Sizing the credit potential of a carbon project requires technical knowledge of the project activities.For example,an estimate of t

258、he potential credits from a project based on using climate smart agriculture,analysis of local climate,soil type,and vegetation cover might need to be conducted;an estimate of the potential credits from a biogas production project that captures methane emissions from livestock,a scan of the local li

259、vestock population,livestock production practice,and current waste management practices would be necessary.Further,the price per credit can vary significantly by project type.For example,agriculture projects reached up to$24 per credit in 2021,while renewable energy projects only reached up to$10 pe

260、r credit due to additionality risks.Tech-based removal projects can reach more than$200 per credit given market confidence in the project quality.To get the best possible estimates,enterprises should look at the price of credits for similar projects,i.e.,from the same project type,under the same car

261、bon credit standard,and from the same region.The price of credits fluctuates;thus enterprises with projects should consider price trends in addition to historical prices.As shown in Figure 8,the average price of carbon credits fell in 2023.The extent of the decline varied across credit types,with na

262、ture-based credits experiencing At a high level,a project can estimate the number of potential credits by multiplying the number of units in the project(e.g.,cookstoves,solar water pumps,etc.)by the number of annual emission reductions per unit from similar projects and the number of years the proje

263、ct is expected to run.For estimates of emission reductions per unit,project developers can search for benchmark numbers through project design documents of similar projects in the registries or conduct internet searches for articles from reputable sources,e.g.,UNFCCC gives cookstove examples.1125201

264、51050Q1Q2202120222023Q3Q4Q1Q2Q3Q4Q1Q2RemovalsAvoidanceRenewable EnergyCORSIA EligibleNature-basedAverage Carbon Credit Price USD/tCOe31A Carbon Market Guidebook for Kenyan EnterprisesChapter 1-Project Conceptualization and Designthe greatest drop,from a high of around$16 to close the year at under$5

265、.According to Ecosystem Marketplace,the downward price pressure may be a result of the increased use of standardized contract(including via exchanges).12From a cost perspective,this guide provides more detailed information in the following chapters covering project development,MRV,and issuance.While

266、 project costs differ dramatically,in general,enterprises in Kenya developing a nature-based project could expect an up-front cost of$350,000 to$800,000 and recurring costs of$100,000 to$300,000 each time new credits are issued.Enterprises developing a tech-based project should expect an up-front co

267、st of$200,000 to$400,000 and a recurring cost of$50,000 to$150,000 each time new credits are issued.Up-front costs include pre-feasibility and feasibility studies as well as project design document development and validation,which are detailed further in section 2.1.These costs do not include the im

268、plementation of the project,e.g.,the purchasing and distribution of improved cookstoves.Recurring costs include those related to monitoring,verification,and issuance.Emerging technologies,e.g.,digital MRV,may reduce costs and streamline processes related to carbon project development in the medium t

269、o long term.If the project requires external financing or intermediaries to connect to the end buyer,the financiers and intermediaries may request between 10 percent and 50 percent of project revenue,depending on the financing and intermediation required.13In addition to the project costs,an enterpr

270、ise should also keep in mind a variety of risks that could negatively affect the emission reductions from the project.Risks to consider fall into two broad categories:project-specific risks and macro-level risks.Project-specific risks relate to the circumstances of the carbon project or the enterpri

271、se and include operational,technical,and reputational risks.Macro-level risks relate to the broader market or geography that the enterprise engages in.Macro-level risks include political,regulatory,and currency risks as well as price volatility in the carbon markets.An enterprise entering the carbon

272、 markets should be aware of these risks and assess their potential impact on the carbon project.After considering the risks,an enterprise should plan mitigations for project-specific risks that are within their control.Section 2.4 includes more information to help enterprises identify potential risk

273、s and design mitigations for these risks.In summary,during the project conceptualization and design stage,an enterprise needs to determine if its activity will be suitable for carbon credit generation based on the type of activity,the enterprises ability to implement a high-quality project,and the c

274、ost-benefit considerations of the project.If there is high confidence that the activity satisfies these criteria,the enterprise can move to the next stage of planning for the potential carbon projectidentifying the suitable carbon credit standard and methodology to use.World Bank(2023),State and Tre

275、nds of Carbon Pricing.Based on discussions with project developers in Kenya.121332A Carbon Market Guidebook for Kenyan EnterprisesChapter 1-Project Conceptualization and DesignHow to select the carbon credit standard and methodology to follow?1.2After establishing that a project is suitable for carb

276、on credit generation,the next important decision is selecting a carbon credit standard and methodology to use.A carbon credit standard is a complete set of rules,procedures,and approved monitoring methodologies under which certified carbon credits are quantified and issued.A monitoring methodology i

277、s the set of parameters,criteria,and operations needed to calculate emission reductions from a carbon project during its lifetime.The decision on the carbon credit standard and methodology to use affects processes at later stages such as project registration,MRV,and markets where the credits can be

278、sold.This chapter focuses on how to select the standard and methodology to follow for a carbon project,outlining the most important considerations in the selection process.Carbon credit standard selectionThere are various crediting standards in the carbon market developed for VCMs and others for com

279、pliance markets.Carbon credit standards operating in VCMs include the VCS,Gold Standard,and Plan Vivo.Carbon credit standards that are linked to trading schemes in compliance markets included CDM operated under UNFCCC,before its expiry,and the Korean Offset Scheme operated under Koreas ETS.The CDM i

280、s being replaced by the Article 6.4 mechanism and is no longer accepting new projects or issuing new credits.In addition to these carbon credit standards,there are others,such as the Climate Action Reserve(CAR)and American Carbon Registry(ACR),that mainly focus on projects in North America.The Inclu

281、sive Carbon credit standard,which launched in 2021 with the goal of widening access to the global carbon market,is open to projects of all types and geographic locations.When selecting a carbon credit standard for a project,an enterprise must consider the following:Markets where the carbon credit st

282、andard is accepted:The target market where it wants to sell carbon credits,whether voluntary or compliance,should accept the selected carbon credit standard.Project types that the carbon credit standard specializes in:Whether the carbon credit standard has expertise and coverage in the type of proje

283、ct the enterprise intends to pursue;e.g.,if a carbon credit standard has largely supported the generation of forestry credits or cookstove credits,it could signal to an enterprise that the standard has better expertise and credibility in these project types.Lead time to register projects:Amount of t

284、ime taken by a typical project to complete registration.Credit costs:One-time,up-front,and recurrent costs related to credit generation and issuance.Retroactivity and start date eligibility:Whether the carbon credit standard allows backdating of credits for projects that receive certification later

285、than the start date of the project.33A Carbon Market Guidebook for Kenyan EnterprisesChapter 1-Project Conceptualization and DesignTABLE 2Summary of voluntary carbon credit standardsMost projects in Kenya in the voluntary market are registered under either VCS or Gold Standard (Table 2).VCS issued 7

286、0 percent of all the carbon credits generated by Kenyan projects between 2005 and 2022,while Gold Standard issued more than 29 percent.PlanVivo accounts for less than 1 percent of issued credits from projects in Kenya.14 A similar pattern is observed across Sub-Saharan Africa.Globally,VCS and Gold S

287、tandard led in credit issuance with 64 percent and 14 percent respectively,while North America-focused CAR and ACR contributed 22 percent of issuance.The higher shares of VCS and Gold Standard are due to their longer history in the market,broader coverage of project types,and wider geographic footpr

288、int.Berkeley Voluntary Registry Offsets Database,202314*Possibility for a project developer to receive credits for emission reductions within the project before the crediting period started.In addition to these carbon credit standards,there are other certification programs available that an enterpri

289、se can pursue as an additional signal of carbon credit quality and integrity.Examples of Verra add-on standards include the Climate,Community,and Biodiversity Standard(CCB),which provides assurance that a forestation or land use project is delivering tangible climate,community,and biodiversity benef

290、its;and the Sustainable Development Verified Impact Standard,which verifies that a project advances the global Sustainable Development Goals set forth by the United Nations.Enterprises can register their credits under the main carbon credit standards and the add-on standards.However,registering unde

291、r multiple standards can incur significant extra certification costs.In addition to the standards,intermediaries who sell credits,e.g.,Acorn Rabobank,build in additional requirements,such as project duration,minimum prices,or SDG contribution,as extra layers that ensure the quality of the credits th

292、ey offer to buyers.VERRA Verified Carbon Standard70%Agriculture,forestry,and other land use(AFOLU),including:Afforestation and reforestation Agricultural land management Improved forest management Reduced emissions from deforestation°radation Avoided conversion of grasslands and shrublands Wetlan

293、ds restoration and conservation Emerging renewable energy(e.g.,solar,wind,hydro,and geothermal)supplying national grids in emerging economies6-12 monthsListing cost:$4K Issuance cost:$0.20/creditAllowedGold Standard30%AFOLU with a focus on afforestation and reforestation(e.g.,planting trees,single-s

294、pecies plantations,and agroforestry)Community service(e.g.,cookstoves,renewable off-grid solutions,WASH,and waste management)Emerging renewable energy(e.g.,solar,wind,hydro,and geothermal)supplying national grids in emerging economies12-18 monthsListing cost:$4-8K Issuance cost:$0.15-0.30/creditAllo

295、wedPlan Vivo1%AFOLU with a focus on forest protection and management,agroforestry,agricultural improvement that benefit smallholders and local communities,and soil conservation3-6 monthsListing cost:$6K Issuance cost:$0.35-0.40/creditAllowedStandard%of VCM issuances in KenyaMain types of projects in

296、 AfricaLead timeCredit CostsRetroactivity*34A Carbon Market Guidebook for Kenyan EnterprisesChapter 1-Project Conceptualization and DesignFIGURE 9Process to identify most suitable methodologyMethodology selectionAfter selecting a carbon credit standard,the next step is to select the most suitable me

297、thodology to develop the carbon project(Figure 9).Carbon credit standards typically have their own methodologies or approve the use of methodologies developed by other carbon credit standards(e.g.,VCS accepts some methodologies under CDM).When evaluating a methodologys suitability,enterprises should

298、 ensure the methodology is applicable to the activities,locations,and technologies used in their project and that the project satisfies other conditions specified in the methodology.For example,for a high-efficiency firewood cookstove project to use Verras VMR0006 Methodology,the cookstoves need to

299、have a thermal efficiency of more than 25 percent,as specified in the methodology.Enterprises can refer to the websites of VCS,Gold Standard,Plan Vivo,and other carbon credit standards to find the most suitable methodology for their activities.If enterprises do not find active methodologies suitable

300、 for their emission reduction activities,there is also the option to work with other enterprises to develop methodology tailored to their projects,though the methodology approval process can take years to complete.An example of enterprises working together with sector experts to develop new methodol

301、ogy is found in enhanced rock weathering.Identify project characteristicsCatalog relevant methodologiesRepeat as neededShortlist applicable methodologiesAssess suitablity for projectDefine project parameters e.g.,type,location,activities,budget,scale,etc.Scan standards for long list of methodologies

302、 related to the projectSelect methodologies where project meets applicability and additionality criteriaDetermine best-fit methodology based on baseline,emissions reduction,co-benefits alignment,etc.Beyond understanding the standards and certification programs described here,enterprises should also

303、note the emergence of third-party quality rating agencies such as Sylvera,BeZero,and Calyx Global.These third parties evaluate and assign quality ratings for projects that are in the registries of the carbon credit standards,and thus could potentially play a role in the credit purchasers decision-ma

304、king,especially for larger projects or programs that are subject to higher levels of risks.35A Carbon Market Guidebook for Kenyan EnterprisesChapter 1-Project Conceptualization and DesignHow to conduct a feasibility study of a carbon project?1.3Once a project is assessed to be suitable to pursue car

305、bon credit opportunities,a more detailed feasibility study,developed in close consultation with key stakeholders,is helpful to provide clarity on the projects technical,financial,legal,and organizational feasibility.BOX 3The use of a pre-feasibility studyA pre-feasibility study is common for enterpr

306、ises to have a higher-level assessment before investing into the feasibility study which typically costs more,or sometimes to attract investment from third parties for the feasibility study.The pre-feasibility study can include local community surveys,carbon avoidance or removal estimations,and back

307、-of-the-envelope cost-benefit analyses.Enterprises can use the study as the basis for making a final decision on market entry and can leverage the results to raise funds for the project.This section provides an overview of the components of the feasibility study and the steps required to complete it

308、.A feasibility study typically has four subcomponents:technical feasibility,financial feasibility,legal and regulatory feasibility,and organizational feasibility(Box 3).Some components are dependent on each other,e.g.,financial feasibility assessment is dependent on the result of technical feasibili

309、ty,which shows the potential number of carbon credits to be generated,so it is important to sequence the studies accordingly.Technical feasibilityThe technical feasibility study assesses the viability of a carbon project based on alignment with established carbon methodologies and the emission reduc

310、tion potential of the project.This study also evaluates potential technical challenges that may arise during project implementation.For a nature-based solution,this technical feasibility study could involve examining the suitability of the ecosystem,climate,and topography for the project.For a tech-

311、based solution,technical feasibility could include examining different technologies for removal of carbon dioxide,understanding various transportation options,and comparing potential storage locations.The difference between the baseline emission and project emission scenarios shows the emission redu

312、ction potential.The baseline emission scenario refers to the BAU situation before the project is implemented,and the project emission scenario refers to the situation after the project is implemented.For example,the baseline scenario of a cookstove distribution project could be the project community

313、 using three stone cooking fires while the project scenario is the project community converting to using improved stoves;the baseline scenario of an afforestation project could be the biomass per hectare before the project plants trees while the project scenario is the biomass per hectare after new

314、trees have grown.36A Carbon Market Guidebook for Kenyan EnterprisesChapter 1-Project Conceptualization and DesignFinancial feasibilityNature-based and tech-based solutions face different types of challenges in determining the baseline.Challenges that may arise for nature-based projects include quant

315、ifying carbon sequestration potential of ecosystems and accounting for deforestation rates where there are no readily available alternatives for comparison.Tech-based projects may face unique challenges given rapid changes in technology.To establish an appropriate baseline,a tech-based project would

316、 have to understand any existing industry benchmarks and account for improvements and efficiency gains that could occur over time.Carbon project methodologies typically specify how to estimate the emission reduction potential.Once an enterprise identifies a methodology,it can choose to estimate the

317、emission reductions leveraging internal technical expertise or can engage external experts to support the process.Baseline emissions and project emissions are recorded in the project design document,which is described further in section 1.4.Potential providers of support include project developers,a

318、cademic and research institutes,and carbon market consultants.While the local pool of carbon experts is still limited,platforms such as the Nairobi Climate Network and conferences such as the Africa Carbon Forum are starting points to connect with carbon professionals in Kenya.The financial feasibil

319、ity study assesses the economic viability of a carbon project considering potential revenue,cost,and investment needed,and concludes with a sensitivity analysis to consider different organizational and market scenarios.Each of these aspects is detailed next.Potential revenueThe revenue potential of

320、a project can be estimated based on the total credit potential,the expected price per credit,and the other project revenues.Additional project revenues can arise from potential premiums that customers may be willing to pay for the decarbonized products of the carbon project,e.g.,timber,cement,or fab

321、ric.It is important to consider revenue potential across the projects lifetime and on an annual basis for cash flow budgeting purposes.Total credit potential is the result of potential emission reductions as estimated from the technical feasibility and the crediting period.The crediting period is a

322、period defined by the carbon credit standard for which emission reductions of specific project types can be verified,which may be equivalent to or less than the project lifetime.For example,for a cookstove project that operates for 15 years,the crediting period specified under the VCS is 10 years an

323、d is renewable twice,for a maximum length of 30 years.The project will need to calculate its total credit potential based on the 10-year crediting period under the carbon credit standard instead of its 15-year lifetime.Once the credit period expires,projects can apply for crediting period renewal an

324、d be revalidated against the latest version of the standard.From the total potential credits of nature-based projects,registries typically set aside a buffer to safeguard the validity of the carbon credits in case of leakage or impermanence.The buffer pool is a portion of carbon credits that cannot

325、be immediately commercialized,and the amount is specified in the methodology.For example,Gold Standard requires a fixed 20 percent contribution from forestry projects to go into a pooled compliance buffer,while VCS provides non-permanence risk tools for agriculture,forestry,and other land use(AFOLU)

326、and geologic carbon storage projects to calculate the share of buffer credits required from their project.Enterprises need to deduct the buffer from the total credit potential to understand the amount of credit that can be sold.37A Carbon Market Guidebook for Kenyan EnterprisesChapter 1-Project Conc

327、eptualization and DesignSources:Ecosystem Marketplace;S&P Global Platts;Nori Carbon Removal Marketplace;Indigo Ag.FIGURE 10Average credit price by project type,$/creditThe expected price per credit varies due to several factors such as project type,quality,co-benefits,time frame,size,and availabilit

328、y.Use of an approved methodology from a trusted standard signals quality to buyers and can positively affect the price of a credit.Co-benefits,such as supporting a local community or improving biodiversity,demonstrate that the project is creating value beyond carbon credits and can raise the price o

329、f credits.When considering time frame,newer credits attract a higher price than older credits which can be perceived as lower quality and less attractive.Buyers with large climate commitments tend to seek credits from large scale carbon projects to fit their needs.Finally,the lower the availability

330、of credits from a specific project type relative to demand for that credit,the higher the price.Recent market credit prices based on project type can be found in Figure 10 as reference.Potential costsCarbon project costs are incurred at every stage of the project life cycle:project conceptualization

331、 and financing,project development and monitoring,and credit issuance and sales.The key cost components of each are outlined here(see section 2.1 for more detail):Project conceptualization and financing:At this stage,costs are incurred to conduct the pre-feasibility and feasibility studies and to dr

332、aft the PDD.Project development and monitoring:At this stage,costs are incurred by validating the project through a VVB and collecting and monitoring project data.Outside carbon market operations,project implementation also incurs costs(e.g.,the costs for purchasing inventory and building distributi

333、on channels for a cookstove project).Credit issuance and sales:At this stage,costs are incurred by verifying the emission reductions by a VVB and issuing the credits by a registry.Credit transactions may include a transaction fee if credits are sold through a broker or exchange.Potential investment needed and estimated returnThe financial feasibility study also needs to consider investments needed