Key Considerations for Kenyan Companies Buying and Selling Carbon Credits

Navigating Emissions Reduction Purchase Agreements (ERPAs):
Introduction
You are a Carbon stakeholder, agent and/or practitioner ready to buy or sell your carbon credits? This article is for you.

Navigating Emissions in Carbon Markets

As climate action and carbon markets grow globally, Kenyan companies are increasingly participating in the trade of carbon credits. Whether you are a project developer selling credits or a corporate buyer seeking offsets, entering into an Emissions Reduction Purchase Agreement (ERPA) is a critical step in formalizing the transaction. This article outlines key considerations Kenyan companies should keep in mind when negotiating ERPAs to protect their interests and ensure regulatory compliance.

1. Understanding What an ERPA Is

An Emissions Reduction Purchase Agreement (ERPA) is a legally binding contract between a seller (typically a project developer or aggregator) and a buyer (often a corporate entity or intermediary) for the sale and purchase of carbon credits generated from verified emission reduction projects. These agreements are central to voluntary carbon markets and compliance markets.

2. Key Terms and Provisions in ERPAs

When drafting or reviewing an ERPA, companies should pay close attention to the following clauses:

  • Volume and Delivery Schedule– Define the number of carbon credits to be delivered and the timeline for delivery. 
  • Credit Type and Standard– Specify whether credits are from REDD+, clean cookstoves, renewable energy, etc., and the certification standard (e.g., Verra, Gold Standard, ART TREES). This affects credit pricing and acceptability.
  • Pricing and Payment Terms– Is the price fixed, or indexed to market rates? Are there advance payments, milestone-based payments, or payments upon delivery?
  • Verification and Monitoring– The buyer often requires independent third-party verification of emissions reductions such as Rina. Ensure the project has a robust monitoring, reporting, and verification (MRV) plan which the third-party shall advise.
  • Permanence and Reversal Risk– Address what happens if carbon reductions are reversed (e.g., deforestation in a REDD+ project). Consider buffer reserves or insurance mechanisms.
  • Ownership and Legal Title– Clarify who has legal title to the carbon credits, especially when working with communities or multiple landowners. This is essential to avoid future disputes.
  • Co-benefits and Community Rights– Projects in Kenya often involve communities and local benefits. The ERPA should respect benefit-sharing agreements and recognize Indigenous and community rights.

3. Regulatory and Legal Considerations in Kenya

  • National Carbon Registry– Kenya is developing a national carbon registry under the Climate Change (Carbon Markets) Regulations, 2023. Ensure your ERPA aligns with these regulations and that transactions are properly registered and approved.
  • Letter of Authorization (LoA)– For projects participating in international markets under Article 6 of the Paris Agreement, the government may require an LoA. Companies should understand the process for securing these authorizations.
  • Tax Implications– Determine if carbon credit revenues are subject to VAT, income tax, or other levies under Kenyan law. Get tax advisory early to avoid surprises.
  • Dispute Resolution– Consider whether disputes will be resolved under Kenyan law or international arbitration. Be clear on the jurisdiction and enforcement of awards.

4. Risk Mitigation and Due Diligence

Before signing an ERPA, conduct due diligence on:

  • The counterparty’s creditworthiness
  • The project’s validation and verification history
  • Community relations and benefit-sharing arrangements
  • Legal title to land or biomass generating the credits

Use legal counsel familiar with both local environmental law and international carbon markets.

5. Conclusion: Be Strategic, Not Just Compliant

An ERPA is more than just a sales contract, it’s a long-term commitment that can affect a company’s reputation, legal exposure, and climate goals. Kenyan businesses participating in carbon markets should ensure their ERPAs are not only legally sound but also aligned with national climate priorities and community development objectives.

Whether buying or selling, seek expert legal and financial advice, and structure agreements that are transparent, fair, and enforceable.

Need Help Navigating ERPAs?
If your company is entering a carbon credit transaction, contact us for expert guidance on offer letters, grants, negotiating and drafting Verified Emissions Reduction Transaction and ERPAs that work for your business and community.