Kenya: Growing Money on Trees?

News on Kenya’s forests were recently dominated by the eviction of squatters from the Mau forest. This may change as the country moves towards sustainable forestry. Jenny Curtain analyses the investment potential created by changes in Kenya’s forestry management and developments in the international carbon credit markets.

Changes in Kenya’s Forest Management

Kenya’s stunning landscapes make it a hugely popular tourism destination, but until now, Kenya’s forests have been under-utilised, under-appreciated and consequently under-valued. What was until recently known as the Forest Department suffered from low morale due to lack of direction and lack of funding which in turn has led to a lack of resources and poor infrastructure. This is set to change, however, due to two developments that have the potential to create considerable synergies: The creation of the new Kenya Forest Service (KFS) and the emerging carbon market.

The Government of Kenya has embarked on major reforms in the country’s forestry sector. As part of these reforms, the KFS was established to succeed the former Forest Department (FD) with effect from February 2007. KFS has an expanded mandate to manage the nation’s forest estate and provide high quality forestry related products and services. The new forest policy legislation has paved the way for doing forestry more responsibly through restructuring government and encouraging meaningful engagement with the private sector and community forest associations. The overall objective of the new reforms is increased contribution of forests to economic recovery and poverty alleviation on an environmentally and socially sustainable basis.

In line with this policy, one of the KFS first tasks was to begin the detailed mapping of all forest regions after which forest management plans (FMP) are to be drawn up for each area. This is being done forest by forest. Once the mapping and FMPs for each area are completed, the areas are being put out for tender for the development of high-end eco-tourism facilities in each area on long term leases (25 x 25 years).

On reflection, it is indeed surprising that there have always been limited eco-tourism facilities in the forests as they are among the most beautiful, bio-diverse and pristine wilderness areas in the country. Traditionally, high-end eco-tourism facilities have been limited to the national parks and reserves under the auspices of the KWS or the local councils. To date, tenders have been put out for forests in the Mount Kenya region and the Arabuko-Sokoke Forest at the North Coast. The results of the tenders were announced in early October 2008. The next areas expected to be tendered in early 2009 are the greater Aberdares area and the Maasai Mau Forest.

The aim of the tender exercise is not only to raise revenue for the KFS through rental agreements, but to preserve the forests from continued degradation and exploitation from forest adjacent dwellers (FAD) by unlocking the commercial value of the forests and providing the FADs with alternative sources of income and therefore decreasing their dependency on forest products.

The successful tenderers have placed these themes at the core of their proposals. The idea is that the construction of eco-tourism facilities in these areas will provide long term employment for the FADs through construction, the sale of local goods and services, employment through lodge staffing, guiding etc. as well as the establishment of community trust funds financed by a percentage of profits or bed nights. The combined effect of this will be to greatly lessen, if not completely stop, the continued degradation and deforestation of these areas.

Carbon Credit Markets for Forestry

The timing could not have been better given the emergence of the carbon trading market under the Kyoto Protocol: Countries that create carbon emissions buy certified emission reductions (CERs), i.e. issued credits that can be bought and sold on the official carbon trading market, from developing countries to offset their emissions. Carbon offsets can come from many sources, but are dominated by three types of projects:

* Forestry sequestration, i.e. the avoidance of deforestation or the planting of new forests (36%),
* Renewable energy, i.e. generating power with clean renewable sources, e.g. wind and solar (33%); and
* Industrial gases, i.e. containing and storing industrial gases created by industry so they are not released into the atmosphere (30%).


Deforestation in tropical countries is often driven by the economic reality that forests are worth more dead than alive. But the emerging markets for carbon credits could radically alter that equation. A study conducted by the World Agroforestry Centre found that ventures that prompted deforestation, such as clearance for agricultural purposes, charcoal burning, wood fuel etc. rarely generated more than USD5 for every ton of Co2 equivalent they released and frequently returned less than USD1. Meanwhile, European buyers are currently paying about USD35 for an offset tied to a one-ton reduction in Co2 emissions.

Even though the Kyoto Protocol stopped short of recognising forest protection as a source of CERs, a parallel voluntary market has sprung up. Voluntary offset trading stems from a variety of sources – people trying to offset their carbon footprints, businesses seeking to reduce their greenhouse gas emissions, or major events trying to be carbon neutral, such as the Olympics, the Super Bowl etc. To date, avoidance of deforestation is still confined to the voluntary market, which is still a small part of all carbon trading and buying, with a value of USD331m in 2007 as opposed to the Kyoto Protocol’s CDM and EU’s emission trading scheme worth USD64bn. But the voluntary markets grew more rapidly in the preceding year, tripling in value from USD91m in 2006, whereas the CER market only doubled in value. This trend is set to continue as the voluntary offset market is expanding at an astounding rate and, though still in its infancy, is one of the fastest growing markets on the planet. Any doubts about the importance of the voluntary carbon market should have been removed by Merrill Lynch’s announcement in early 2008 of a new carbon offset service to assist businesses to reduce emissions through voluntary offsets: Merrill Lynch’s managing director has valued the market at over USD70bn.

There are moves afoot to have reduction and prevention of deforestation included in the list of CERs to give them even greater value. An initiative to reduce emissions from deforestation (‘REDD’) was approved at the UN climate talks in Bali in December 2007. At that event, it was suggested that cutting global deforestation rates by even 10% could generate up to USD13.5bn in carbon credits.

At a recent meeting in Manhattan on forest conservation, economic development and climate, two Nobel laureates, Al Gore and Kenya’s Wangari Maathai, joined the push to include forest preservation in carbon-trading markets as a way to curb greenhouse gases and help poor rural communities. At the same meeting, the president of the US branch of the World Wildlife Fund (WWF) said ‘Unless the world has policies that recognise the value of standing trees and forests, we have failed. In Kyoto, WWF was pivotal in keeping forests out. We have changed our position.’

The Kyoto treaty expires in 2012 when a new treaty is expected to be signed in Stockholm. It is hoped that avoidance of deforestation will then be recognised as a clean development mechanism (CDM). It has been noted that developing countries are unlikely to sign on the new treaty unless there is a prospect of money flowing into their direction in to compensate for revenue that would be lost if deforestation slows.

Kenya, Forestry and Carbon Credits

Linking these developments to the KFS and Kenyan forests, it is easy to see how Kenya can benefit from the carbon market whilst ensuring that its natural resources are valued, and more equitable revenue opportunities are created. Kenya’s population is currently estimated at 32m, with an average national growth rate of 2.57% (2006 estimate). This growth has put tremendous pressure on the country’s natural resources, particularly land, water and forests. Land use practices have disregarded land potential and carrying capacities. Marginal areas have been encroached upon, accelerating loss of productivity, hence increasing desertification and loss of biodiversity. The search for productive land has further threatened environmental sustainability as forests, both indigenous and commercial, are cleared for agricultural purposes, timber and fuel wood. Amongst other values, endangered forest resources provide direct benefits in the form of fuel, food, pastures, construction materials and traditional cures to about 3.5 million people living adjacent to forests. In addition, the forests globally influence the microclimates.

Aerial surveys and assessments of important water towers Mount Kenya, Aberdares and Mau – show the continued threats to the forests that have had diverse negative impacts in the immediate and macro-environments, notably through increased soil erosion, as well as the destruction of Kenya’s catchments areas. This contributes to polluted water sources as well as a chronic country-wide water shortage, and in turn affects the energy sector through the country’s dependence on hydro-power. The costs of timber and other related products continue rising.

Environmental degradation undermines livelihoods and future opportunities among the country’s population, where 75% of the poor, or 56% of the overall population, live in rural areas. Rural poor depend on their natural resources to survive, and so there is a strong correlation between sound environmental management and poverty reduction. In addition, the tourism industry accounting for 10% of the GDP and a major foreign exchange earner largely depends on prudent management of the environment, including the wildlife and forests.

If through the protection of existing forests via the new tender initiatives KFS can corner even a small piece of the voluntary carbon market, the financial and environmental rewards could potentially be enormous. This money would sustain Kenya’s forests into the future. With sensible management, the flow on benefits would be untold for both the protection of the forests and the surrounding communities. Income generated could then be used to upgrade infrastructure, replant degraded areas, fund clean energy schemes within the forests e.g. hydro electric, solar power etc. that in turn would generate more credits. Funds could also be used to resettle illegal forest dwellers within areas such as Kakamega and the Maasai Mau forests and to provide them with sustainable employment on the reforestation and other initiatives.

So whether it was a happy co-incidence that the reforms of the Forest Department came at the same time as the opportunities for funding under carbon trading schemes or whether the Kenyan Government had something bigger in mind, this is clearly a turning point. If Kenya’s government and parastatals act to take advantage of the substantial funds available, Kenya’s forests can be saved, and wealth created for the custodians of those forests. The Director of the KFS, Mr. David Mbugua, said recently that the service was charged by both Kenya’s society and the international community with the task of protecting forests while at the same time ensuring they continue to provide socio-economic and environmental benefits for present and future generations. The international carbon market would indeed make it possible to grow money on trees.