Effects of Carbon Markets Pricing on Competitiveness of Key Industries in Kenya
DOI:
https://doi.org/10.53819/81018102t7078Abstract
Carbon markets aim to reduce greenhouse gas emissions, but their effects on industry and the economy are not fully understood in Kenya. This study examines the societal and economic impacts of carbon markets in Kenya, focusing on carbon emissions costs and their effects on industrial competitiveness. The study analyzes 8 key industries which together contribute over 60% of Kenya’s GDP and a large portion of formal sector employment. These sectors are both emission-intensive and trade-exposed, making them sensitive to carbon cost variations. In this study, the benchmark price of US$43 per metric ton will represent the average voluntary-market transaction value. This rate provides a realistic proxy for Kenya’s near-term pricing environment before the formal Carbon Emissions Trading System (CETS) becomes operational. The study applies an evaluation model and scenario analysis to assess sectoral risks. Findings show minimal impact at the current carbon trading price of US$43 per metric ton. However, if carbon costs exceed 5% of sectoral value-added surpassing the global threshold or prices rise above US$1300 per ton, competitiveness will decline sharply. Under realistic price paths (US$35–55), most sectors remain below the 5% competitiveness threshold. The study recommends gradually increasing carbon prices while considering industries' capacity to adapt, balancing emission reduction goals with economic sustainability. Integrating the CETS with complementary energy policies such as petroleum levies will help reduce emissions. These findings provide policymakers with evidence for implementing the Kenya’s Climate Change (Amendment) Act 2023, designing the CETS framework, and formulating green fiscal policies that balance decarbonization goals with industrial competitiveness.
Key Terms: Carbon Trading, Industry competitiveness, GDP, carbon emissions, Carbon market price; Carbon emissions cost
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