The abrupt shutdown of KOKO Networks in Kenya, a climate-tech firm, marks a key moment for the carbon credit sector, exposing major issues with market integrity and regulatory compliance. The Kenyan government denied KOKO Networks a crucial Letter of Authorization (LoA), needed for international carbon credit sales under Article 6 of the Paris Agreement. This denial cut off KOKO’s revenue, leading to its collapse into administration. This event, rather than signaling a retreat from clean technology, serves as a clear warning against business models built on unclear methods and unproven carbon claims.
The Kenyan government withheld KOKO Networks’ LoA due to concerns over the large volume of carbon credits the company planned to export. Officials argued KOKO’s request could monopolize Kenya’s quota for international compliance markets, crowding out vital sectors like agriculture and manufacturing. This dispute highlights the careful balance needed under Article 6, where host countries must authorize credit transfers to prevent double-counting and meet national climate targets. The refusal shows Kenya’s commitment to national sovereignty over its carbon market and climate accounting. KOKO’s collapse followed quickly, impacting over 1.5 million households that relied on its subsidized bioethanol fuel.
KOKO Networks’ business model, which heavily subsidized bioethanol fuel and cookstoves to make them affordable, relied heavily on carbon credit sales for profit. However, evidence suggests these credits were generated using questionable measurements and methods. Climate and energy policy specialist Tom Price noted KOKO used an inflated “Fraction of Non-Renewable Biomass” rate and relied on small surveys, skipping its own detailed sales data, to exaggerate emission reductions. Independent ratings agency BeZero gave KOKO’s credits a failing “B” grade for the likelihood of achieving emission reductions and a “D” for carbon accounting.
Similar challenges affect other carbon projects in Kenya. The Northern Rangelands Trust’s (NRT) project faces review by Verra. Court rulings found its conservancies unconstitutionally established without adequate community consultation, and there are allegations of human rights abuses. Soils for the Future Africa has also been barred from selling credits due to alleged exploitative land agreements and insufficient consent processes.
In response, Kenya has implemented strong regulations, including the Climate Change (Carbon Markets) Regulations 2024. These regulations mandate benefit-sharing (40% for land-based, 25% for tech-based projects) with local communities, require Free, Prior, and Informed Consent (FPIC), and establish the National Carbon Registry managed by the National Environment Management Authority (NEMA). These measures aim to bring transparency and accountability to a market historically prone to malpractices, especially in the Global South. Globally, the carbon market is undergoing an “integrity reset.” Buyers increasingly prioritize quality, transparency, and compliance over sheer volume, leading to higher prices for highly-rated credits.
Broader Risks in Carbon Markets
KOKO Networks’ collapse highlights a widespread vulnerability in the carbon credit market: business models not profitable on their own without selling credits. When the revenue stream relies on uncertain carbon accounting rather than tangible, verifiable emission reductions, the entire enterprise becomes risky. Academic research has challenged the specific methodologies used for cookstove credits, suggesting significant over-crediting and a failure to account for important health benefits. This reliance on complex, often unverified, calculations can lead to overstatements or errors that make credits worthless. Furthermore, the issues faced by NRT and Soils for the Future Africa highlight ongoing risks involving land rights, community consent, and potential exploitation in carbon projects. These cases show that even projects with significant corporate backing and perceived environmental benefits can fail when facing strict legal and regulatory checks.
The future outlook: Kenya’s strict regulatory approach, seen in the KOKO Networks case, signals a needed shift for the carbon market. As global efforts intensify to align with Paris Agreement goals, demand for high-integrity, verifiable carbon credits is rising, while lower-quality credits face growing skepticism and lower prices. The future of carbon finance depends on transparency, strong methods, and genuine emissions reductions, making carbon credits a credible tool for climate action and sustainable development. Companies and project developers must adapt to this new environment, prioritizing accountability and verifiable impact over inflated claims.
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