Africa contributes much less to climate change than developed countries yet suffers its worst effects. Ahead of COP27 in Sharm el-Sheikh, the region’s finance and environment chiefs are calling for increased financing for the region to counter this.
Climate change is wreaking havoc across Africa, as a devastating combination of floods, heatwaves and droughts threatens some of the world’s most vulnerable communities. Not only has the region’s climate warmed more than the global average since the pre-industrial era, but sea level rises are also happening more quickly than the average, according to World Meteorological Organisation research.
Furthermore, though the continent is a victim of these environmental crises, its current and historical contributions to global greenhouse gas emissions are a fraction of those of advanced economies.
To fight this accelerating emergency, Africa needs more money to invest in climate mitigation and adaptation projects. In September, the continent’s finance and environment ministers gathered in Cairo, Egypt, to discuss their climate finance needs and to appeal for more help from public and private sector actors, as well as development institutions, to mobilise new sources of capital.
A communiqué published after the meeting noted that about $3tn in funding will be needed between 2020 and 2030 to match the needs of African countries’ nationally determined contributions (NDCs), even as these plans don’t account for the full scope of countries’ climate finance needs.
Staggering funding gap
“[The scale of the funding gap] is staggering and is actually significant because what that means is that we are nowhere near achieving what we are hoping to do, to tackle the impacts of climate change in Africa,” says Kevin Kariuki, vice president for power, energy, climate and green growth at the African Development Bank (AfDB).
Egypt’s presidency of the 27th session of the conference of the parties, known as COP27, in November, is expected to spotlight these challenges. The government in Cairo published an updated NDC in July, which outlined new emissions reductions plans for the electricity, oil and gas and transport sectors without establishing net zero emissions goals or setting whole-of-market emissions reduction targets.
The Climate Action Tracker, an independent, scientific analysis that monitors government climate action, noted that Egypt’s NDC update was “highly insufficient” and would see “emissions continuing to rise in absolute terms and even above what is expected with currently implemented policies”.
Nevertheless, some see COP27 as an opportunity to push for meaningful improvements. “It’s good that Egypt is hosting it this year because it puts the onus on the government to effect some real policy change,” says Angus Blair, chief executive of Signet, a Cairo-based consultancy focused on the Middle East and North Africa.
Egypt is not an outlier in this regard. Questions around a “just and equitable” transition to a greener future were at the centre of the African ministerial meeting in Cairo in September, where participants pushed back against “abrupt divestments” from fossil fuels over concerns it would undermine economic development. Given that Africa bears little to no responsibility for the current climate emergency, thinking on this issue has focused on how the region’s constituent markets, as well as emerging markets more generally, can balance their economic growth requirements with climate commitments.
It is also putting developed markets, and their failure to live up to climate finance promises, firmly in the cross-hairs. In 2009, during COP15 in Copenhagen, the world’s rich countries promised to allocate $100bn a year by 2020 to poorer countries to assist with their climate financing needs. In reality, funding has fallen well short of this target. The most recent data from the OECD shows that total financial support reached a peak of $83bn in 2020, its highest level since the pledge was first made.
Biggest emitters
But the terrain of climate justice is tricky, and notions of responsibility, both historic and existing, can be difficult to discern. China, Brazil, Indonesia and India all feature in the top 10 countries with the largest cumulative emissions between 1850-2021, including fossil fuels and land use, according to research from the Carbon Brief. In most cases, the bulk of this activity occurred after 1950.
Moreover, the rapid growth of India and China, and their cumulative emissions, has negated emissions reductions from advanced economies in recent times; global carbon emissions would have remained steady since 2007, if not for the increases of these two countries, according to data from the BP Statistical Review published in Bloomberg.
Viewed through this lens, Africa’s development trajectory will have profound implications for the fight against the climate emergency. As the research of Jack Goldstone, professor of public policy at George Mason University, has made clear, “the battle for earth’s climate will be fought in Africa”. At a time when demographic growth in Europe, much of Asia and Latin America is either stalling or reversing, Africa’s is surging; by 2060 its population could be close to 3bn, up from 1.3bn today, according to UN figures.
Goldstone’s projections suggest that if CO₂ emissions per capita increase in Africa by 2060 to match that of India’s today, the continent’s CO₂ emissions would effectively quadruple to 5.8 gigatons per year, equivalent to current US emissions levels. In this context, the need to support Africa’s climate finance requirements, to assist vulnerable communities in the near-term and to promote their sustainable development over the long term, is vital. The challenge, however, is to mobilise new sources of finance and direct it to climate-exposed jurisdictions across the region.
Diverse sources needed
The work of the Climate Policy Initiative, a research and analysis organisation, reveals the scale of the problem. Based on its own estimates, about $277bn in climate financing is needed across Africa every year to meet NDC objectives and climate goals, but annual climate finance to the continent amounts to only $29.5bn.
Once this figure is broken down, it becomes clear that the majority of existing financing is being supplied by development finance institutions, with private sector finance playing a piecemeal role. While financing from all sources must increase, the continent would clearly benefit from a more diverse funding mix.
“Only 14 per cent of the tracked climate finance in Africa was from private actors, much lower than in other regions,” says Chavi Meattle, a senior analyst at CPI. “The majority of these private sector financing is basically channelled to mitigation projects and, more specifically, to commercially attractive sectors such as energy.”
In comparison, the private sector contributed to 37 per cent of all climate finance in South Asia, 39 per cent in East Asia and the Pacific, and 49 per cent in Latin America and the Caribbean, according to CPI’s latest report from September 2022, ‘The Landscape of Climate Finance in Africa’.
“Lack of a pipeline of bankable projects in Africa is often cited as a key reason for limited private sector investment. It is therefore important to support pipeline development and more importantly, have information exchange platforms that could make existing transactions more visible to investors,” says Meattle.
For its part, the AfDB is working to address this, and other issues, through its adaptation benefit mechanism, a programme to mobilise new public and private sector finance by quantifying adaptation benefits for specific projects. In doing so, the AfDB hopes to illuminate investment opportunities that could otherwise go unnoticed, particularly by private sector actors. “We are currently piloting over the next few years [and it is] probably one of the first mechanisms for valuing or quantifying adaptation benefits,” says the AfDB’s Kariuki.
The AfDB is also looking to secure $25bn of climate finance for the region through its Africa adaptation acceleration programme, a joint initiative with the Global Center on Adaptation. The bank will itself provide $12.5bn, while raising a further $12.5bn from other sources, by 2025.
Green bond market
Meanwhile, the region is also falling short when it comes to green bonds. Between 2014 and 2021, Africa accounted for just 0.2 per cent of total green bond issuances globally, according to CPI’s research. Although green bond transactions have been on the rise, issuers have mostly stemmed from the continent’s north and south, representing the largest and most sophisticated financial markets. Minimal green bond activity has been recorded elsewhere.
Encouragingly, however, African green bond issues are deeply popular with investors. Egypt’s inaugural green bond in 2020 was more than five times oversubscribed, even as the country’s finance minister, Mohamed Maiit, recently noted that there was “no advantage” to issuing this instrument over a vanilla eurobond.
These comments likely point to the complexities linked to extra documentation, monitoring and compliance of issuing these instruments. As a result, for many African sovereigns, green bonds as a funding source remain out of reach.
“I’m aware of a number of emerging market issuers out there that want to issue green bonds. And what I hear is a very common phrase: ‘we’re still working on it’,” says Padhraic Garvey, ING regional head of research, Americas, who has written extensively on emerging market green bond issuers.
“That shows that it’s not simple. They have to learn the ropes. They’ve got to do all the extra stuff that they wouldn’t typically do for a vanilla bond. Many of them have been working on this for years,” he adds.
Looking ahead, Africa’s climate finance gap will be difficult to fill. Meaningful solutions to the problem – including stronger funding commitments from developed countries, as well as investment and regulatory reforms in the continent’s climate-exposed markets – will be both difficult and time-consuming to achieve: time that Africa, and the world, does not have.