Climate financing: Implications for Africa's transformation

(UNECA) Updated: 2014-10-14 10:37

III. Access modalities

13. The various multilateral climate finance instruments all have different modalities for accessing the funds (see figure 1). While direct access by countries is encouraged, intermediaries known as implementing entities also provide assistance, in particular in cases where the least developed countries in question lack the necessary capacity to comply with the complex application procedures. Implementing entities can be national, multinational or regional bodies. The website of the Adaptation Fund lists 28 accredited implementing entities, of which 15 are

national, 10 are multinational (including major development banks and four United Nations agencies) and 3 are regional. The national institutions include ministries (Jordan and Rwanda), agencies or authorities (Chile, Kenya, Morocco and Uruguay), institutes (Argentina, Mexico, Senegal and South Africa), funds (Benin, Costa Rica), one bank (India) and one trust (Belize).

14. Although a number of the accredited national implementing entities are African, only two – Rwanda and Senegal – have successfully applied for programme funding from the Adaptation Fund. This emphasizes the fact that institutional and human capacity needs to be developed so that countries can achieve self-programming status.

15. The promotion of national implementing entities should be applauded as it helps to establish national ownership of the process. However, the Adaptation Fund's decision to cap the proportion of funding distributed by multilateral implementing entities at 50 per cent could pose major programming constraints for countries that are not yet ready for accreditation as national implementing entities, but which still need access to the Fund.

16. Other multilateral, regional and bilateral funding instruments have different access modalities, which are usually aligned to their internal regulations and tailored to their programme interests. There are also funding windows through competitive calls for proposals, which allows other potential stakeholders to get involved and creates a space for nurturing innovative ideas.

17. There is a great deal of uncertainty surrounding bilateral funding as result of the changing development assistance landscape. Following the economic downturn, many developed countries cut their foreign aid budgets, casting uncertainty over the future of bilateral aid.

18. Meanwhile, private sector funding is emerging as an important pool of climate finance. However, the lack of appropriate engagement approaches and public-private partnerships limit Africa's abilities to capitalize on the rapidly growing opportunities for private-sector funding for climate change.

IV. Financing Africa's climate response

19. Although many climate finance instruments have been set up, Africa's access to those funds remains limited. Moreover, it also faces the challenge of how to absorb effectively the funding it does receive.

20. There are various estimates of how much annual investment will be needed to reduce the risk profile of developing countries. Estimates of current climate finance flows to developing countries vary considerably, at anywhere between $40 and $120 billion per year [2]. The African Development Bank has concluded that adaptation costs in Africa will be in the region of $20-$30 billion over the next 10 to 20 years [3]. While such estimates provide indicative costs, the changing risk profiles as revealed by recent assessments could significantly increase the amount of financial resources required for adaptation responses. Indeed, the United Nations Environment Programme's 2013 report Africa's Adaptation Gap highlighted the gulf between the current climate risk profile of Africa and the level of funding expected.

21. In terms of actual investment, of all the funding disbursed so far from all sources (including the Least Developed Countries Fund, the Pilot Program for Climate Resilience, the Global Climate Change Alliance and the Special Climate Change Fund), which amounts to $395 million, 44 per cent has gone to sub-Saharan Africa. More specifically, of the funds allocated for the implementation of national adaptation programmes of action, 56 per cent of approved funding from the Least Developed Countries Fund ($222 million) and 26 per cent of funding from the Special Climate Change Fund ($50 million) have also gone to sub-Saharan Africa.

V. Financing adaptation and mitigation in Africa

22. Africa's climate change challenges are enormous. This requires both domestic and international sources of financing. One key concern in Africa is the allocation of funds between adaptation and mitigation actions. While in developed countries, the majority of climate finance is spent on mitigation, in most developing countries adaptation is much more important than mitigation. However, this is likely to change as some developing countries become middle-income countries and mitigation becomes an increasingly important priority for them. This is even more likely with growing private sector interest and an increasing share of mitigation funding, as nations develop their institutions and the enabling environment with regulations and incentives that encourage private sector investments.

23. In the case of Africa, the role of the private sector in climate finance is still very minimal and uncertain, especially as no good lessons or practical experiences have been drawn from the clean development mechanism, as a result of the very low participation rates. Furthermore, the price of carbon credits has been very volatile and currently stands at just $1-$2 per ton of carbon dioxide for clean development mechanism projects (down from about $20 in 1997 and $5-$8 in 2011) and $4-$8 per ton for REDD projects.

24. With regard to REDD+, an enhanced version of the original mechanism, there has been more interest from African countries in participating. Readiness programmes are already underway in some countries, benefiting from various climate funds and targeting key forest areas such as the Congo rainforest and basin.

25. According to 2013 findings of the World Bank, less than one third of adaptation and mitigation funding approved for spending in Africa has been disbursed. Climate Funds Update, an independent website that provides information on international climate finance initiatives, states that a significant percentage of climate finance in sub-Saharan Africa is directed towards mitigation activities, despite the fact that adaptation should be given funding priority because of the high vulnerability of many sub-Saharan countries (see figure 3). There is a pressing need, therefore, to mobilize resources with a view to addressing the continent's limited ability to deal with climate events and future impacts related to climate change.

26. With more than 45 per cent of Africa's population living in countries with the lowest adaptive capacity in the world, investment in health and education systems and in institutional capacity-building is essential. It cannot be stressed enough that funding for climate change adaptation and mitigation efforts has a multiplier effect and can simultaneously help to reduce poverty and boost sustainable development.

27. More targeted adaptation investments are needed in Africa, and decision-makers need to factor climate change into all long-term strategic planning. In particular, Africa has a large infrastructure deficit, but the design and location of future infrastructure investments need to take into consideration changes in the climate system. According to the World Bank, achieving this will be particularly costly in relation to water and sanitation measures, and new zoning rules and building codes will have to be introduced to complement such structural adaptation and mitigation measures. In the long run, however, the benefits will outweigh the additional costs.

28. The development of an African climate change fund, managed by an African institution, has also been touted as a way to meet Africa's specific needs. Climate finance can be a catalyst to leverage private and public resources, open up new economic opportunities, promote technology deployment and transform development pathways. With the purpose of pooling resources allocated to Africa from various sources and mobilizing new sources of funding, such a fund could support the financing of projects and programmes that contribute to climate resilience and low carbon development.