Climate financing: Implications for Africa's transformation

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

VI. Transparency of climate funds

29. Under the Copenhagen Accord, world leaders agreed that “scaled up, new and additional, predictable and adequate funding as well as improved access shall be provided to developing countries”. However, because of the ambiguity of the words "new and additional", there is a need for a common benchmark so that countries can determine which funds are old and which are new. "Additional" funding and financial resources raised for climate change should not be substituted or diverted for other uses, such as economic or social development. The lack of an internationally agreed baseline has left each contributing country to use its own definition of "new and additional", and in some cases they do not accept the baselines put forward by developing countries.

30. Transparency of information is also needed in order to determine what is meant by "additional", as at present some countries are re-packaging existing official development assistance or delivering on past pledges. For example, the majority of Japan's pledge of $11 billion under the Hatoyama initiative was announced in 2008, well before the talks in Copenhagen. Similarly, the United Kingdom's pledge of $2.5 billion as part of the European Union's package of $10 billion for short-term climate finance will be drawn entirely from its already announced development aid budget. Indeed, Tim Jones, a policy officer at the World Development Movement, said that "over half of the money announced by the United Kingdom in Copenhagen had already been announced, allocated or spent. At least one third of it will be in the form of loans". Moreover, according to the Organisation for Economic Co-operation and Development (OECD), as of 2013, only 5 out of 23 donor Governments had met the target of spending 0.7 per cent of gross national income (GNI) on official development assistance.

31. Table 2 sets out some of the proposed methods for defining a baseline for “new and additional” funding. The first option is preferred by European countries such as Denmark and Norway since they have already hit the target of 0.7 per cent, making it easier for them to set a baseline of anything over 0.7 per cent. The second option would only utilize new United Nations channels such as the Green Climate Fund to disburse the funds, but would leave less flexibility for contributing countries and existing channels, which might be better suited to handling certain tasks.

32. This lack of transparency and the prevailing uncertainties regarding climate finance flows have created insecurity in responding to climate change in Africa. The ClimDev-Africa Special Fund was established to provide a solid foundation for the African response to climate change. It was launched by the three foremost development institutions on the continent – the African Union Commission, the Economic Commission for Africa and the African Development Bank – under the auspices of the ClimDev-Africa programme. It is managed by the Bank and provides financial resources and incentives for national agencies, regional bodies and other stakeholders to design and implement climate information services and policy projects. As of October 2013, the Fund had received 26 project proposals requesting some $76 million.

VII. Innovative financing mechanisms to scale up climate change actions in Africa

33. Following the current impasse regarding the fulfillment of the climate finance pledges made by developed countries, it is important for Africa to develop more creative and innovative ways of generating funds from both domestic and external sources, at a scale and pace sufficient to match the impacts of climate change. There are innovative lessons of financing mechanisms that could be used to ramp up climate change activities and investment in Africa, although this requires strategic planning and enhanced climate finance readiness. Climate change is of national interest to all African countries, and as result, domestic sources of financing should also be in the mix of mechanisms driving climate finance.

A. National budgetary processes

34. Following the elaboration of Climate Public Expenditure and Institutional Reviews by some African countries, it is possible to view national spending on climate-related activities. Building on this, it is important for countries to fully integrate climate change into their national budgetary processes, whereby a portion of the budget is directly allocated to climate change actions. Having budgetary provisions for climate change is crucial for scaling up actions and ensuring their sustainability, and results in better returns on investment. This approach also ensures that climate investment is aligned with national development priorities and strategic goals.

B. Budgetary support

35. Development assistance (regional and bilateral) received by many African countries includes top-ups and budgetary support for both investment and recurrent expenditures. Such financial assistance constitutes a large percentage of national budgets for some countries. Integrating climate change considerations into discussions with development partners to climate-proof the development assistance support they provide will constitute a compelling case in seeking climate funding support for aid investments to build resilience. This is particularly crucial with investments in infrastructure, agriculture and water systems. Addressing climate change in such sectors, where development assistance is growing rapidly, could be beneficial to countries. By using these approaches, it will be possible to increase climate-dedicated funds for key sectors as well as top-up funds for climate actions.

C. International sources

36. Some of the decisions emanating from sessions of the Conference of the Parties have the potential to encourage the development of innovative sources of financing for addressing climate change, and Africa should review and capitalize on some of these, such as nationally appropriate mitigation actions and non-market-based mechanisms. Africa must also seek ways of increasing its share of clean development mechanism activities and entering the carbon-trading marketplace.

D. Private sector

37. The private sector is already an important source of climate finance through capital markets. At present the focus is on mitigation but there are also emerging opportunities with regard to adaptation, such as debt and equity through direct project lending, and credit lines to local finance institutions. Microfinance and microinsurance products aimed at poor communities are already being piloted in various African countries.

E. Grants and concessionary loans

38. Many multilateral banks are beginning to provide concessionary loans as part of grant packages for climate-resilient investments, such as climate investment funds. While it could be argued that African developing countries should not be addressing climate change using loans, this is nevertheless an important funding stream that needs to be reviewed and explored.

F. Adopting synergistic approaches in targeting multilateral funds

39. The disproportionate allocation of climate finance in favour of mitigation efforts, as opposed to adaptation measures, is unlikely to change since they have different drivers. Africa therefore needs to institutionalize a synergistic approach in mobilizing climate finance for joint implementation of adaptation and mitigation initiatives, especially for REDD+. For example, safeguard mechanisms currently under discussion as an integral part of REDD+ should include adaptation measures.

G. Adaptation levy and bond systems

40. The extractive industries, which drive economic growth in Africa, offer opportunities for innovative climate financing through corporate social responsibility schemes. Like the Caribbean region, Africa should consider establishing a similar bond system to shield its economic growth 10

Climate financing: Implications for Africa's transformation from climate change disasters. It should also consider instituting adaptation levies on the huge volume of extractive resources that leave the continent for markets overseas – not in the form of royalties, but as part of a collective responsibility to address climate change in the continent.

41. The European Union's airline carbon tax – might not be appealing to developing countries, but it is considered vital for addressing climate change in Europe. The United States has also put in place a pollution tax, and many other regions are also going in that direction. If Africa were to push for an adaptation levy on its natural resources (for example for every tree felled for timber in the Congo basin or for every barrel of crude oil exported), it would easily gain international support in the light of the global recognition of the continent's extreme vulnerability and its need for adequate resources to respond to the challenge.

H. Capitalizing on the African diaspora and philanthropists

42. Awareness of climate change should be raised among African philanthropists and the diaspora. This is critical for bridging external funding and building sustainability. The current lack of capacity and appropriately trained human resources in certain African countries could be easily overcome by establishing viable and functional connections with the African diaspora, the importance of which has already been demonstrated by the volume of remittances, which constitute a significant share of foreign exchange earnings for African countries.

VIII.Conclusion

43. There is a great deal of uncertainty about the level of international funding that is dedicated to climate change. It is unlikely that the targets established internationally will be met, including those of the Green Climate Fund.

44. Climate finance is an essential part of securing a low-carbon development future for Africa and Small Island Developing States and helping them to acquire the technologies and capacity needed to implement adaptation and mitigation actions. The climate financing needs of developing countries substantially exceed current financial flows from multilateral and bilateral sources. Increasing the amount of funding, especially through innovative financing mechanisms, is therefore imperative. Long-term climate finance needs to be accountable and transparent. African policymakers will need to examine carefully the proposals that emerge from negotiation processes and take into account the implications of each approach and how Africa stands to benefit.

45. Developed countries must also fully implement their commitments relating to financial resources and the transfer of technology. This will provide African countries with the necessary tools to address climate change.

46. In addition, greater efforts must be made to ensure the readiness of climate finance in order to enhance regional alertness and capabilities for programming these resources. More African countries should strive to become national implementing entities as a key step towards national ownership of their climate change responses.

47. Lastly, in the light of the growing role of the private sector in addressing climate change, there are considerable opportunities for attracting additional private-sector support, and it is essential that Africa strives to build creative, mutually beneficial partnerships with the private sector.