Climate change is already imposing an impossible toll on the world’s poorest and most vulnerable. It is no surprise that the key to averting catastrophe is to invest in their resilience.
This piece is part of the essay series, Towards a Low-Carbon and Climate-Resilient World: Expectations from COP26
African positions in climate negotiations have revolved around three indisputable truths:
These truths will be oft repeated because the action required remains outstanding.
Nevertheless, three other facts are as important and key to successful outcomes for African countries at the United Nations Climate Change Conference (COP26) in Glasgow:
No matter how the conversation is framed, climate finance will remain at the top of the list because it is fundamental to achieving the systemic change that is required.
The power of new financing models will determine the success of COP26.
The commitment to mobilise US$100 billion per year from 2020 continues to highlight the gap between rhetoric and delivery that has historically affected climate negotiations.
The continued lack of fiscal space available to African countries has challenged sustained investment in climate resilience. Many African countries are running deficits of over 3 percent and the average debt-to-GDP ratio in Africa rose in 2020 to over 60 percent. The continent also has an extremely low tax-to-GDP ratio of below 15 percent and falling (13.4 percent in 2018). Even more concerning is that Africa spends four times more in debt servicing than it is able to generate in revenue.
Climate finance has remained fragmented, and overall development finance has also reduced in real terms. Official development assistance from the OECD Development Assistance Committee countries to Sub-Saharan Africa fell by 1 percent in 2020. This is compounded by the small size of stimulus mobilisation in African countries, with few able to mobilise more than 1 percent of GDP. In contrast, the developed world in 2020 mobilised packages of over 20 percent of GDP.
Many African countries are running deficits of over 3 percent and the average debt-to-GDP ratio in Africa rose in 2020 to over 60 percent. The continent also has an extremely low tax-to-GDP ratio of below 15 percent and falling (13.4 percent in 2018).
Against this backdrop, it is new financial flows that will change the tide and allow fresh investment to take place. Without it, the most marginalised regions, such as Africa, will be swept away either by the storm surge of the pandemic, or by the inexorable rise of the sea through the climate tsunami.
These fresh flows of finances must be invested in new economic models that build sustainable value chains, leveraging regional frameworks such as the African Continental Free Trade Area. The goal is to move away from dependence on extractives and volatile commodity exports in favour of production and consumption chains that allow predictable investment to flow into sectors that foster climate resilience such as climate smart agriculture.
The 2030 Agenda and Agenda 2063 of the African Union trace a path towards a green economy or a blue economy for the continent—or, in other words, the continent’s industrialisation is framed by the imperative of climate resilience, and of recognising the true economic value of Africa’s natural capital as the basis for the organisation of economic activity.
Recent analysis by the UN Economic Commission for Africa (ECA) in collaboration with the University of Oxford and Vivid Economics has demonstrated that investment in green sectors will deliver much higher returns than maintaining a status quo pathway based on fossil fuel investments. In South Africa, this analysis showed up to 250 percent more job years and up to 420 percent more gross value addition created through green investments compared to fossil fuel-based investments.
In the African context, this transition starts with energy as the platform for change since the continent has the highest energy gap, with almost 600 million citizens without access. Meanwhile, less than 50 percent of the population in 24 African countries have access to electricity.
Investing in clean energy will catalyse further transitions towards more sustainable modes of production and consumption. It will also ensure that Africa can embrace more inclusive and sustainable value chains to drive growth.
Any efforts for mitigation in Africa are more about ensuring that the continent does not become locked into stranded assets and defunct technology, rather than as being catalytic for global mitigation targets. Thus, in Africa, the goal of net zero in terms of emissions has less meaning than the goal of achieving zero poverty and zero hunger. The reality is that with the right deployment of technology, the path to net zero emissions will also serve as the most effective path to eradicate hunger and poverty. But a successful COP26 for Africa hinges on the conflation of these mutually reinforcing goals.
The importance of a just transition is also based on the current relative lack of diversification of African economies, and therefore any successful just transition strategy must be driven by the principle of sustainable African industrialisation.
The energy mix in African countries is diverse, and there needs to be a recognition of the variety of pathways that these nations may need to follow, in particular to address the issues around base generation in countries where current infrastructures are inadequate. Renewables such as hydro and geothermal energy can serve as useful opportunities for African countries to use the plentiful resources at their disposal but will not resolve the issues for all countries. The high upfront cost of hydro is proving problematic in the context of post-pandemic investment, while climate variabilities have also affected the reliability of some hydroelectric facilities, such as the experiences in the Zambezi region in 2019-2020.
Renewables such as hydro and geothermal energy can serve as useful opportunities for African countries to use the plentiful resources at their disposal but will not resolve the issues for all countries.
Many African countries will make the case for a role for oil and gas as part of the transition to allow them to make use of their resources and to industrialise. The use of gas as part of a transition that is less polluting than coal, for instance, may well be relevant for some countries with high solar and wind potential. A doubling of electricity generation from gas in Africa will allow a 38 times more solar and wind generation, while increasing global emissions by less than 1 percent.
Critically, Africa must adopt an energy mix that is more resilient to global vagaries and that can fast-track the development gains needed to eliminate poverty.
Africa is the most impacted by climate change. Assessments by the ECA’s African Climate Policy Centre have indicated that, on average, African countries are likely to lose between 2% and 5% of GDP by 2030. In some regions, such as the Sahel, this may be as high as 15%.
Adaptation is about redefining the economic relationship between Africans and the resources at their disposal. There are many successful examples of Africans building the natural capital around them to adapt to the challenge of climate change, and develop sustainable livelihoods.
In Ethiopia, the Green Legacy Programme has mobilised communities to plant trees. This has been linked to income earning opportunities, such as through the planting of fruit trees and fodder trees and the associated economic activities. The programme is also linked to reducing the risk of flooding and erosion, and better management of water catchment areas.
Countries such as Gabon are aiming to increase the domestication of the value addition to raw timber exports, increasing the revenue retained in the country per hectare of planted forest and improving the protection of pristine forest areas. Island nations such as the Seychelles have created a marine protected area of 400,000 sq. km. in the Exclusive Economic Zone as a means of boosting ecotourism, but also as a long-term means of improving the yield of fisheries.
Critically, more specific goals on adaptation need to be established and reported on by all countries. These goals must also be linked to livelihoods and income-earning potential to ensure true long-term sustainability. The establishment of these goals can also be used to further monitor the aim of at least 50% of climate finance being directed towards adaptation.
Increasing ambition is also about incentivising good behaviour and taxing emissions. For African countries, there is understandable concern that mechanisms such as the Carbon Border Adjustment Mechanism could further marginalise their ability to trade freely and effectively and hamper their efforts towards a transition.
Therefore, it is important that global rules be clearly established and implemented. A global price on carbon provides predictability for all, and creates potential assets for those countries that are guardians of outstanding natural assets.
The Peatlands of the Congo Basin, for instance, cover 145,000 sq. km. and sequester up to three years’ equivalent of the world’s carbon emissions, making it the second most important carbon sink globally after the Amazon. But if these wonders of nature are degraded over time, rather than absorbing carbon they can also become a significant source of emissions.
For African countries, there is understandable concern that mechanisms such as the Carbon Border Adjustment Mechanism could further marginalise their ability to trade freely and effectively and hamper their efforts towards a transition.
A predictable global carbon price that is aligned to the goal of limiting warming to no more than 1.5°C can help raise significant resources for regions such as Africa. ECA analysis has shown that a global price of around US$50 per tonne (as opposed to current prices that are usually below US$5 per tonne) will allow Africa to mobilise just below US$30 billion per annum through interventions in clean cooking, renewable energy and climate smart agriculture.
Finance will be the top point on the agenda in Glasgow, and will also be the key to-do item at the close. COP27, to be held on African soil (Egypt) in 2022, must seek to further set a clear schedule of financing, continuous monitoring of commitments and disbursements, and ramping up targets for mobilisation beyond 2025 based on the needs identified in the nationally determined contributions and the national adaptation plans.
COP26 can create the template for significant additional financial flows by reaffirming the willingness of the International Monetary Fund’s key shareholders to provide on-lending of special drawing rights. The establishment of the proposed Resilience and Sustainability Trust to also create a new vehicle for investment in sustainability can change the narrative.
COP26 and COP27 must also mainstream some innovative aspects of the global financial architecture. Much of the developed world has successfully mobilised market-based mechanisms to channel investment towards mitigation, adaptation, and climate resilience. The global market for green bonds was worth US$549 billion in 2020, with Africa accounting for less than 1% of these issuances.
Creating a predictable market for African and other developing countries will be an opportunity to stimulate global economic growth and channel investment to where it is most needed and impactful.
Making this possible requires de-risking, which can be achieved by upscaling blended finance and the provision of partial guarantees. Additional innovations are being proposed whereby a repurchasing or ‘repo’ market be made available for Africa, increasing the opportunity for private-sector investment to be channelled into the developing world. The ECA has proposed a vehicle to facilitate this through a ‘liquidity and sustainability facility’.
Debt must also be addressed. For the most vulnerable, this may well mean some debt forgiveness. Debt-for-adaptation swaps have also been proven as a vehicle to reduce and restructure debts and channelling savings into adaptation, as demonstrated by the Seychelles’ successful debt swap in 2015.
Climate change is already imposing an impossible toll on the world’s poorest and most vulnerable. It is no surprise that the key to averting catastrophe is to invest in their resilience.
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Jean Paul Adam is Director of the Technology Climate Change and Natural Resources Division of the UN Economic Commission for Africa.
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