Key Messages

Context and Policy Issue

Finance in support of technological and societal changes to meet a climate-resilient future is a contested political battleground globally. Climate finance is a delicate policy issue and even its definition is contested.

While there is no broad global consensus on the definition of climate finance, the closest is provided by the United Nations Framework Convention on Climate Change (UNFCCC). The UNFCCC defines climate finance as “local, national or trans-national financing—drawn from public, private and alternative sources of financing—that seeks to support mitigation and adaptation actions that will address climate change”.^[1] Another definition provided by the UNFCCC Standing Committee on Finance (SCF, 2014) is as follows: climate finance is financing “that aims at reducing emissions, and enhancing sinks of greenhouse gases and aims at reducing [the] vulnerability of, and maintaining and increasing the resilience of, human and ecological systems to negative climate change impacts”. ^[2]

However, distributional conflicts are determined by what financial flows can be counted as climate finance. But also, in terms of the procedural and recognitional legitimation: Which country and region gets what? Who qualifies to unlock funds classified as climate finance, and how?

Accessing such financing is even more pertinent for Africa, which is one of the world’s most vulnerable regions to climate change. The Glasgow Climate Pact agreement at COP26 in November 2021 resulted in global governments pledging to phase down fossil fuels and increase financing for climate change adaptation. Likewise, developed economies pledged to double their support from 2009 levels by 2025. At COP15 in Copenhagen in 2009, industrialised countries committed to collectively contributing US$100 billion annually until 2020 to support developing countries in their climate change needs. Despite expected increases in adaptation costs, estimated to reach US$140 billion to US$300 billion in 2030,^[3] the climate finance support pledged by the world’s wealthiest economies has failed to materialise.

In 2020, only US$83 billion^[4] of the US$100 billion per annum commitment was met, while an average of US$75 billion was delivered between 2016 to 2019. Only around US$20 billion (27%) of this latter amount was provided to Africa between 2016 and 2019.^[5] Additionally, indicative assessment from the African Development Bank (AfDB) show Africa’s loss and damage needs due to climate change in the range of US$289.2 billion to US$440.5 billion.^[6] Thus, the current reported climate finance annual inflows of US$30 billion (equivalent to only 12% of conservative annual required flows) to Africa are woefully inadequate to address the continent’s needs as per the NDCs.

However, Africa remains highly dependent on external financing to implement its NDCs and meet net-zero goals under the 2015 Paris Agreement. The achieving of the net-zero goals is confounded by the limited fiscal space available to governments in the sub-region to implement their NDCs and the challenging external environment of the aftershocks of the ongoing Russia-Ukraine war.

It is within the above context that APRI undertook this study to understand the actors, coalitions and contestations associated with attracting climate finance to implement Africa’s NDCs. We focused on the status, practical experiences and perceptions of state and non-state actors in Africa in securing climate financing to implement the NDCs.

The report focuses on two areas. First, using qualitative, quantitative and political economy analysis. Here, we examined global narratives on climate change and climate finance and their application to Africa. We analysed how global climate financing categorisations (for example, adaptation versus mitigation, and loss and damage) feed into how stakeholders conceptualise these issues at the African country level. These global norms are further tested against country-level developmental objectives such as the twin issues of energy poverty and affordability and the pursuit of low-carbon industrialisation.

Second, we conducted deep dives in three country case studies: Ghana, South Africa and Zambia. These countries allowed us to provide a nuanced picture of which factors are driving both flows into and demand for climate finance in some archetypal countries and what valuable lessons could be learned to shape continental climate financing policy.

Country perspectives

In Ghana, we found that the government has outlined several key policies that set targets, action plans and financing strategies for climate action, of which mitigation actions such as increasing RE penetration are paramount. Ghana’s updated NDC includes 19 policy actions, classified under eight socio-economic outcomes, which translate to 47 programmes of action (of which 13 are adaptation and 34 are mitigation actions). Seven of the 13 adaptation actions are unconditional, requiring financial mobilisation from the government of Ghana. Nine of the 34 mitigation actions are unconditional.

Estimated financial needs to support Ghana’s programme of actions range between US$9.3 billion and US$15 billion. However, Ghana’s Fourth National Communication Report to the UNFCCC (2020) estimated the total financial inflows for climate action between 2011 to 2019 at about US$1.3 billion. About 87% of that amount was allocated towards mitigation activities. In comparison, adaptation efforts received about 4% of the inflows while the 9% remaining was earmarked to support means of implementation activities, especially for capacity development of the receiving institutions.

Also, in South Africa, we found that private finance in clean energy plays the biggest role in the country’s climate finance flows. According to recent studies, two-thirds of the tracked private investments were raised as debt and a quarter in equity. Three local banks, the International Finance Corporation and the African Development Bank, count as the main financing institutions for renewable energy and are involved in parts of the negotiations around the Just Energy Transitions Partnership (JET-P). Other local studies and interviews with stakeholders confirmed an alarming underfinancing of adaptation funding in comparison to mitigation funding. There is a high risk that adaptation finance will be overlooked as reducing the coal dominance of the electricity sector is determining funding. Overall, climate finance in South Africa is defined in broader sustainable and green finance terms. A green finance taxonomy is currently under development to make green and climate-related investments more transparent.

In Zambia, we found that the country has commenced the preparation of a green growth strategy. It is envisaged that executing the strategy will contribute to the efficient use of natural and other resources, reduce GHGs, enhance coping with climate change and sustainably drive economic growth. The flow of climate finance in Zambia increased from less than US$20 million per annum in 2010 to more than US$50 million per annum in 2021. This increase has been attributed to institutional strengthening, such as the establishment of the Ministry of Green Economy and Environment, which has consolidated all environmental sustainability functions and enhanced coordination, including climate finance. However, a lot still needs to be undertaken to reach an optimal level of climate finance and enhance the execution of mitigation and resilience-building actions to reverse the adverse impacts of climate change.

Stakeholders indicated that most climate finances had been channelled to the energy, agriculture, forestry and water sectors. It was also observed that the allocation and channelling of climate finance to the highlighted sectors were consistent with the prioritised sectors in Zambia’s national policy documents, such as the eight national development plans, the NDC and the National Policy on Climate Change. Further, stakeholders observed that the private sector held the best opportunities for Zambia to mobilise climate finance. It was also indicated that institutional investors such as pension funds had the potential to invest in green infrastructure projects. However, stakeholders emphasised the need for enhanced engagement of the private sector through capacity building and awareness-raising meetings on climate finance.

Across all three countries, we found that the main barriers to climate finance include the inadequate capacity to develop bankable projects and nascent and weak institutional capacity for undertaking climate investments. Additionally, a lack of public knowledge about climate finance means there is no clear understanding of the available climate finance opportunities available to the private sector via accredited institutions. Stakeholders indicated that some projects had suffered project funding rejections due to weak documentation.

Furthermore, climate financing by local commercial banks is still nascent, mainly because the banks have traditionally prioritised yield. There is also a need to build the business case, particularly for adaptation, to ensure that the private sector participates in climate finance. Lastly, stakeholders emphasised the need for enhanced engagement of the private sector through capacity building and awareness-raising meetings on climate finance.

Recommendations

Two classes of recommendations are provided: firstly, for the global financing community and secondly, for African governments.

For the global climate financing community

For African governments

Concluding remarks

Harmonising the disparate international climate financing landscape

During the high-level consultations at COP26, developing countries criticised developed countries for failing to pledge to commit about US$100 billion annually to support climate action in developing countries. International institutions and developed countries must go beyond the promises and fulfil their pledges towards providing adequate financing for climate action to developing countries.

To do this, the widely used UNFCCC definition of climate finance needs to be amended to clear rules on what can be counted as “local, national or trans-national financing” or “public, private and alternative sources of financing” as developed countries have different operational definitions and interpretations of climate finance. Several developing countries (such as India) have in the past refuted claims by wealthy nations on their contributions to the delivering US$100 billion annual budget to support climate action in developing countries. Critiques have ranged from these figures being ‘‘overstated’’ to the methodological basis being ‘‘deeply flawed’’.^[17] Recently, an EU Court of Auditors report^[18] indicated that the European Union had not met its climate spending targets. A reported spending of €216 billion on climate action in the EU’s 2014-2020 budget was more likely to be around 13% of the EU budget rather than the reported 20% and thus “not as high as reported”.

Lastly, more public and private funding from the international community needs to go towards adaptation efforts in support of a just transition, especially in Africa. As previously highlighted in our findings, most of Africa’s GHG emissions at a sectoral level come from land-use change and forestry (LUCF: 36%) and the energy sector (35%). To that extent, climate financing coming to and from the continent should not only prioritise low-carbon energy generation sources (mitigation) but must equally prioritise LUCF reductions (in this case, more adaptation-related financing). There is thus a need to look at how to combine the use of adaptation public funds with private funds in new and innovative ways, including at the community level.

Addressing the barriers to climate financing in Africa

Given the heavy reliance but significantly low donor climate finance inflows, Africa must look at alternative sources of financing to implement its NDCs and contribute to mitigating climate change while creating sustainable jobs in the process. Unlocking the massive investment opportunities ultimately comes down to understanding the barriers to such investments at both the national and sub-national levels, and at the global level within the donor institutions themselves. For example, even when funding (either from public or private sources) is not a constraint, sub-national (local) governments in Africa are usually ill-equipped to facilitate successful access to and management of these funds, or design and prepare ‘bankable’ projects. This inability is due to the lack of efficient regulatory frameworks, technical competencies and systems for project preparation as well as to insufficient monitoring and evaluation, among others.