2. Climate Change and Climate Finance

2.1 Africa and climate change

Four main greenhouse gases (GHGs) are responsible for climate change — mostly human-induced long-term shifts in temperatures and weather patterns^[22] — which has resulted in rising surface temperatures leading to extreme weather conditions such as droughts, heavy rainfalls, floods and heatwaves. Those gases are carbon dioxide (CO₂), which comprises 75% of GHGs; Methane (CH4) and nitrous oxide (N2O), which make up 17% and 6% of GHGs, respectively. The remaining 2% is accounted for by fluorinated gases such as perfluorocarbons, sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3).^[23] Given that CO₂ is the most significant contributor to global warming, it is no wonder that global efforts towards its abatement have increased.

The Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report is unequivocal in saying that we must limit the global temperature rise to 1.5°C (2.7°F) as per the 2015 Paris Climate Agreement to prevent the worst effects of climate change. For this limit to be reached, global emissions must peak before 2025 and “without immediate and deep emissions reductions across all sectors, limiting global warming to 1.5°C is beyond reach”.^[24]

Africa has, however, contributed the least to global climate change – the region is not a significant source of GHGs – although it stands to bear the severest negative consequences of climate change.^[25] Available data from various global organisations indicate that Africa’s contribution to global GHGs stood at less than 4% as of 2020 (Fig 2-1).[26] In contrast, the top ten developed economies, with 75% of global GDP, account for two-thirds of the annual global GHGs.^[27] China (26%), the United States (13%), India (7%), European Union (7%), Russia (4%), Indonesia (4%), and Brazil (3%), and others.^[28] Africa’s contribution to CO₂ emissions is, also, fairly negligible at 3%. Here again, the biggest polluting countries are the United States (25%), the European Union (EU-28: 22%), China (13%) and Russia (6%), among a host of other developed countries.^[29]

Fig 2.1 Historical GHG emissions in SSA

Source: OurWorldInData (2019)

Within Sub-Saharan Africa (SSA), the largest GHG-emitting countries are the Democratic Republic of Congo (19%), South Africa (16%), Nigeria (9.8%), Ethiopia (5.1%), Tanzania (4.3%), and Angola (3.5%) (Fig 2.2). This list looks similar for CO₂ emissions.^[30] However, the largest contributor to CO₂ emissions on the continent on a per capita basis is South Africa at 7.5 metric tons (MT) per capita, followed by the Seychelles (6.2 MT), Equatorial Guinea (3.9 MT), Mauritius (3.3 MT), Botswana (3.1 MT), Gabon(2.4 MT), and Namibia (1.7 MT).^[31]

We also review the evidence base of the barriers to climate innovation and financing in Africa. The second part of the report provides deep dives into case studies in three countries: Ghana, South Africa and Zambia. These countries allow us to provide a nuanced picture of which factors are driving the climate financing flows into exemplar countries and what useful lessons could be learned to shape climate financing policy on the continent.

Based on the analysis and these case studies, this report builds an evidence base on climate finance needs, perceptions, challenges and pathways to solutions.

We expect the report to contribute to discussions before and during COP27 by providing empirical evidence to support negotiating positions around equity and fairness in accessing finance and effectiveness.

Fig 2.2 Historical GHG emissions in SSA

Source: ClimateWatch/CAIT

Overall, Africa’s CO₂ emissions per capita have barely increased over the past three decades despite the two-fold increase in the sub-region’s population from 509 million people in 1990 to 1.11 billion in 2019. SSA’s emissions were 0.8 MT per capita in 1990 and marginally declined to 0.7 MT per capita in 2019.^[32] This amount pales in comparison to the rises in China (from 1.9 MT per capita in 1990 to 7.6 MT per capita in 2019), OECD countries (from 10.2 MT per capita in 1990 to 8.5 MT per capita in 2019) and the United States (from 19.4 MT per capita in 1990 to 14.7 MT per capita in 2019).^[33] At a sectoral level, most of SSA’s GHG emissions come from land-use change and forestry (LUCF: 36%) and the energy sector (35%) (see Fig 2-3).^[34] These sectors are followed by agriculture (21%), industrial processes (4%) and waste (4%).^[35]

These statistics imply that climate financing to and from the sub-region should prioritise LUCF reductions (in this case, more adaptation-related financing) and adopt low-carbon energy generation sources (mitigation funding). However, with the latter, the sub-region faces pressing twin issues of energy poverty and affordability, made more onerous by the COVID-19 pandemic and the ongoing Russia-Ukraine war. Thus, the sub-region must seek to use all available energy resources, including natural gas, to meet the energy deficit. Estimates show that about 600 million (almost 52%) of the sub-region’s 1.17 million population lack access to electricity.^[36] Another implication is that justice and equity require that climate finance be provided to African countries at no to low cost, given their small contribution to global emissions.

In addition, except for South Africa, which has a largely carbonised energy sector with the heavy dominance of coal,^[37] most countries in the region have a largely decarbonised energy sector. For example, in West Africa, most of the electricity generation is via a mix of natural gas and hydropower.^[38] Also, Central Africa’s share of the electricity mix is driven by hydropower and conventional fuels while, in East Africa, the driving factors are conventional fuels, hydropower and renewables. There is scope to use climate mitigation financing to increase the renewable energy penetration in the energy mix. However, this mix must complement existing base load energy sources such as natural gas-based thermal power generation.

Fig 2.3 Africa’s GHG emissions by sector 1990-2016 (%)

Source: AfDB

2.2 Some conceptual narratives on climate finance

Moving to a net-zero future requires significant amounts of capital. According to estimates, between US$125 trillion^[39] and US$275 trillion^[40] will be required by 2050 to meet net-zero goals. The lower end of the estimate translates to US$4 trillion of annual investments, while the higher end of the estimate translates to US$9.2 trillion per year of investments on average in energy assets and land-use systems, including agriculture and forestry; this figure represents an annual increase of US$3.5 trillion from current spending levels. The US$9.2 trillion annual investment translates to about 10% of the global GDP of US$96.1 trillion in 2021, half of the GDP of China or the combined GDP of Germany and the United Kingdom.^[41]

In this regard, climate finance has become one of the buzzwords in the global development community in recent years. However, what exactly is it and is there a universally accepted definition of what climate finance encompasses? 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”.^[42] 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”.^[43] Other advocates have sought to include reparations or finances for ‘loss and damages’ into the broader climate finance architecture.^[44]

In essence, climate financing seeks to address three core developmental imperatives (Fig 2.4 and Table 2.1): first, who will provide the funds; second, where would the funds come from; and third, what would these funds be used for? In other words, the UNFCCC envisages that the funds to fight climate change would be sourced at the sub-national (community), national (country) and supra-national (multilateral, bilateral) levels. Also, regardless of the level of sourcing, the monies would come from a mix of public, private and alternative avenues and would subsequently be channelled into supporting mitigation and adaptation actions (Fig 2-5).

These mitigation and adaptation actions are captured in the respective country’s nationally determined contribution (NDC) statements, which are updated every five years.^[45] NDCs are the climate action plans produced by countries. They measure and outline how they intend to cut emissions and adapt to climate impacts.[46] Each party to the 2015 Paris Agreement (Article 4, paragraph 2) is required to prepare, communicate and maintain an NDC which contains set targets for mitigating GHGs and for adapting to climate impacts, and monitoring and verifying progress.^[47] Some of the NDCs also include a detailed financing strategy. As of October 2022, all 194 Parties to the 2015 Paris Agreement had submitted at least their first NDC, of which 151 had submitted new or updated NDCs as of November 2021.^[48]

However, as the OECD^[49] noted as far back as 2013, there is still no clear definition of which climate activities, flows or other interventions count towards the US$100 billion climate finance target or what “mobilising” means, although the issue of the countries covered by the commitment has been resolved. While the UNFCCC definition has been around for a long time, other parties have nonetheless sought to redefine climate finance to suit their convenience or need, thus making its broad acceptance murky or debatable.^[50]

Fig 2.4 The three core imperatives of climate finance

Source: Authors’ construct (2022)

Table 2.1 Mapping of the climate financing architecture

Source: Authors’ construct based on OECD^[52] and UNFCCC^[53] reporting (2022)

Fig 2.5 Biennial assessment and overview of climate finance flows

Source: UNFCCC (2020)^[54]

While financing is key to implementing NDCs, not every country or region is financially endowed with the resources needed, and many of those countries are not the most significant historical contributors to GHGs — Africa falls into this category. Thus, the UNFCCC acknowledges under the established principle of “common but differentiated responsibility and respective capabilities”^[54] and Article 9 of the Paris Agreement^[55] that financial assistance would need to be provided by countries that have more resources (developed countries or Annex II Parties) to those that are “less endowed and more vulnerable”^[56] with respect to a balance of both mitigation and adaptation. In addition, developed countries are mandated to “take the lead in mobilising climate finance from a wide variety of sources, instruments and channels” for developing countries, especially in sourcing public funds.^[57]

At COP15^[58] in Copenhagen in 2009, developed countries committed to contribute collectively US$100 billion^[59] of public funds a year by 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 per year in 2030,^[60] the support pledged for climate finance by the world’s wealthiest economies has failed to materialise. As of 2020, only US$83 billion^[61] of the US$100 billion per annum commitment had been met (Table 2-2). About US$30 billion^[62] of that sum was provided to Africa. Between 2013 and 2019, an average of US$64 billion was delivered, out of which 26% went to Africa (Fig 2-6).^[63] Most of the total climate finance in Africa is concentrated in ten countries, namely Morocco and Egypt (North Africa), Kenya, Nigeria, Ethiopia, South Africa, Mozambique, Cote d’Ivoire, Tunisia and Ghana (Sub-Saharan Africa).

Over and above the monies missing from the pledges, Africa faces a huge financing gap: Conservative estimates indicate that Africa needs US$2.5 trillion (74% of the continent’s GDP^[64] of US$3.4 trillion in 2021) or US$250 billion annually in both conditional and unconditional financing between 2020 and 2030 to implement its NDCs under the Paris Climate Agreement.^[65] It is worth noting that this climate financing gap is separate from Africa’s other infrastructure financing needs. Thus, current reported climate finance annual inflows of US$30 billion (equivalent to only 12% of conservative annual required flows) are woefully inadequate to address the continent’s needs as per the NDCs. Of this amount, the Climate Policy Initiative (CPI) estimates that public finances, mostly from multilateral development finance institutions, comprise 86% (US$25 billion), while private sector financing (mostly corporates) contributed 14% (US$4.2 billion).^[66]

Private financing clearly needs to be stepped up on the continent by addressing the constraints to securing such financing. Understanding these constraints is very much at the heart of Part II of this report, which explores them in great detail, as evidenced in the country case studies. Africa’s private sector financing remains lower than that of other regions such as South Asia (38%), East Asia and Pacific (39%), and Latin America & Caribbean (48%), according to the CPI.^[67]

Table 2.2 Climate finance provided and mobilised by component and sub-component, 2013-2020 (US$ billion)

Note: The sum of components may not add up to totals due to rounding. The gap in time series in 2015 for mobilised private results from the implementation measurements methods. As a result, grand totals in 2016–2020 and in 2013–2014 are not directly comparable.

Source: based on Biennial Reports of the UNFCCC, OECD DAC and Export Credit Group statistics, complementary reporting to the OECD

Fig 2.6 Distribution of climate finance across developing country regions, 2016-2020

Note: These regions cover developing countries only.

Source: OECD

In addition, the structure of existing climate finance continues to perpetuate more significant inequities as much of the funding is disbursed as loans (debt) and not as grants (Fig 2.7 and Fig 2.8). In 2019, an OECD study^[68] indicated that loans represented 71% of public climate finance. However, the terms of these loans are prohibitive, and their very design excludes the poorest and most vulnerable countries from benefitting. Moreover, the heavy dependence on loans has negative social and economic implications for African countries, including contributing to an increase in debt vulnerability. These issues raise the question of why African countries should be saddled with loan repayments and interest to finance their climate actions when they contribute least to global GHG emissions but face the severest consequences of climate change. The debt crisis is one of the biggest drivers of the current African discussion on climate finance.

African governments do not have the fiscal space to spend on climate domestically, as a significant portion of their finances are spent on debt servicing.^[69] Recent IMF estimates show that sub-Saharan Africa’s public debt, for example, increased by more than six percentage points to 58% of GDP in 2020, the highest level in almost two decades.^[70] Thus, taking on more climate debt (climate finance loans), even with some degree of concessionality, is beyond most African governments at the moment. This inability to take on more climate debt calls for novel forms of finance, such as using debt-for-climate swaps and the need for grant-based or highly concessional finance.

Fig 2.7 Climate finance sources and instruments

Source: Climate Policy Initiative (2022)

Fig 2.8 Climate finance uses, instruments and sectors

Source: Climate Policy Initiative (2022)

2.3 Summary

Africa has contributed the least to global climate change. Available data from various global organisations indicate that Africa’s contribution to global GHGs stood at less than 4% as of 2020. However, the continent bears the severest negative consequences of climate change. Within SSA, the largest GHG emitting countries are the Democratic Republic of Congo (19%), South Africa (16%), Nigeria (9.8%), Ethiopia (5.1%), Tanzania (4.3%) and Angola (3.5%). However, the largest contributors to CO₂ emissions on the continent on a per capita basis are South Africa, at 7.5 MT per capita, and the Seychelles, at 6.2 MT per capita. The emissions of other countries, e.g., Equatorial Guinea, Mauritius, Botswana, remain below 4 MT per capita per country. Nevertheless, Africa’s CO₂ emissions per capita have barely increased over the past three decades despite the two-fold increase in the sub-region’s population from 509 million people in 1990 to 1.11 billion in 2019. This mismatch indicates the low level of development and pervasive energy poverty, with over 600 million (50%) of the continent’s population (mostly in SSA) lacking access to electricity.

Moving to a net-zero future and adapting to climate change requires significant amounts of capital. According to some estimates, between US$125 trillion and US$275 trillion will be required by 2050 to meet net-zero goals at a global level. While financing is key to implementing NDCs, not every country or region in Africa is financially endowed with the resources needed, nor are they the most significant historical contributors to GHGs. Conservative estimates indicate that Africa needs US$2.5 trillion (74% of the continent’s GDP of US$3.4 trillion in 2021) or US$250 billion annually in conditional and unconditional financing between 2020 and 2030 to implement its NDCs under the Paris Climate Agreement. It is worth noting that this climate financing gap is separate from Africa’s loss and damage finance or other infrastructure financing needs. Some indicative assessments from theAfDB showAfrica’s loss and damage needs due to climate change in the range ofUS$289.2 billion to US$440.5 billion.^[71] Thus, the current reported climate finance annual inflows of US$30 billion (equivalent to only 12% of conservative annual required flows) are woefully inadequate to address the continent’s needs as per the NDCs. The CPI estimates that, of that amount, public finances, mostly from multilateral development finance institutions, comprise 86% (US$25 billion) while private sector financing (mostly corporates) contributed 14% (US$4.2 billion).

In addition, the structure of existing climate finance continues to perpetuate greater inequities as many of these facilities are disbursed as loans and not as grants. However, the terms of these loans are prohibitive, and their very design excludes the poorest and most vulnerable countries from benefitting.