Earlier this September, policy-makers, financiers, youth groups and businesses convened in Addis Ababa for the second Africa Climate Summit (ACS) under the theme “Accelerating Global Climate Solutions: Financing for Africa’s resilient and Green Development”. The urgency is very clear: Africa needs approximately USD$ 250 billion in public and private finance annually to combat climate change and less than 20% of that financing has been mobilised. Despite a 48% rise in climate finance from USD$ 29.5 billion in 2019/20 to USD$ 43.7 billion in 2021/22—the funding gap is glaring. To meet the climate finance needed for the implementation of countries’ Nationally Determined Contributions (NDCs), climate flows must increase at least four times a year, every year, annually until 2030.
The ACS is an opportunity to showcase investible solutions, strengthen alternative climate financing options and strike impactful partnerships. It presents an opportunity to solidify the continent as the world’s most dynamic destination for climate capital and underscore the importance of private climate finance in the continent’s green economic transformation and long-term sustainable development.
During ACS 2 leaders African leaders adopted the Addis Ababa Declaration on Climate Change and Call to Action reaffirming that international climate finance is a matter of global justice and should be accessible, predictable and concessional. They also highlighted that Africa has vast renewable energy resources accounting for nearly 40% of the world’s potential, yet more than 600 million people on the continent are yet to have access to basic electricity. During the summit leaders called for several reforms in multilateral banks and an expansion into high integrity carbon markets with fair pricing. They also announced the establishment of an African climate facility The Africa Climate Innovation Compact (ACIC), which is committed to mobilizing USD$ 50 billion annually for climate finance.
Development Reimagined’s latest report “Options for Private Sector Climate Finance in Africa” scrutinizes nine innovative private-sector climate financing options against five bespoke assessment criteria to secure additional financing with the report underscoring the potential behind, carbon markets, channeling private finance through bespoke climate funds and African Financial Institutions (AFIs), amongst others as robust solutions to bridge the financing gap.
African governments should focus on three mutually reinforcing moves: (i) making African carbon credits scarcer and more valuable by tightening CER eligibility, instituting an issuance cap, and linking regional exchanges to global markets while building robust MRV systems ; (ii) boosting the attractiveness of local finance by reforming Big-Three rating methodologies, operationalising AfCRA, strengthening domestic CRAs, and injecting capital into AFIs so they can support “high-risk”, greenfield projects with local context; and (iii) securing bigger, steadier resources by championing automatic-contribution climate funds funded through levies on carbon-market revenues or financial-transaction taxes. In addition, on the regulatory side, governments should work on passing and enforcing legislation that curbs predatory private actors and protects sovereign debt negotiations, thereby safeguarding fiscal space for green investment.
When we dive into the why and the correlation between these three moves, we will see the beginnings of a catalytic chain of events. First scarcer, better valued, and higher quality carbon credits will channel capital towards much need climate mitigation efforts on the continent. Second the ensued rating reform that would happen post AfCRA utilization and the big three reform on top of increased AFI capitalisation would lower borrowing costs and increase available capital for climate funds. Finally, automatic contribution to climate funds generates predictable domestic revenue streams mitigating the volatility and unpredictability of traditional donor funding, ensuring more consistent financing for Africa’s adaptation and mitigation projects. Critically, when combined, the three options form a reinforcing chain: pricier credits expand levy revenues; stronger AFIs underwrite more green ventures that, in turn, supply premium credits.
Declarations alone won’t cut it Africa demands ink on binding commitments. The Second Africa Climate Summit made it abundantly clear Africa must capitalize on its vast resources to make sustainable and impactful deals for funding climate projects on the continent. Africa currently holds 60% of the world’s solar potential, fertile lands for reforestation efforts, vast critical mineral reserves, and the youngest workforce on the planet. By tightening carbon-credit rules, capitalising African Financial Institutions and locking in automatic-contribution to climate funds, negotiators can convert the influx finance into premium climate projects on the continent.
Written by Mariamawit (Marry) Ghenna, Research and Coordination Consultant, Development Reimagined.