As African policy makers and private sector representatives gather at the Africa Climate Week in Ghana next week, the issue of financing countries’ climate commitments under the Paris Agreement will undoubtedly be on top of the agenda. During the week-long event, Ghana will host an investment forum solely devoted to catalyzing investments from the private sector, crafting good policies and addressing risks and barriers to investment for climate-compatible development.
In the past years, the host country, Ghana, has led by example through creating a conducive environment for private sector engagement in the planning and implementation of climate actions. Having designed emission reduction plans for cooling, cooking and lighting - through energy efficient refrigerators and clean energy cooking and lighting appliances - Ghana developed an investor guide to attract financing from the private sector for low carbon development.
Efforts to make Ghana’s business climate competitive, transparent and accountable, include both policy reforms and government-managed financial instruments such as full or partial government guarantees, debt and equity options, beneficial tax and insurance schemes, equipment and concession financing, and guaranteed grid access.
Ghana has also not shied away for seeking out innovative financing approaches such as developing “green market-ready products”, and a green growth fund that will be replenished through proceeds from trading credits from emission reduction projects, to finance other adaptation and sustainable development projects.
All across Africa we can observe existing experimentation with innovative finance such as crowd-funding for clean energy in Uganda and green bond financing in Nigeria. A number of countries have also managed to obtain large scale funding from global multilateral mechanisms such as the Green Climate Fund (GCF). Morocco, for instance, is implementing a USD 40 million project to prevent environmental degradation from Argan oil production, and Zambia is helping farmers adapt to climate change.
And yet, while countries across the African continent are working fiercely to address climate change, access to climate finance at scale remains one of the biggest challenges. A recent survey for the Africa Climate Week revealed that more than half of the countries have had problems mobilizing international and national climate finance, less than one quarter of the countries have a financing strategy in place, and only one third have put financial instruments in place. And yet two thirds of the countries started implementing their NDCs, and around 80% have started implementing mitigation and adaptation measures to achieve the NDCs.
Barriers to accessing climate finance
Some of the key barriers to climate finance include:
- Lack of clear policies and regulatory frameworks on climate change, or if policies exist they are not fully implemented;
- Low provision of climate funding in national budget lines;
- Low government capacity in terms of complying with requirements, standards and procedures of funding sources, developing “bankable” projects, and absorbing funding through the bureaucratic processes;
- Lack of awareness of the various sources of climate finance and limited stakeholder engagement, including from the private sector; and
- Siloed approaches due to perception of climate change as an environment issue rather than a development issue, impeding multi-functional solutions and sources of funding.
How to overcome barriers to climate finance
Potential solutions so far could be:
- Countries must treat climate change as a development issue and systematically address it in their development strategies and policies in order to promote low carbon development, resource use efficiency and resilience building. Investment plans and projects, created with the support of development partners, should be based on countries’ climate commitments.
- Development partners and international community should promote capacity building of the African regional institutions to better access climate finance. The interplay between multilateral and national climate finance in the context of the Paris Agreement is increasingly important, to overcome the shortage of financing. Hence there is a need for African countries to overcome the barriers to finance by achieving stronger synergies between international and national sources of finance.
- Scale up public funding and attract private sector climate-resilient investments through an improved policy and regulatory environment and by creating market-based mechanisms to incentivize the private sector investments in mitigation action.
- Foster regional, cross-border and multi-country cooperation between African countries on climate change-related issues in a more harmonized and integrated approach.
- African governments should also look into innovative climate finance approaches that can raise capital and drive down mitigation costs by harnessing the capacity of the private sector to compete for delivering climate investments.
- Ensure a mechanism is in place for channeling climate finance to cities and local actors as it will reach a greater number of the population and has potential for better climate impact and poverty reduction benefits.
- African countries have supported low carbon and climate resilient development measures through domestic financing by national budget reallocations, the establishment of national climate funds and partnerships with local private sector, civil society and local authorities. Many African countries are also looking to improve access to international climate finance sources such as the Green Climate Fund which has allocated half of its USD 4.6 billion global portfolio to African climate projects.
The issue of how to better leverage private sector financing from carbon finance and market-based mechanisms will be ironed out at the next set of climate negotiations (COP25), set to take place in Chile later this year. But from a regional perspective, much of the heavy lifting can begin in Accra this week, where we have an opportunity to show the world that private money is following the ‘business case’ for addressing climate change.