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 Responses to climate change in Africa and the need for more
Renewable Energy & Energy Efficiency Partnership
Africa contains 14% of the world’s population and creates 3.2% of its carbon
emissions, experiences more drought, famine, floods and disaster-related
epidemics than any other continent. And according to the United Nations Environment Programme, “Natural disasters are increasing in number and
frequency, and affect most countries in Africa.” Climate-related events are creating
a new category of migrants. One hundred thousand people fled their homes when
cyclones and floods hit Mozambique between 2000 and 2001. It was the country’s
worst flooding disaster for 50 years.
Few doubt that climate change is exacerbating problems in Africa. In its August
2006 report entitled ‘Managing Climate Risk - Integrating Adaptation into World
Bank Group Operations’ the World Bank confirmed fears that climate change
was threatening poverty reduction strategies. It pointed out that climate risks
impacted on investments “through increased costs or significant redirection,
estimated at 1 to 2 percent of the investment portfolio, or about $200 million to
$400 million per year within the World Bank Group, and at least $1 billion for all
official development assistance and concessional lending.
Impacts of a changing climate according to the World Bank
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In the 1990s, disaster costs were US$652 billion in material losses, 15 times
higher than in the 1950s. |
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In the past decade 3 billion people in developing countries were affected
by climate-related disasters - twenty times the rate of people in developed
countries. |
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The costs of the 1997-98 floods and the 1999-2000 droughts in Kenya
represented at least 11, 16, and 16% of the country’s GDP for those three
consecutive years. |
The Bank has recommended a number of responses, including the development
of an Investment Framework for Clean Energy and Development supporting
the creation of financial mechanisms for adaptation. The financial mechanisms,
backed by national and international policy, help create global investment
networks in clean energy in Africa to reduce the impacts and prevent development
success from being sabotaged by climate-related disasters.
This is a challenging task. Sustainable energy installations are few and far between
and most African governments have not taken a great interest in them. Numerous
factors inhibit investment, including the immediate requirement to handle
internal conflict, debt or illness, unstable legal systems or utility corruption. South
Africa and some of its neighbouring countries have made steps to improve policy
and develop the financial networks essential to attract funds from overseas.
A need for policies and regulation
Glynn Morris, regional co-ordinator of the Renewable Energy and Energy
Efficiency Partnership (REEEP), says the South African government’s policies
relating to clean energy “are unique in the region.” Many other countries have
failed to establish policies and regulations which support renewable energy and
energy efficiency. Incorporating clean energy into the energy mix, by becoming
part of national energy strategies, is key to achieving energy security, poverty
reduction and decentralised economic development. REEEP is a global partnership
that structures policy initiatives for sustainable energy markets and helps develop
innovative financing mechanisms for sustainable energy projects. It is one of the
most successful Type 2 partnerships formed at the Johannesburg World Summit
on Sustainable Development, working to bridge the gap between local policy/
regulation and global investment flows.
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Through a significant REEEP project South African financial executives are now
more aware of the potential and opportunities for sustainable energy. The
programme, which has brought executives into a tight network ended this year,
helping to raise clean energy investment up the agenda locally. “Financiers weren’t
aware of clean energy issues and didn’t know one another,” explains Morris.
The likelihood of new financial deals in the sector is higher now that a core
community of clean energy investors in South Africa has been created.
Some of these investors are in touch with international agencies and institutions
looking to fund clean energy, and working with investment banks such as Climate
Change Capital. This investment bank has taken the lead in persuading European
financial experts to fund clean energy projects in developing countries - an often
risky proposition. “Governments throw a little money around as a gesture, using
an economic rationale based on future decades,” says the bank’s founder James
Cameron, “while investors trade off alternatives and want financial returns in the
right timeframe.”
Carbon Finance
One of Cameron’s chief professional aims is to pour more money from rich
countries into clean energy installations in the developing world via specialist
vehicles such as his company’s Carbon Fund, formed in 2005, and to break down
investor objections. He works closely with REEEP to deliver a smoother capital
flow via new policy and financial mechanisms at both ends.
This bank, like many others operating in this field, is also involved with
international carbon trading - though there are other routes to clean energy
investment in Africa. International aid agencies have funded clean energy
projects in Zambia, Senegal and other African countries. But carbon finance is still
perceived as one of the major opportunities for the sector.
However, most carbon finance has bypassed Africa. UNFCCC statistics show that
only 1.72% of registered Clean Development Mechanism projects are located
there, and that the Asia Pacific region and South/Central America receive the lion’s
share of funds. Poor local policy and blocked or inadequate investment channels
in Africa are no doubt major reasons underlying this omission.
Even more worryingly, planned projects have fallen through. “The goals of
developers are different from those of carbon credit purchasers, and this has
created difficulties in closing CDM projects,” explains Emily Tyler of the NGO
SouthSouthNorth which wants to increase carbon finance and the project closure
rate. She argues that the problem is carbon credit purchasers (eg European
industrial companies or carbon brokers) are concerned primarily with target
compliance at home while developers are concerned with longer-term poverty
and economic development issues.
Given the importance of CDM projects in attracting investment, SouthSouthNorth
is working on the problem with REEEP in Tanzania and Mozambique. The aim
is to incorporate carbon finance into the financing structure in a way which
optimises returns to the project and demonstrates to a wider audience how
the revenue stream can improve a RE/EE (Renewable Energy/Energy Efficiency)
CDM project’s bankability. Differences between the goals of both parties will
be addressed. Clearly, this too will depend on the strength of the links between
local policymakers and external investors and corporate representatives, in the
expectation of encouraging a stronger pipeline of projects.
Africa enjoys plentiful solar and other natural resources, but many countries
lack the necessary financial and political structure to turn these into blossoming
renewable energy industries. Europe and the United States, however, have
sophisticated trading and plentiful financial and legal resources. The beauty of
carbon trading is that it matches these strengths. North African countries have
not built many renewable energy installations but could contribute to European
renewable energy targets through a swap mechanism. Also considering carbon
trading issues in Southern Africa, REEEP experts are also considering the feasibility
of creating a trading certificate system in the North - Renewable Energy
Cooperation Certificates (RECC). These would enable African Mediterranean
countries to participate in the European emissions trading scheme by using their
superior solar resources. They would generate energy as a competitive product
and produce green certificates for Europeans to reach their energy targets.
Repeating Success Stories
The challenge is to ensure success stories of projects in place are replicated
elsewhere in Africa. It is also easy to overestimate how much investment is going
into clean energy, which is of course dwarfed by investment in fossil fuels. The
International Energy Agency predicts the global share of renewable energy will
be the same in 25 years’ time as the present share because fossil fuel growth will
increase quicker.
REEEP’s work will ensure at least some of the policy and financial joints are
strengthened, enabling the expectations of more ambitious experts in this sector
to be realised. “Carbon finance could be, over the long term, a source of tens of
billions of dollars a year of supplemental investment for developing countries,”
wrote Robert Watson, chief scientist at the World Bank, in Environmental Finance
in May.
However, much work on international regulations and financial systems will be
necessary for this to happen. The political mood is currently favourable, though.
At the St Petersburg G8 meeting earlier this year, the signatories stated in
their energy action plan that they were in favour of the “expansion of existing
frameworks” such as REEEP and other related organisations in this field. It is
expected these will create “private-public partnerships [which] foster investment
that increases access to affordable energy services.”
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