NAIROBI – Policymakers and government officials have called for the implementation of innovative mechanisms to unlock climate financing.
Seven months after the launch of the Africa Carbon Markets Initiative at COP27, the experts decried the sluggish progress in utilizing Africa’s vast carbon sinks such as the Congo Forest – the world’s second largest forest and “second lung” of planet Earth” – which is estimated to hold 1.2 billion tons of carbon dioxide.
ACMI aimed to dramatically scale voluntary carbon markets across Africa by by scaling the market to 300 million carbon credits retired annually by 2030, and 1.5 billion credits annually by 2050.
Africa requires over $300 billion annually for climate adaptation.
During an event cohosted by AfriCatalyst and Open Society Foundations on the sidelines of the Africa Climate Summit last week, participants explored how the continent can successfully leverage on debt-for-climate swaps, carbon markets, and green bonds.
Debt-for-climate swap is an agreement between the creditor and a debtor by which the former forgoes a portion of the latter’s foreign debt, or provides it debt relief, in return for a commitment by the government to invest in a specific environmental project to, say, decarbonise the economy, develop climate-resilient infrastructure, or protect biodiverse forests or reefs. The utilisation of these swaps now stretches to finance enormous climate mitigation and adaptation projects.
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According to UNDP, carbon markets are trading systems where carbon credits (a permit which allows a country or organization to produce a certain amount of carbon emissions, and which can be traded if the full allowance is not used) are sold and bought.
Companies or individuals can use carbon markets to compensate for their greenhouse gas emissions by purchasing carbon credits from entities that remove or reduce greenhouse gas emissions.
On the other hand, green bonds are a type of debt issued by public or private institutions to finance themselves and, unlike other credit instruments, they commit the use of the funds obtained to an environmental project or one related to climate change.
They enable capital-raising and investment for new and existing projects with environmental benefits.
During the event, Dr. Mahmoud Mohieldin, UN Climate Change High-Level Champion for COP27, called for the African countries to explore their rich carbon sinks to attract more financing through carbon markets.
“Africa has bankable projects and investable projects but they need better business environments, better regulatory incentives and better marketing opportunities. Integrated financial framework needs to be encouraged on national levels. Mitigation should come from private equity participation; adaptation should come from concessional finance. Loss and damage should come from grants.”
UN Assistant Secretary-General and Director General of Africa Risk Capacity Group Ibrahima Cheick Diong said there is need to develop new paradigms to mobilize finances for climate adaptation, noting it can’t be business as usual.
“We need to innovate. We need to create a Triple A of climate finance; Adaptability, Affordability and Accessibility of climate finance. I believe that adaptation and mitigation can go hand in hand,” Diong said.
Despite Africa contributing the least emissions, African countries are forced to spend 9% of their budgets annually to respond to growing climate disasters.
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Vera Songwe, non-resident fellow at Brookings Institute, called for effective governance and reforming policy frameworks to favor investments in climate initiatives such as renewable energy, green transition, and sustainable public infrastructure.
“Africa needs to get out of its slow growth- we need to reform the global financing architecture to allow us have funding. Domestic resource mobilization from carbon markets is pivotal. A more transparent carbon market exchange will encourage this. In a perfect carbon market, Africa can earn about $50-180 dollars,” Songwe said.
Special Envoy for AfDB President Amadou Hott said philanthropy has helped address the skill gap by not only helping governments attract talent but also providing them with valuable capital that can serve as guarantees.
“This will enhance the creditworthiness of projects and make commercial banks and private equity to be comfortable. The way we have structured the Alliance for Green Infrastructure in Africa, is in line with how the partnerships should be done to mobilize climate finance at scale, we are looking at the entire value chain. We need upstream work from governments to set the right planning, vision and strategies to ensure we have NDCs,” Hott said.
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