• Burning issue

    Financing is key to whether the continent will be able to deal with climate change

    Burning issue

    Africa featured prominently in this year’s international climate-change talks at the UN’s 27th Conference of Parties (COP27). World leaders, decision-makers and top scientists were among the 30 000 delegates who gathered in November for the first ‘African COP’ – hosted for the first time on African soil, in Sharm el-Sheik, Egypt’s Red Sea resort on the verge of the Sinai desert. While the summit achieved mixed results, Africa managed to come away with some positive outcomes.

    ‘COP27 elevated the concerns of the Global South, including adaptation, water, food, just transition and, most importantly, the agreement to establish a finance facility for loss and damage,’ says Boston Consulting Group (BCG), which had been hired as the exclusive consulting partner of the summit. The ‘loss and damage’ (L&D) fund was an unexpected, last-minute gain for developing countries, which had been demanding this kind of fund for three decades. It’s particularly good news for Africa, as the money is meant to compensate developing nations for the destruction that climate disasters have inflicted on their economies.

    The historic agreement may also restore some of the trust lost after wealthy nations have failed, year after year, to meet their 2009 pledge to deliver US$100 billion in climate finance annually to low-income countries. In the run-up to COP27, African leaders commented that the broken pledge was particularly ‘shameful’ because it was predominantly those wealthy nations, notably the US and Europe, that had accelerated the climate crisis.

    Tragically, Africa is the geographic region that is most vulnerable to the impact of climate change, although it has contributed the least to it (with the exception of South Africa, which is a high carbon emitter). According to the CDP Africa report, the continent accounts for just 3.8% of global greenhouse gases, compared to China at 23%, the US at 19% and the EU at 13%.

    While not every extreme weather event is attributable to climate change, it is scientifically proven that climate change exacerbates the frequency and severity of extreme weather events. According to Alize le Roux, a senior researcher for African futures and innovation at the Institute of Security Studies, extreme weather events have cost Southern Africa a cumulative ZAR640 billion since 1980. The 2017 Knysna fires, for example, cost ZAR3 billion, while the recent droughts in South Africa amounted to ZAR20 billion in losses. In her presentation on calculating the cost of climate disasters, during the Academy of Science of South Africa’s recent presidential roundtable series, she explained that the cost typically refers to the economic impact (measuring infrastructure damage, number of lives displaced or lost and so on) but not to the psychological impact and health costs, nor the full impact on the informal sector or how many people become destitute as a result of losing their means of earning an income.

    Represented at COP27 by the likes of South Africa’s President Cyril Ramaphosa, Africa secured a pledge for a facility to finance climate-related loss and damage

    While extreme weather events in the Global North, such as the 2022 heatwaves in the UK and EU, as well as the hurricanes in the US, make global headlines, the impact of climate-related events in Africa often remains under-reported. ‘If you live in a low-income country, you’re about five times more likely to die from a climate-related disaster than those living in high-income countries,’ says Le Roux, pointing out that 46 of the 55 countries in Africa are classified as low- to middle-income.

    The situation is precarious, as global warming is further increasing the economic inequality between temperate northern hemisphere countries and those in Africa, according to the Southern African fact sheet of the 6th Assessment Report of the UN Intergovernmental Panel on Climate Change (IPCC). This is also reflected in changes to the national GDP, it states. ‘One estimate suggests gross domestic product per capita for 1991 to 2010 in Africa was on average 13.6% lower than if climate change had not occurred.’ Over this period, Mozambique emerged as the continent’s worst-affected country (14.5% lower GDP), followed by Malawi (-13.6%), Namibia (-13.3%), Angola (-12.9%), and Botswana (-12.5%), while South Africa’s GDP was lowered by 5.8%.

    The extent of future economic losses depends directly on the level of global warming. Although the goal of limiting the increase in global average temperatures to 1.5°C by 2100 was kept alive at COP27, it’s highly unlikely to happen, because it would require carbon emissions to decrease by 45% by 2030 when the current projections predict that they will rise by 11%.

    ‘Costs from climate impacts are rising exponentially and could incur US$1.1 trillion to US$1.8 trillion in damages by 2050,’ says BCG. ‘Costs escalate with every tenth of a degree and are exacerbated by failure to adapt. Some L&D is unavoidable, given current warming levels.’

    There are still important questions to be resolved regarding the L&D Fund, such as the sources of funding (which countries will pay into the fund?), the recipients of funding (who meets the definition of ‘developing’ country?) and the extent of funding (so far US$350 million has been pledged, which is just 0.01% of the costs already incurred from climate disasters in 2022, according to BCG).

    COP27 also saw the launch of the Global Shield, an insurance-based mechanism to provide vulnerable nations with pre-arranged finance against disasters. It’s going to be established by the G7 group of wealthy nations, which have so far committed around US$282 million – again just a fraction of what is needed.

    Meanwhile 85 African insurers have created a local alternative to the Global Shield, called the African Climate Risk Facility. Signatories committed to underwrite US$14 billion of climate risk cover by 2030 to help African leaders, cities and NGOs better manage the financial risk of climate shock and increase the resilience of vulnerable communities.

    Research has shown that climate change intensifies the frequency and severity of extreme weather events

    The summit highlighted that finance is the key to adapting to global warming and turning climate ambitions into reality. In South Africa, climate finance will facilitate the Just Energy Transition (JET) – a socially responsible shift from the current coal-powered economy to a cleaner, net zero carbon future. At COP26 in 2021, the country had secured a landmark ZAR8.5 billion climate funding agreement with France, Germany, the UK, US and EU – which was ‘a really big deal’, in the words of Christopher Trisos, one of the lead authors of the 6th IPCC report.

    ‘South Africa missed out previously on securing very large amounts of finance for reducing greenhouse gas emissions and transitioning to renewable energy,’ he said at the time. ‘However, the devil will be in the details. If done well, it could provide a powerful case study for transitioning other developing economies that are heavily reliant on fossil fuels. One key factor for success is using the funds to transition to renewables, such as solar, and to support South African workers and industries through this transition, rather than support more expensive “clean coal” technologies.’

    And this is exactly what appears to be happening now. COP27 provided long-awaited answers on how the just transition will be realised and funded. South Africa’s President Cyril Ramaphosa announced the JET implementation plan (JET-IP), which puts the country’s just transition cost at ZAR1.5 trillion over the next five years. This leaves a funding gap of ZAR700 billion or 44%, to decommission coal power stations, fund solar, wind and other renewables, and to prioritise investment in developing certain sectors of the green economy, including job creation.

    Of the pledged US$8.5 billion, the JET-IP has allocated US$7.6 billion to electricity infrastructure, US$700 million to green-hydrogen projects and US$200 million to the development of an electric-vehicle industry.

    Trisos, who heads the climate risk lab at the University of Cape Town’s African Climate and Development Initiative, says he hopes that a small portion of the JET budget will be allocated to support researchers in South Africa to better understand local climate-change risks and how to respond.

    ‘This would be money well spent,’ he says. ‘It would help increase understanding of climate-change risks to food, water and energy in South Africa, and train a new generation of South African climate-change risk and response experts that are needed to help the country follow a climate-resilient development path over the coming decades; rather than relying heavily on external consultants for these insights.’

    Trisos may also have a point regarding South Africa’s Just Transition becoming a case study for others to follow. Many developing countries have already commended the nation for its pioneering role, with Indonesia securing its own US$20 billion JET partnership with international funders at COP27. Senegal, India and Vietnam have indicated they might soon sign similar agreements.

    One of the big issues here is affordable finance, because developing nations require agreements that don’t drive them further into debt or erode their fiscal strength. Ramaphosa requested more grants, as these won’t need to be re-paid, and highly concessional loans, whose interest rates are well below the market rate. Incidentally, just 4% of South Africa’s ZAR8.5 billion JET consists of grants, while the remaining 96% of the finance deal needs to be paid back one way or another. According to the South African presidency, concessional loans make up 63%, commercial loans 18% and 15% are guarantees.

    The ‘African COP’ discussed various ways to expand concessional finance and tackle indebtedness, including innovative solutions such as so-called debt-for-climate swaps or debt-suspension clauses to loan contracts for the event of a natural disaster (as pioneered by Barbados). Essentially, the world is not short of good ideas, but the focus needs to be on action and implementation – before COP28 in Dubai. Time is not on our side.

    By Silke Colquhoun
    Images: Gallo/Getty Images