Opinion: Climate finance: financing our climate
Climate finance refers to the financial resources produced by international, regional and/or national bodies to enable climate change mitigation and adaptation with a view to ensuring a low-carbon, climate resilient growth and development.
Mitigation refers to actions taken to permanently eliminate or reduce the long-term risk and hazards of climate change. Adaptation is the ability of a system to adjust to climate change to moderate potential damage, to take advantage of opportunities or to cope with the consequences known as climate objectives.
The flow of financial resources in climate finance can be categorized into:
- North-South (from developed to developing countries)
- South-South (from developed to developed countries)
- North-North (domestic climate finance flows in developed and developing countries.
THE GLOBAL NEED FOR CLIMATE FINANCE
According to the World Bank, climate change impact could put additional 100 million people into poverty by 2030 if urgent actions to reduce vulnerability, provide access to basic services, and build resilience are not taken.
In order to salvage the world from climate change impact, it will require about 90 trillion United States Dollars (USD) in new infrastructure most of it in developing and middle income countries. Moreover, according to the International Energy Agency (IEA), in order to limit the global temperature rise to 2OC and below, about 3.5 trillion USD will be required per year until 2050.
For that, the United Nations (UN) has set of goal of jointly making USD 100 billion per year by 2020 to support developing countries in their climate change objectives (United Nations Framework Convention on Climate Change, UNFCC, 2009).
WHAT IS NEEDED FOR EFFECTIVE RESPONSE
The UNFCC agreed in 1992 that developed countries shall provide new and additional financial resources to the developing countries. However, according to the UNFCC standing committee on Finance, this funding shall be predictable and adequate.
In order for the developing countries to respond to the climate change and for the climate change actions to be successful, the UNFCC stated the following:
- That the government and stakeholders shall understand:
- The financial needs developing countries have.
- The sources of the financial resources and how they will be mobilized.
- The way in which these resources are transferred to and accessed by the developing countries.
- Developing Countries shall:
- Know that the financial resources are predictable, sustainable and that the channels used allow them to use the resources directly without hindrance.
- Be able to demonstrate their ability to effectively receive and utilize the resources.
- Have full transparency in the way the resources are utilized for mitigation and adaptation actions.
- Have effective measurement, reporting and verification of climate finance.
SOURCES OF CLIMATE FINANCE
The funding of Climate finance may come from wide variety of public and private, bilateral and multilateral as well as alternative sources of finance. However, according to a high level advisory group on climate change established by Banki Moon in 2010, the best sources of climate finance include:
- Aid style government pledges
- Market levies
- Tax on international aviation and shipping
- Financial transaction tax and
- Private sector source through mechanisms such as carbon trading
SOME ACHIEVEMENTS IN CLIMATE FINANCE
The European Union (EU)
According to the Directorate General for Climate Action, the European Union is the largest contributor of climate finance to developing countries and the world’s biggest aid donor, collectively providing more than half of the global official development assistance (ODA). The EU is scaling up climate finance to help the poorest and the most vulnerable countries mitigate and adapt to climate change through the following provisions:
- At least 20% of the E.U budget will be spent on climate action by 2020.
- At least €14 billion, an average of €2 billion per year of public grants will support activities in developing countries between 2014 and 2020.
- Compared to the average level in 2012-2013, funding for International climate action will more than double.
The World Bank
The World Bank reported that the World Bank Group (WBG) is more committed than ever to helping countries meets the climate challenges in that:
- The World Bank Group (WBG) committed 63 billion USD, an average of more than 10 billion USD a year to more than 1000 climate related projects between Fiscal Year 2016.
- In the Fiscal Year 2016 alone the WBG provided 10.4 billion USD to 177 climate related projects.
- In Fiscal Year 2016, International Finance Corporation (IFC) mobilized 3.3 billion USD in climate related projects.
- In 2016-17, the WBG undertook renewable energy projects representing 10 gigawatts of generation capacity, with an expectation to mobilize 6.5 billion USD in funding.
- During the same period the WBG approved 10 new operations that will improve the climate resilience of 45 Million people in addition to 38 million people covered.
Other worldwide achievements
- About 8.3 billion USD of Climate Investment Fund (CIF) has helped 72 developing countries pilot low emission and climate resilient development through country-led programs and investments.
- Currently some 40 governments and 23 cities, states and region put a price on carbon pollution accounting for 13% of total annual Green House Gas emission. With that some countries like Sweden has seen 60% GDP growth and 25% carbon emission reduction.
CLIMATE FINANCE IN NIGERIA
President Muhammadu Buhari stated at the Conference Of Parties (COP22) to the United Nations Framework Convention on Climate Change (UNFCC) that Nigeria has planned to reduce GHG emission by 20% by 2030 and a target to reduce more to 45% with International aid through creating more efficient, cleaner and lower carbon, oil and gas sector.
According to the department of Climate change of the Nigeria’s Ministry of Environment, the cost of responding to climate change in Nigeria will be significant, measures to adapt to climate change already built into the climate system could be between 0.7 billion USD to 1.2 billion USD per year over the next 40 years (summing up to 50 billion USD). The department also stated that these will be much higher again without a substantial scale up of global efforts to reduce emission. Furthermore, many of the mitigation options especially in the oil and gas, power and transport sectors will require significant finance.
According to Oversee Development Institute (ODI), Nigeria has currently accessed 63 million USD of multilateral funds for climate change projects which is quit insufficient for climate change mitigation and adaptation when compared to the amount needed as stated by the department of climate change (0.7 billion USD to 1.2 billion USD per year over the next 40 years, summing up to 50 billion USD).
Nigeria has not been as successful as other developing countries in accessing available international climate finance resources due to:
- Lack of understanding of climate finance funding opportunities and policy.
- Difficulty in crafting concept notes and application that reflect the requirement of providers.
- Challenges in coordinating activities across the government so as to present a coherent vision of Nigeria’s climate finance priorities.
However, in the last few years, important advances have been made as follows:
- The clean technology fund is supporting the development of transformative public transport schemes in Lagos, Kano and Abuja.
- The department of Climate change has stabilized a pioneering climate finance unit that will enhance knowledge and information on climate finance opportunities and help robust project proposals.
- The Bank of Industry (BOI) is in the final stage of seeking accreditation as a national implementation entity to the adaptation fund. If successful this will allow a national organization to be responsible for implementing projects funded from this source, substantially enhancing country ownership.
- In anticipation of a successful accreditation, an effort to develop a cross-cutting project concept to support the climate resilience of some of Nigeria’s poorest and most vulnerable citizen has begun.
Rich countries are very far from raising the 100 billion USD per year to help developing countries fight climate change. This is because they are only able to produce 20 billion USD a year which is jeopardizing the prospects of reaching the global warming deals of the Paris Agreement. The ceasing of the United States from the Paris Agreement creates more problems.
According to Tim Gore, Oxpam international climate adviser, about 2.5 to 4.5 billion USD of current climate finance from rich countries is going toward climate protection measures while countries in the sub-Saharan Africa are already making about 5bn to prepare for climate change which is more than they were receiving from rich countries.
It thus became necessary for the government, NGOs and the people of Nigeria and all other developing countries to create their own effective means of generating funds for climate change mitigation and adaptation.
Nigeria in particular shall:
- Have a clear understanding of the climate finance funding opportunities and develop significant policies that will enable it to effectively and efficiently access, acquire and utilize the highly competitive international climate finance resources.
- Be able to craft concept notes and applications that reflect the requirement of providers.
- Be able to coordinate activities across the government so as to present a coherent vision of Nigeria’s climate finance priorities.
- Maintain and improve the issuance of the Green bond (which was commenced on July 2017) as an alternative and innovative channel of raising climate Finance.
Article by Mubarak Mahmud: August, 2017