Governments and the private sector have vital roles to play in realising climate change needs, writes JULIANA AJAYI
Climate change has affected human lives and impacted nations’ economies for years. However, whether or not public sector actors and the private sector should be involved in financing its needs remains a thing of concern.
According to the United Nations, climate change refers to long-term shifts in weather patterns. These shifts may be natural, but since the 1800s, human activities have been the main drivers of climate change, primarily due to the burning of fossil fuels like coal, oil and gas, which produce heat-trapping gases.
Foreign Policy Research Institute states that climate change threatens the lives and livelihoods of over 100 million people in extreme poverty.
Menace of global warming
Global warming has been predicted to melt Africa’s remaining glaciers in the next few decades, and the reduction in water essential to agricultural production will create food insecurity, poverty and population displacement. In Sub-Saharan Africa, including Nigeria, the Gross Domestic Product could be reduced by up to three per cent by 2050.
With Africa’s major dependency on agriculture for economic growth, climate change destabilises local markets, increases food insecurity, limits economic growth and increases risks for agriculture sector investors. African agriculture is expected to feel the impact of climate change more. Africa is particularly vulnerable to the impact of climate change because it is heavily dependent on rainfall, and climate change seriously affects rainfall throughout the continent.
“The Sahel, for instance, is largely dependent on rain-fed agriculture, and it is already hit regularly by droughts and floods, which kill crops and reduce yield. With temperatures expected to increase 1.5 times higher than the rest of the world by the end of the 21st century, African countries will see shorter wet spells leading to droughts or heavier rains causing floods, leading to reduced food production because they lack the infrastructure and support systems present in wealthier nations.
“By 2030, crop yields across the continent are projected to decrease by varying amounts, depending on the region. Southern Africa, for example, is expected to experience a 20 per cent decrease in rainfall,” states FPRI.
However, a recent analysis indicates that Africa needs approximately $2.8tn between 2020 and 2030 to implement its Nationally Determined Contributions.
The $2.5tn has been analysed to come from international public sources and the domestic and international private sectors. These needs represent 10 per cent of Africa’s total yearly GDP.
South Africa, Ethiopia, Nigeria and Egypt have the highest needs yearly, together representing almost $151bn per year. These needs, as a percentage of GDP, vary across countries. For instance, South Africa and Ethiopia have needs of 32 per cent and 23 per cent respectively of their GDP. While Nigeria’s needs, which are estimated at $12bn, represents three per cent of the GDP. Egypt’s, estimated at around $7.3bn, is less than two per cent of its GDP.
Adaptation and mitigation
Adaptation accounted for only 24 per cent of total climate finance needs identified, despite Africa being highly vulnerable to climate change and calls for a better balance of finance between mitigation and adaptation. Adaptation needs are likely to be underestimated due to a lack of data and technical expertise to estimate the true cost of adaptation measures.
Mitigation accounts for the largest share of reported needs between 2020 and 2030, at 66 per cent of total climate finance needs. Mitigation needs are predominantly split across four sectors; Transport (58 per cent), Energy (24 per cent), Industry (seven per cent) and Agriculture, Forestry and Other Land Use (nine per cent). However, results are heavily slanted to a few countries, in particular South Africa, which accounts for most transport needs. Excluding South Africa, the composition of mitigation needs per sector is Energy (39 per cent), AFOLU (27 per cent), industry (20 per cent) and Transport (10 per cent).
The private sector has significant potential to meet Africa’s climate finance needs. Public funding alone will not be sufficient, given the magnitude of investments needed, as well as current and future constraints on public domestic resources in Africa. However, most current climate financing in Africa is from public actors with limited finance from the private actor.
The Secretary-General, World Meteorological Organisation, Petteri Taalas, said, “Climate change is having a growing impact on Africa, hitting the most vulnerable hardest and contributing to food insecurity, population displacement and stress on water resources. In recent months, we have seen devastating floods, an invasion of desert locusts and now face the looming spectre of drought because of a La Niña event. The human and economic tolls have been aggravated by the Coronavirus Disease.”
In the drought-prone SSA countries, the number of undernourished people has increased by 45.6 per cent since 2012, according to the Food and Agriculture Organisation of the United Nations.
In addition, new diseases are emerging in regions where they were previously not present. In 2017, an estimated 93 per cent of global malaria deaths occurred in Africa. Malaria epidemics often occur after periods of unusually heavy rainfall. Also, warming in the East African highlands is allowing malaria-carrying mosquitoes to survive at higher altitudes.
A recent study shows that total yearly climate finance flow in Africa for 2020, domestic and international, was $30bn, representing 12 per cent of the amount needed. The financing gap is significant.
African countries together have a GDP of $2.4tn (World Bank 2021), implying that 10 per cent of Africa’s current yearly GDP needs to be mobilised above current flows every year for the next 10 years.
The analysis further suggests that, to mobilise private finance, the public sector needs to improve policy frameworks and investment environments as well as deploy concessional financing to target investment barriers.
It also noted, “Investment barriers are typically context-specific, but can include technology-specific barriers such as uncertainty, with respect to performance; policy barriers such as uncertain permitting processes; investment environment barriers such as lack of liquid financial markets; and bankability barriers such as off-taker creditworthiness and high debt costs.”
While efforts have been made to reduce the effect of climate change in the world, some sectors, like aviation, have set a target to reduce carbon emission by embracing sustainable aviation fuel to replace Jet A-1. The United Kingdom government also announced, last year, efforts in place to achieve the 2030 target.
Research shows that the private and public sectors can play a role in financing climate change needs.
A study by PricewaterhouseCoopers, in promoting a green environment, highlights that private and public sectors could work together to create new financing models that share the energy-saving benefits between landlords and tenants. Government could fund early stage Research and Development innovation to lower the cost of greening buildings; the private sector could productise, market and scale these innovations.
PwC added, “Many actions by government and business, supported by public demand and desire for change, have reinforced each other over time, finally building a perfect storm of progress.
“Government and private sectors have both helped to create a functioning market for electric vehicles. Governments have invested in EV charging infrastructure to encourage and enable use, and incentivise vehicle purchase through rebates and other subsidies. Companies like Tesla have invested for years (often at a loss) as they sought to build a market for electric cars.”
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