Financing Africa’s climate change and energy transition pathways is mutually beneficial and the most needed for now
Achieving Green Economies and a just energy transition for Africa cannot be achieved without financing. It is said there is sufficient liquidity and capital to finance climate change and green economic revolution in Africa. Unfortunately, much is not reaching the African continent. In East Africa, access to financing of clean renewable energy such as solar is limited and expensive for many rural communities and poor households. There is potential for solar energy but the existing government policy, legal and financing have gaps limiting cheap financing and solar uptake for rural communities.
African countries generally still face significant challenges in financing their climate transition. While investment needs resulting from NDCs are estimated at $2.8 trillion by 2030, funds invested on the continent still represent a limited share of global green finance flows, and the share covered by the private sector remains limited[1] Governments, local financial institutions and communities find it difficult to mobilise or access financing. Large private sector players are reluctant to invest due to the high cost of capital, small scale of projects and inhibiting policy terrains that make it difficult to attract capital and financing into the green economies. Much of the available financing is not yet reaching the communities and thus scantly creating lasting change.
Financing Africa’s climate change and energy transition pathways is mutually beneficial to both Africa and the developed world, as by virtue of its location and current low levels of emission, Africa so far is the largest existing carbon sink and buffer that so far can help save the globe.
Tackling both mitigation and adaptation could save up to USD17.5 billion annually. But if not done, the cost of adaptation could go up to USD1.3 trillion. The numbers tell that the impacts of climate change are widespread and life-threatening.
The unit cost of several low-emission technologies has fallen since 2010 and innovation policy packages have also enabled the costs to go down. Both innovation systems and policy packages have helped to overcome the distributional, environmental, and social impacts potentially associated with the global diffusion of low technology. For renewable energy, there is a sustained decrease in the unit cost of solar energy by almost 85% making solar energy now easily accessible. The cost of wind energy has gone down by 15% and lithium batteries, for energy storage, have gone down by about 85%. The deployments of these technologies has also increased in developed countries. Unfortunately, this investment and technological advancements are not evenly distributed; they are scantier in less developed countries and Africa in particular.
Despite the potential opportunities and risks involved, the national level discussion around Tanzania’s resilience and readiness to finance climate change mitigation, the green economy and energy transition has generally remained largely limited. The government has taken some measures to address climate change. These include developing a National Climate Change Response Strategy (2021) and a Nationally Determined Contribution (NDC 2021) to climate change mitigation. However, the total cost of addressing climate change is huge and yet its financing is unguaranteed. According to government reports, an initial cost estimate of addressing current climate change risks is about USD 500 million per year. This cost is projected to increase rapidly in the future, with an estimate of up to USD 1 billion per year by 2030. The economic costs of addressing climate change impacts are estimated to be equivalent to 1 to 2% of GDP per year by 2030. Similarly, Tanzania would require an investment of approximately USD 160 billion for mitigation activities aimed at achieving 100% renewable energy for electricity, buildings, and industry by 2050[4].
Alternative such as green banks, green bonds and carbon trading frameworks exists however, these efforts are little known to the public. Coincidentally, all these financing mechanisms have upsides and downsides, which upon evaluation climate financing justice advocates such as the CSO network, Pan African Climate Justice Association (PACJA) and government officials like Ms Isatou Camara of the Gambia are now calling out financial institutions for a total re-engineering and redesign of climate financing to ensure that more is structured in the form of grants than loans and that at least 70% of this funding reaches the communities. The loans are expensive, Africa is over indebted and yet as stated by Tanzania’s President Her Excellency Dr Samia Suluhu Hassan in her speech at CoP27, investment in renewable energy is an expensive affair for African governments to pursue alone[1]
At national level access to green finance should be relatively cheap, driven by a combination of less profit maximisation goals and more social enterprise imperatives and back by enabling legislative and regulatory framework.
The work under this pillar therefore addresses some of these challenges via
- Short research and publications
- Convenings of public dialogues such as the Webinar on Financing of the Green Economy and exploring viable options for East Africa
- Advocacy for Climate Financing
- Short Trainings on Green Financing and deployment of clean energy
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