Climate financing: Implications for Africa's transformation

I. Background

1. To date, all global assessments have concurred that Africa is the Earth's most vulnerable region to climate change. The Third Assessment Report of the Intergovernmental Panel on Climate Change (IPCC), which was published in 2001, was the first to introduce a so-called regional lens to the IPCC assessments. This triggered discussions during the global negotiations under the United Nations Framework Convention on Climate Change on how to contextualize the impacts and challenges posed by climate change. As a result, there was a unanimous agreement to provide support to those least developed countries considered to be highly vulnerable to climate change but lacking the capacity and resources to respond.

2. The severity of Africa's vulnerability to climate change was confirmed by the IPCC Fifth Assessment Report. Moreover, the International Research Institute for Climate and Society is warning of an El Ni?o that could result in above-average rainfall in the Horn of Africa.

3. In spite of all these challenges, Africa's determination to rise has never been stronger. Over the past decade, the continent has made remarkable economic and social development progress; indeed, seven out of the ten fastest-growing countries in the world are in Africa. Unfortunately, the risk posed by climate change threatens to overturn the gains made so far and impede Africa's transformation.

II. Sources of climate finance

4. There are different types of climate finance flows, from both domestic and international sources. This paper will focus on international climate finance flows and their role in safeguarding Africa's transformation.

A. International and multilateral sources of finance

5. Dedicated global funds for climate intervention under the United Nations Framework Convention on Climate Change, such funds target both mitigation and adaptation. Examples include:

6. The Least Developed Countries Fund (LDCF) and the Special Climate Change Fund (SCCF), which are operated by the Global Environment Facility, were established by the seventh session of the Conference of the Parties, in 2001, with a view to providing financial support to least developed countries to help them to tackle the effects of climate change. Out of the 49 least developed countries in the world, 35 (about 70 per cent) are in Africa.

7. The Adaptation Fund was established in 2007 under the Kyoto Protocol by the parties to the United Nations Framework Convention on Climate Change. It is largely financed through a 2 per cent levy on revenue from the sale of certified emission reduction (CER) credits, and operates on a project-based approach, with project proposals being submitted by implementing entities to a central board.

8. The Green Climate Fund was established in 2010, at the sixteenth session of the Conference of the Parties. It is expected to provide a significant proportion of the medium-term financing goal of $100 billion a year by 2020, a target set by developed countries in 2009. The Fund promotes the principles of national ownership; however, there is still considerable ongoing debate about what modalities will apply. Recipient countries (that is developing and middle-income countries) argue for strong national ownership, with fund management and project selection being delegated to government bodies, and with the Fund providing only coordination and supervision of fiduciary propriety. Funding countries (mainly developed countries) want a more cautious approach, at least initially, with a greater reliance on mechanisms similar to those used by the Adaptation Fund.

9. There are also other international multilateral climate finance instruments that are not directly under the United Nations Framework Convention on Climate Change process. Those linked to adaptation include the Pilot Program for Climate Resilience, the Global Facility for Disaster Reduction and Recovery, and the Millennium Development Goal acceleration fund; those linked to mitigation include the Clean Technology Fund, the Forest Investment Program, the Carbon Fund, the Carbon Partnership Facility, the Forest Carbon Partnership Facility and the REDD+ mechanism for reducing emissions from deforestation and forest degradation in developing countries.

B. Regional and bilateral sources of climate finance

10. There are also regional and bilateral climate finance instruments. Some of the regional

funds include:

 Global Climate Change Alliance (European Union)

 African and Latin American Resilience to Climate Change (United States Agency for International Development)

 Congo Basin Forest Fund (United Kingdom of Great Britain and Northern Ireland)

 Collaborative Adaptation Research Initiative in Africa and Asia (Department for International Development (DFID) and the International Development Research Centre)

 BioCarbon Fund (United States of America, United Kingdom and Norway)

11. Some developed countries have also set up bilateral funds to support developing countries with their climate change responses. Some of that bilateral support could be channeled through development assistance to developing countries.

C. Private sector investment

12. The role of the private sector is becoming increasingly important, both in terms of how it tackles the consequences of climate change for business value chains and with regard to corporate social responsibility. As businesses see the need to climate-proof their investments, climate financing is perceived as cost effective and as increasing profit margins.