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Africa’s options if ‘Finance COP’ falls short of expectations

11 November 2024

By Msizi Khoza, Managing Executive for ESG at Absa Corporate and Investment Banking

In mid-November, world leaders will gather in Baku, Azerbaijan to try agree on a new climate finance target for assisting developing countries in their fight against global warming. African nations will rightly push for a substantially more ambitious goal than the first one – but should nevertheless consider alternative paths forward should COP29 fail to live up to expectations.

At the 2009 climate summit in Copenhagen, wealthy countries committed to mobilising at least $100 billion per year by 2020 to help developing nations adapt to climate change and decarbonise their economies. That promise was notoriously missed, although it was finally reached in 2022, according to OECD estimates.

From the outset, the goal, though welcome, had come under criticism because it lacked ambition. According to the Climate Policy Initiative (CPI), African countries alone would require $277 billion a year in the decade to 2030 to implement their climate plans, which themselves are understated.

The gap between what is currently being provided and what is required is wide and, worse still, growing. Despite contributing the least to climate change – yet being most exposed to its effects – Africa receives only around 2% of total global climate finance flows, CPI data shows.

At 2021’s COP26 in Glasgow, nations promised to decide on a new goal no later than 2024 — which means COP29 in Baku is the time and the place. This makes the upcoming climate conference a pivotal moment in the race to net zero emissions. For the first time in 15 years, wealthy nations will need to agree to a new funding mobilisation target, known as the new collective quantified climate finance goal (NCQG).
This is a clear source of tension that will dominate this year’s COP. Another is how the support is structured. Building off of the just energy transition programmes underway in South Africa, Indonesia and a handful of other countries, there are calls for more international public climate finance to be provided in the form of grants, rather than loans that have the potential to exacerbate debt crises in climate-vulnerable countries.

It is clear that the quantum on offer must be raised substantially, and this will no doubt be at the very top of Africa’s agenda for the summit.
However, there is a real possibility that the negotiations will disappoint, partly because wealthy nations are grappling with other priorities and domestic issues. At the same time, elections in key markets pose risks to sustained climate action in almost every region.

The US, for example, is bracing for a tight election result. If Donald Trump returns to the White House, he is expected to withdraw the US from the Paris Agreement and vastly scale back climate-related spending at home and abroad. Similar political developments are taking place in other major economies.

With this in mind, African countries need to consider how to plug the finance gap in a worst-case scenario. Regardless of what comes out of COP29, climate change continues to advance, and Africa is on the frontlines of the crisis.

A recent study estimates that climate change could reduce incomes on the continent by 30% by 2050 as extreme weather takes its toll on infrastructure, agriculture, productivity, and health. Moreover, as advanced nations move to cheaper and cleaner energy sources, Africa risks becoming less competitive in the global market.

It is therefore critical that the continent finds a way to ramp up investments in climate adaptation and mitigation – irrespective of the level or external support on offer.

This implies the need to innovate by tapping into pools of domestic capital. By developing clear climate action strategies and robust project pipelines, the continent’s pension funds could be incentivised to invest deeper in the emerging green economy, for instance.

Governments could also consider mobilising funding for climate action by placing surcharges on luxury items and fossil fuels, and by redirecting the billions of dollars in annual fossil fuel subsidies. This is by no means a definitive recommendation, but a question worth considering in light of the massive climate financing gap.
In short, Africa may have to become more self-reliant when it comes to climate action.

That said, if the continent presents a compelling vision for itself, it will be better placed to attract global funding flows as well.

Doing so would require strengthening key institutions and planning frameworks, creating an enabling policy environment, developing attractive project pipelines, and refining and enhancing national climate commitments – known as national determined contributions (NDCs). All countries are expected to submit revised NDCs in 2025.

Africa could also push for a global enforcement mechanism for climate finance commitments to ensure they are fulfilled.

This is a critical moment in our collective efforts to avert a full-blown climate disaster. Bold action is needed, and hesitancy will only stall progress right at the moment when it matters most.

Msizi Khoza, Managing Executive for ESG at Absa Corporate and Investment Banking

11 November 2024

By Msizi Khoza, Managing Executive for ESG at Absa Corporate and Investment Banking

In mid-November, world leaders will gather in Baku, Azerbaijan to try agree on a new climate finance target for assisting developing countries in their fight against global warming. African nations will rightly push for a substantially more ambitious goal than the first one – but should nevertheless consider alternative paths forward should COP29 fail to live up to expectations.

At the 2009 climate summit in Copenhagen, wealthy countries committed to mobilising at least $100 billion per year by 2020 to help developing nations adapt to climate change and decarbonise their economies. That promise was notoriously missed, although it was finally reached in 2022, according to OECD estimates.

From the outset, the goal, though welcome, had come under criticism because it lacked ambition. According to the Climate Policy Initiative (CPI), African countries alone would require $277 billion a year in the decade to 2030 to implement their climate plans, which themselves are understated.

The gap between what is currently being provided and what is required is wide and, worse still, growing. Despite contributing the least to climate change – yet being most exposed to its effects – Africa receives only around 2% of total global climate finance flows, CPI data shows.

At 2021’s COP26 in Glasgow, nations promised to decide on a new goal no later than 2024 — which means COP29 in Baku is the time and the place. This makes the upcoming climate conference a pivotal moment in the race to net zero emissions. For the first time in 15 years, wealthy nations will need to agree to a new funding mobilisation target, known as the new collective quantified climate finance goal (NCQG).
This is a clear source of tension that will dominate this year’s COP. Another is how the support is structured. Building off of the just energy transition programmes underway in South Africa, Indonesia and a handful of other countries, there are calls for more international public climate finance to be provided in the form of grants, rather than loans that have the potential to exacerbate debt crises in climate-vulnerable countries.

It is clear that the quantum on offer must be raised substantially, and this will no doubt be at the very top of Africa’s agenda for the summit.
However, there is a real possibility that the negotiations will disappoint, partly because wealthy nations are grappling with other priorities and domestic issues. At the same time, elections in key markets pose risks to sustained climate action in almost every region.

The US, for example, is bracing for a tight election result. If Donald Trump returns to the White House, he is expected to withdraw the US from the Paris Agreement and vastly scale back climate-related spending at home and abroad. Similar political developments are taking place in other major economies.

With this in mind, African countries need to consider how to plug the finance gap in a worst-case scenario. Regardless of what comes out of COP29, climate change continues to advance, and Africa is on the frontlines of the crisis.

A recent study estimates that climate change could reduce incomes on the continent by 30% by 2050 as extreme weather takes its toll on infrastructure, agriculture, productivity, and health. Moreover, as advanced nations move to cheaper and cleaner energy sources, Africa risks becoming less competitive in the global market.

It is therefore critical that the continent finds a way to ramp up investments in climate adaptation and mitigation – irrespective of the level or external support on offer.

This implies the need to innovate by tapping into pools of domestic capital. By developing clear climate action strategies and robust project pipelines, the continent’s pension funds could be incentivised to invest deeper in the emerging green economy, for instance.

Governments could also consider mobilising funding for climate action by placing surcharges on luxury items and fossil fuels, and by redirecting the billions of dollars in annual fossil fuel subsidies. This is by no means a definitive recommendation, but a question worth considering in light of the massive climate financing gap.
In short, Africa may have to become more self-reliant when it comes to climate action.

That said, if the continent presents a compelling vision for itself, it will be better placed to attract global funding flows as well.

Doing so would require strengthening key institutions and planning frameworks, creating an enabling policy environment, developing attractive project pipelines, and refining and enhancing national climate commitments – known as national determined contributions (NDCs). All countries are expected to submit revised NDCs in 2025.

Africa could also push for a global enforcement mechanism for climate finance commitments to ensure they are fulfilled.

This is a critical moment in our collective efforts to avert a full-blown climate disaster. Bold action is needed, and hesitancy will only stall progress right at the moment when it matters most.

Msizi Khoza, Managing Executive for ESG at Absa Corporate and Investment Banking