Climate Change: Political Implications and Policy Response in Africa

Over the course of five sessions, this study group, led by Dr. Gloria Ayee, is exploring the pivotal moment experienced by the African continent. With youthful populations, abundant resources, and growing economic and technological capacity, Africa holds solutions to global challenges from food security to climate change. Participants of the study group are invited to reflect on the role that international cooperation must play in supporting inclusive, sustainable development in Africa, as well as to move beyond outdated perspectives and learn about Africa’s profound transformation through trade, investments in clean energy and health, and youth empowerment initiatives. Participants are also given the opportunity to prepare one policy memo on a topic related to one of the sessions and to provide a memo briefing the study group and to a relevant external expert guest.

The fourth session addressed the pressing issue of climate change and its political implications in Africa. This session highlighted the disproportionate impact of climate change effects on African nations and how governments are responding through policy measures. A significant focus of the discussion was placed on current climate financial models and the challenges to accessing funding for renewable energy and electrification projects in Africa. The study group counted with the presence of external expert speaker Ely Sandler, Fellow at the Belfer Center. Ely has worked as a senior consultant at the World Bank and previously at Morgan Stanley for nearly a decade. Policy proposals that Ely developed at Harvard were presented at COP27 and are now being adopted by the World Bank and UAE COP28 Presidency, with the hope of catalyzing trillions of dollars of green investment, in part through Article 6 of the Paris Agreement.

The Unequal Distribution of Global Cumulative Carbon Emissions

The global landscape of carbon emissions is heavily skewed, and a significant amount comes from just six countries, none of which are in Africa. Historically, 95% of global cumulative carbon emissions have been emitted by developed nations, yet it is the African continent that is set to suffer the most from the effects of climate change. As a result, conversations around climate change and its political implications in Africa tend to center around adaptation efforts. However, a challenge remains that as African countries develop, their increased need for energy could lead to a rise in carbon emissions that could offset the decarbonization processes implemented in other parts of the world. The continent thus stands at a crossroads: it can either follow the traditional, high-emission industrialization path or embrace a green, renewable-energy driven model that can be more efficient and cost-saving in the long-term. This latter path, however, requires substantial upfront investment that is hard to access through existing financial models.

Climate Finance Landscape and Challenges in Financing and Investment in Africa

Preventing future high emissions through sustainable development in African nations requires substantial investment in the energy sector, including in solar, wind, and hydro. Still, African economies face financial challenges in transitioning to greener energy solutions as the cost of capital remains notably high. Other compounded challenges include high interest rates and risk perceptions associated with African markets. This presents barriers to borrowing and investing in large-scale infrastructure projects, such as power generation or grid electrification.

Climate funding in Africa comes primarily from the public sector, which covers 96% of total investment. In order to achieve the level of funding that is required, there is a profound need to mobilize private investment, hampered by challenges of high interest rates, risk perceptions, and upfront costs. This can be achieved through innovative financing models including blended finance, with concessional loans being combined with market-rate loans and equity. Initiatives like cross-border financing under Article 6 of the Paris Agreement can also contribute to new climate finance mechanisms that facilitate the financing of the energy transition in African economies.

Who Leads these Efforts? Role of External Actors and Need for African Investment

Investors leading blended finance efforts and financing sustainable energy projects in Africa mostly sit in global north markets, based in countries with high financial capability. Concurrently, African economies remain constrained by the ‘original sin’ having borrowed large amounts in foreign currencies, primarily the US dollar, and still having to pay high interest on their debts. These unequal capabilities stand to be further exacerbated by the developed countries’ efforts to accelerate the energy transition in their own economies, with policies such as the Inflation Reduction Act or the imposition of carbon taxes increasing domestic manufacturing and having negative second order impacts on African economies. This points to the urgent need to develop strong financial systems in Africa and promote the creation of wealth with long-term oriented policies including the establishment of pension funds.

A Unique Opportunity

Whereas climate change-related impacts stand to fuel instability and undermine development in the African continent, there is a unique opportunity for African countries to capitalize on increasing climate financing and implement sustainable energy production pathways that can help their economies grow. This can bring not only a net addition to energy, which ultimately fuels development, but also create jobs and contribute to the establishment of financial markets in the continent. The challenge of securing access to financing galvanizing the private sector remains a first order need in this journey, and innovative approaches to financial models including the use of Article 6 of the Paris Agreement can help unlock this potential.