Green Economy and Climate Mitigation: Topics of Relevance to Africa

Chapter 7 - Multilateral development banks. In climate and carbon asset financing in Africa

Green Economy and Climate Mitigation 131 7 Introduction Africa needs about $22–31 billion annually until 2015 and then $52–68 billion annually until 2030 to finance the Millennium Development Goals and disaster response, and to meet the objectives of climate change adaptation and mitigation.1 Lattanzio2 comments that the multilateral development banks (MDBs) are now major players in global climate and carbon asset financing. The MDBs are viewed as having an advantage over bilateral and multilateral UN-backed systems, and other carbon asset financing mechanisms, simply because they dispense funds more efficiently. The environmental focus of MDBs shifted signi ficantly after the G8 leaders’ meeting that took place in Gleneagles in 2005. The Gleneagles meeting encouraged MDBs to play a leading role in sustainable development and environmentally friendly technologies.3 Since this G8 meeting, MDBs have launched multiple and multifaceted initiatives addressing environmental concerns, particularly climate change. These initiatives include the need to account for greenhouse gas (GHG) emissions, improve energy efficiency, support renewable energy , manage forests sustainably, promote carbon finance and adapt to climate change.4 The subject of carbon financing is still relatively new globally, and this is particularly the case in Africa. As this chapter reveals, carbon asset financing increased significantly after the ratification of the 1997 Multilateral development banks In climate and carbon asset financing in Africa Alfred Bimha and Godwell Nhamo 132 Green Economy and Climate Mitigation Multilateral development banks Kyoto Protocol in 2005.5 This opened up the demand for carbon assets, because the Kyoto Protocol allocates GHG emission-reduction quotas to developed countries (commonly known as Annex 1 under the Kyoto Protocol). For these developed countries to remain within their target quotas, they must reduce emissions mainly through the market-based regimes enshrined in the Kyoto Protocol.6 To improve carbon asset financing , MDBs have restructured their portfolios and are now involved in carbon asset financing mechanisms through multilateral and own funding mechanisms. Among the multilateral and own carbon asset funds available to the MDBs and African countries are the Clean Technology Fund (CTF), the Congo Basin Forest Fund (CBFF), the Forest Carbon Partnership Facility (FCPF), the Forest Investment Programme (FIP), the Pilot Program for Climate Resilience (PPCR), the Scaling-Up Renewable Energy Program in Low-Income Countries (SREP) and the Strategic Climate Fund (SCF). The World Bank is a major player in climate financing and established the Prototype Carbon Fund in 1999. The World Bank Prototype Carbon Fund grew to $2 billion in 2008.7 The Prototype Carbon Fund was supported by money from European countries that sought to fulfil their Kyoto Protocol GHG emission-reduction quotas. The World Bank has provided more than $4,8 billion of its own funds and more than $13,8 billion in co-financing on climate initiatives. The World Bank currently operates more than 10 carbon funds.8 To provide a holistic picture of carbon asset financing, it is essential to explain the theory behind the MDBs, including their history, operation and the protocols that govern MDBs’ loans and concessions approval. In addition, a section will be dedicated to briefly reviewing carbon asset financing arrangements from other MDBs, including the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), and the Inter-American Development Bank (IDB). Note that these MDBs are not the focus of this chapter. This chapter (which is based on a literature search) aims to continue the discussion on carbon asset financing in Africa, discuss possible sources and conditions, and think about how African institutions and governments could engage with such funding provisions. The role of the World Bank and the African Development Bank (AfDB) will be under the microscope as we look at the details of the amounts and the nature of the carbon funds available. Policy perspectives will also be given for possible use by key interested and affected stakeholders. The authors also hope to contribute to the body of knowledge by raising awareness of the subject under discussion – one that is still relatively new in the Green Economy and Climate Mitigation 133 Alfred Bimha and Godwell Nhamo finance field. The main question to address is which climate and carbon asset financing mechanisms are in place (from both the World Bank and the AfDB) for use by African countries and under what conditions? Aligned to these objectives and the research question are the following objectives: to evaluate the...