Innovative approaches needed to bridge climate financing gap

A camel herder takes his herd of camels for grazing in Kalama community conservancy in Samburu county. [David Gichuru, Standard] 

Last year’s inaugural Africa Climate Summit (ACS) and the 28th session of the Conference of the Parties (COP28) to the UN Framework Convention on Climate Change (UNFCCC) in Dubai yielded outcomes that speak to the significant shortfall in climate finance while calling for a potential redefining of the global climate finance architecture to enable all countries to transition towards environmental sustainability.

After the ACS held in September 2023 in Nairobi, Kenya, African leaders in attendance including host President and the African Union’s Committee of African Heads of State on Climate Change Chairperson, President William Ruto, made a call to action for decarbonisation of the global economy and urged for increased investments to promote the sustainable use of Africa’s natural assets for the continent’s transition to low carbon development and contribution to a net-zero world.

Separately, COP28 negotiations concluded with the “UAE Consensus” that showed great resolve towards climate action including an outcome on transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner, accelerating action in this critical decade, so as to achieve net zero by 2050 in keeping with the science.

The two meetings demonstrated greater ambition for climate action even though progress towards this cause hasn’t been sufficient to match the targets and timelines of a successful net-zero transition as envisaged by the Paris Agreement temperature goal to to limit temperature increase to 1.5˚C.

Delegates at both the ACS and COP28 acknowledged that the financing gaps are a key inhibitor to achieving the transition targets to a decarbonised world economy.

African leaders at the ACS called upon the global community to act with urgency in reducing emissions and proposed the establishment of a new financing architecture, one that is responsive to the continent’s needs including debt restructuring and relief.

At COP28, Parties underscored the financing gaps in the net-zero transition and reached an agreement to operationalise the Loss and Damage Fund, to assist developing countries that are particularly vulnerable to adverse effects of climate change in responding to economic and non-economic loss and damage associated with the adverse effects of climate change.

So far, 18 countries and the European Commission have pledged $661.39 million towards the Loss and Damage Fund to provide financial support to developing countries affected by severe impacts of climate change.

These financing pledges towards the Loss and Damage Fund are however not sufficient to meet the needs of developing countries such as Kenya that continue to suffer adverse effects of climate change.

Studies show that developing countries need at least $400 billion annually to cope with loss and damage due to climate change related impacts, pointing to the serious shortfall in financing towards this cause.

Thus, climate financing demands creativity or ingenuity to mobilise climate-focused investments from both public and private sources. These investments would include funds needed to among other things transform energy systems, upscale sustainable agriculture, and counter growing climate change vulnerability.

To fully implement Kenya’s updated National Determined Contributions, we require an estimated $62 billion over 10 years, covering 2020 to 2030, with mitigation requiring approximately $18B and adaptation $44B.

This implies that the current climate crisis has a huge financial burden on Kenya hence the urgent need to mobilise sustainable financing through more innovative public and private finance approaches that respond to the current financing gap.

The National Treasury is currently developing a National Climate Finance Mobilisation Strategy to provide a framework for the implementation of the National Policy on Climate Finance. The strategy is envisioned to accelerate access to public international climate finance, mobilisation of private sector climate finance, enhance domestic investment in climate projects, application of more innovative financing instruments, and ensure coordinated and sustainable climate finance flows.

To secure this funding, Kenya would need to explore various domestic and international sources of climate finance, including new sources of concessional capital.

Research has shown that countries can mobilise private capital through instruments such as debt guarantees with governments providing the initial funding to place the various mitigation or transition programmes on track.

This would require significant amounts of concessional financing although capital mobilisation could also be facilitated through strategies such as growing the country’s tax base and collections besides scrapping off fossil fuel subsidies and lowering debt and related costs to free up more funds.

Kenya is already exploring innovative climate financing options including debt-for-nature or climate swaps to unlock funds for building water dams amid a cash crunch that risks derailing spending on key development projects.

Debt-for-nature or climate swaps are financial arrangements that typically allow a country to restructure its debt at a lower interest rate or longer maturity, with the proceeds being allocated to conservation or green projects.

This innovative financing model has gained traction among developing countries and has been successfully deployed in Seychelles, Belize, and Barbados, relieving the countries of some of the pressure of paying back international loans through nature conservation agreements.