Reflections by UNDP on how to address the tricky climate financing challenge
Sponsored by UNDP
After COP27 ended, there’s been a clear buzz and excitement around the world following the commitment to establish a Loss and Damage Fund. UNDP Kenya Resident Representative, Mr Anthony Ngororano, has been keenly following post-conference developments. In this interview, he shares some interesting insights on the unfolding scenario and offers suggestions on how to address the climate financing challenge. Here are excerpts:
Q. COP27 ended with the historic announcement of the establishment and operationalisation of Loss and Damage Fund. Just how much of a milestone to the climate finance conversation is this?
First, let me congratulate Kenya for her leadership credentials in the climate change and sustainable development areas. We take note that, as its contribution towards net-zero in line with the Paris Agreement, Kenya has set itself an ambitious 32 percent emission reduction target. This is according to her Nationally Determined Contributions (NDC). Also laudable is Kenya’s ongoing re-afforestation plans to grow more than 15 billion trees to meet the 30 percent national tree cover target by the year 2032.
On its part, UNDP is keen to continue partnering with the Government Kenya and her people in meeting some of these ambitious but noble goals that all seek to make the world a safer, cleaner, and prosperous home for all of us.
Looking at the global picture, we realise that COP27 was a huge success. I would like to applaud the progress on the notable milestone in negotiating successfully the Loss and Damage Fund. This is an essential milestone, given that for the first time in 30 years of climate talks, developed countries will now be required to provide financial support towards the recovery and rebuilding of poorer countries stricken by climate-related disasters.
We shouldn’t in any way be dampening the positive spirit emanating from COP27. However, we need to point out that although COP27 has unveiled a new mechanism for funding Loss and Damage, the reality is that even the $100 billion committed during the previous global discussions has not been fully met by the global community. Yet the climate impacts are growing in severity and frequency.
Unlike the $100 billion commitment, this new Loss and Damage Facility utilises the principle of ‘common, but differentiated responsibility’ to compel the countries with the largest responsibility for causing climate change to avail resources to help low-emitting countries like Kenya recover from serious climate impacts, such as droughts, floods, sea-level rise, and mudslides.
It is worth noting that the recent rising lakes phenomenon that afflicted all the lakes in the Rift Valley, including Lake Victoria, as well as the ongoing ravaging droughts that have even impacted Kenya’s wildlife, communities and their livestock, could be interesting case studies to be considered under such Loss and Damage Facility, should it be operational.
Despite the commitments made, operationalising a fund for loss and damage might not be a straightforward affair. The process could be more complicated than has been envisaged. This is because further work needs to be done and UNDP is analysing some of the key areas that will inform future negotiations to get the fund fully operational.
Q. So then, how do we push the envelope further?
Even with the Loss and Damage Fund coming, Kenya and other African countries should remain focused to already make optimal use of the existing climate fund mechanisms such as the Green Climate Fund (GCF) and the Global Environment Facility (GEF).
While the Loss and Damage facility has now been established, countries need to continue undertaking more aggressive work on adaptation and mitigation, using innovative sustainable financing models.
As it is, we are already underutilising existing funding mechanisms. For instance, Kenya has only gotten $231 million for 15 projects under the GCF. We also need to note that across Africa, only 85 projects have been approved out of a full global portfolio of the $42.6 billion approved by the GEF Board globally!
For that reason, UNDP is working to strengthen the ability of African countries to effectively access and apply such funds to help ameliorate the growing challenges attributed to climate change. We would like to encourage African countries to continue working on maximising their positioning to access such funds.
Furthermore, through the UNDP’s Climate Promise Initiative, covering over 120 countries globally, including Kenya, UNDP has and will continue to be a partner to support governments and stakeholders develop robust projects and also identify new ways of financing. This can be, for instance, through leveraging finance from the private sector.
Q. We are coming from an environment where a multiplicity of shocks, notably Covid-19 and spill-overs from the Russia-Ukraine war, have depressed state revenues and translated into tight fiscal spaces across developed, emerging, as well as frontier markets. To what extent has this reality impacted the climate financing landscape, especially when we think about Nationally Determined Contributions?
Let’s agree on one thing: The shocks the world has experienced for some time now have put fiscal pressure on both developed and developing countries. The war in Ukraine, global supply shortages and the Covid-19 pandemic, have all contributed to an evolving energy and food security crisis, with the cost of living as well as inflation surging in many countries across the world. At the same time, the shocks related to climate change only demand additional financing requirement. That’s the grim reality.
Shocks are now the new normal. Examples are recent events, including the severe drought in Kenya that has left 4.3 million malnourished and food insecure, and the loss of livelihoods for thousands of Kenyans. The losses associated with climate events are in lives. An example is the floods in Nigeria that have led to the death of 57 people, caused injuries and displaced 22,357. There is no doubt that losses and economic and social damage caused by climate change will only get worse.
Conservatively, the adaptation funding needs are in the range of $160–340 billion by 2030 and $315–565 billion by 2050. This is the more reason why we must assess all sources of finance critically and find new and innovative financing mechanisms.
As an example of the financing needs, Kenya’s ambitious NDC targets of 32 percent emission reduction require significant financial resources to the tune of $62 billion by the year 2030.
Cognizant of this need, UNDP has helped design a new programme – the NDC Implementation Acceleration Programme. This programme is an important vehicle that can help the Government to mobilise the resources required to effectively implement the NDC.
In addition, UNDP has worked with the Government and is in the process of designing a truly global Tree Growing Fund and Programme to help mobilise more than $45 million to support Kenya’s ambitious re-afforestation and rangeland restoration activities. Such initiatives are what will make Kenya, and indeed Africa, mobilise the required climate finance to address the rapidly evolving climate action needs.
Q. Despite these shocks being broadly considered as headwinds, are there any tailwinds that they present as far as accelerating the climate change and climate finance conversation is concerned?
There’s a need for crowding in a lot of private sector capital, into the climate finance space, particularly as government resource envelopes come under strain. Private sector capital is, however, yield chasing and many ask whether the returns being offered through green investments justify the risk being taken.
Q. And what are your thoughts on this?
Let me point out that the reduced global financing for climate action, demonstrated by the failure by the developed countries to fully meet the $100 billion pledge requires countries to become innovative, especially in mobilising financing from the private sector.
Countries need to urgently reform the public finance systems to effectively integrate and mainstream climate change in the budgeting processes, to ensure more climate-smart decisions at national and county levels.
I would like to point out that leveraging on the private sector to finance climate action and SDGs is a clear window that offers more opportunities to countries like Kenya, in the midst of the challenges introduced by Covid-19 and the Ukraine-Russia conflict. Clear opportunities are in the area of carbon markets, which enable the private sector to invest in climate action while attracting sufficient economic benefits.
UNDP is keen to engage in this area and is already in discussion with the Government of Kenya to ensure a proper sound regulatory and policy infrastructure is enacted to facilitate the growth of carbon trading.
Indeed, Kenya has great potential to mobilise more resources from this area, as evidenced by KenGen, which has managed to attract sufficient carbon finance resources that are now helping Kenya put in place a greener grid.
We cannot emphasise enough the importance of a clear, credible, predictable and sound regulatory framework for carbon markets, which would greatly unleash the potential of such resources flowing to support the country’s ambitious sustainable development agenda.
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Operationalising the Loss and Damage Facility
1. Quantification. The first thing to decide is how much countries will receive in loss and damage. Will funds assess accumulated damages, accumulated losses over a specific baseline, or annualised? Is the present value of loss and damage over a future time horizon defined? These are important factors to consider to avoid perverse incentives to meet global climate targets.
2. Assessment. How will loss and damage be assessed, both quantitatively and non-quantitatively? How do we treat accounting of irreversible damages? How will the loss of indigenous cultural heritage or loss of national and local ecosystems be assessed in a mutually agreeable way?
3. Attribution. Countries must be supported to monitor and spell out attribution clearly. What baselines will be agreed upon for attributing loss and damage, especially as climate impacts are already manifesting across landscapes?
4. Payment monitoring. A fund needs to be capitalized. It needs to be managed. Once the mechanics of the fund have been determined, the need for an impact monitoring system needs to be questioned and allocations reviewed and vetted to ensure.
5. Evaluation and optimisation. Lessons should be derived from existing climate funds to channel private finance towards low-carbon investments. The fund must be complemented by a suite of funding mechanisms to channel adequate funding to countries dealing with the worst impacts of climate change.
