FEATURE: NEPAD-hosted event highlights needs and challenges of adaptation financing
As part of CDKN’s live blog coverage of hot topics discussed at COP21 in Paris, our Chief Executive Sam Bickersteth reports on the first day:
As Heads of State gathered to open COP21 in the main halls of Le Bourget conference centre, the African Pavilion hosted a discussion on the challenge of financing climate action in Africa. Most African Intended Nationally Determined Contributions (INDCs) have highlighted the needs for adaptation finance in the critical sectors of agriculture, water, energy and infrastructure but international climate finance has yet to flow to meet these requirements.
The adaptation financing gap is highlighted in the recently published Uganda economic impact assessment study funded by CDKN. The side event highlighted the importance of locally relevant adaptation actions and the reality that international finance can only be a catalyst for national and subnational resourcing. It also highlighted the opportunities for private sector financing to build resilience and undertaken adaptation. The Africa Risk Capacity, partner of CDKN, described the opportunity of leveraging resources from private capital markets by a factor of up to ten and insuring against climate related disasters such as drought and flood (ARC plans to raise GBP500 million by 2017).
I highlighted the need to present good quality projects to new funds that could represent the diversity of needs and capacities; technical assistance would enable the various actors from the public, private sector and NGOs to access new climate change adaptation funding opportunities including addressing issues of environmental and social safeguards such as gender inclusion. In addition using a payment by results approach can ensure quality and accountability. President John Kufour called on NEPAD to bring credibility and quality to project proposals through their leadership of Africa funds, and to bridge the knowledge and capacity gap and to enable partnerships and investments with the private sector.
Bilal Khalid of CDKN adds:
Issues related to climate finance were discussed at length at an official side event entitled ‘Financing Climate Change in Africa’, at COP21 in Paris. This event focused on the lessons learned from various financing mechanisms currently being implemented in Africa. The speakers outlined the numerous challenges of climate finance access for the African region, include limited capacity of countries to access finance, as most international mechanisms expect strong credentials from applying entities. There are also challenges of awareness among the eligible parties on these mechanisms and the scale of opportunity that is presently available. At present there is a strong need to develop bankable projects that can attract international finance. Challenges yes, but there are also some silver linings; there is strong recognition among the African countries regarding the threats of a changing climate and the mounting risks for vulnerable population groups across the continent. As a result, domestic resources are now being channelled at national and regional level, and numerous mechanisms have also been put in place to address climate financing issues.
NEPAD Climate Change Fund
The NEPAD Climate Change Fund has operationalised an innovative financing model to overcome the challenges highlighted above. Unlike contemporary funding windows, the fund is looking for ideas rather than robust implementing entities and project designs. Once a good idea has been identified, NEPAD works with the entity (or entities) to transform it into a quality project. Hence there is an embedded component of capacity development built into the NEPAD Climate Change Fund. Overlooking the historical credentials of applying entities means that nascent organisations with creative ideas also have the opportunity to develop projects. This approach is bound to nurture innovation and encourage bottom up solutions. The NEPAD Climate Change Fund is now working to scale up into a multi-donor organisation capable of providing various financing windows for different stakeholders. A key aspect is decentralised operational arrangement where interventions are supported at localised level.
Africa Risk Transfer Initiative
The most visible impact of a changing climate has been the increasing frequency of climate-related disasters around the globe. The frequency of natural calamities such as droughts means that traditional models of relying on external support mechanisms for disaster management is no longer sustainable. Market-based risk transfer mechanisms present an innovative solution to mitigate the threats from increasing frequency of disasters – and the Africa Risk Transfer Initiative aims to make African countries self-reliant in disaster response and management. The initiative relies on satellite based trigger mechanisms which lead swift pay outs for affected countries, with countries across the continent are being encouraged to set aside budgetary allocations for premium payments of insurance instruments. The leveraging potential of such allocations has turned out to be seven to ten times. Despite a strong case to encourage participation of countries, enrolling in such risk transfer mechanisms requires strict financial discipline. Unfortunately, not all countries are up to the task.
Climate change adaptation: A localised endeavour
Climate change adaptation is inevitably a local endeavour – local solutions to local issues. Any effective intervention model needs to trickle down to grass root levels for meaningful impacts. Experience with National Adaptation Plans of action (NAPAs) clearly highlighted the flaws of bypassing local systems for designing and delivering climate change interventions. This approach also has important connotations for climate finance. Adaptation and resilience initiatives must be built from the ground up, which means mobilisation of domestic resources is critical. International support can only complement such efforts. Such indigenous adaptation endeavours must be programmatic as opposed to project-based.
The submission of INDCs signifies the motivation for unconditional and unilateral action on climate change. There exist significant economic gaps in international finance mechanisms which underline the need for regions and countries to deploy innovative instruments for leveraging finance. Such mechanisms must capitalise the market economy and show sensitisation towards regional considerations.