1. Multilateral development banks in carbon assets
and climate financing in Africa
Alfred Bimha (MSc) and
Godwell Nhamo (PhD)
Paper presented during the 8th African
Finance Journal Conference, 14-16
April 2011, Windhoek, Namibia
Cell: 073-163-1114; nhamog@unisa.ac.za
2. Introduction
• Climate and carbon financing is still relatively new globally and in Africa, in
particular
• Lattanzio (2010) observes that MDBs are now major players in global
climate and carbon assets financing.
• The MDBs are viewed as having a comparative advantage compared to
bilateral, multilateral, UN backed systems and other carbon asset
financing mechanisms as they dispense funds more efficiently.
• The environmental focus of MDBs shifted significantly following 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.
2
3. Introduction …
• Among the multilateral and own carbon asset funds available to the MDBs
and African countries are:
–
–
–
–
–
–
–
Clean Technology Fund (CTF),
Congo Basin Forest Fund (FBFF),
Forest Carbon Partnership Facility (FCPF),
Forest Investment Program (FIP),
Pilot Program for Climate Resilience (PPCR),
Scaling-Up Renewable Energy Program for Low Income Countries (SREP) and
the Strategic Climate Fund.
• The World Bank Prototype Carbon Fund had grown to $2 billion worth in
2008 (Nakhooda, 2008).
• 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 and currently
operates more than 10 carbon funds (SPREP, 2010).
3
4. Research Design
• Paper aims to establish key climate and carbon assets funding
mechanisms in Africa that are drawn from and administered by the MDBs,
especially the World Bank and the African Development Bank.
• Main question: Which climate and carbon assets financing mechanisms
are in place from both the World Bank and the African Development Bank
for use by African countries and under which conditions?
• Aligned to the set aim and research question are the following objectives:
– to evaluate the extent to which MDBs have embraced and mainstreamed climate
change into their funding mechanisms;
– to determine key climate and carbon asset funding mechanisms from the World Bank
and the African Development Bank and establish how such funds are utilised in Africa;
and
– to establish if there is any difference in the approval process and disbursement
protocols of funds for climate and carbon assets funding compared to other traditional
portfolios of the World Bank and the African Development Bank.
4
5. Theory of MDBs
•
MDBs are public financing institutions with mandates to alleviate
poverty through financing projects and policy in developing countries
•
MDBs are now major players in networked global system of
environmental financing
•
Environmental focus of MDBs shifted significantly following the G8
leaders meeting Gleneagles in 2005
•
Role of the USA in MDBs financing and membership is undisputable
•
USA is the single largest donor to many MDBs funding including carbon
and climate financing.
•
MDBs cooperate
5
6. Theory of MDBs …
•
MDBs administer both market-based and concessional loans.
•
Such loans are for governments or other organizations with
government repayment guarantees.
•
Ownership and share option for MDBs is complex with the WB owned
by more than 180 member governments that are shareholders
•
Number of shares a donor country holds roughly corresponds to the
size of its economy.
•
USA is the largest shareholder in WB, followed by Japan, Germany, UK
and France. To this end, the G8 is very influential in WB policy regimes.
6
7. Climate and carbon financing: The paradox
1.
Nakhooda (2008) concedes that at a conceptual level, MDBs
acknowledge that climate change considerations need to be
mainstreamed into their operations.
2.
MDBs have launched various new initiatives to address climate change
since 2005
3.
However, the paradox in all this is the fact that MDBs still invest heavily
in sectors that are carbon intensive such as transport, oil and gas,
electric power and mining (see next slide)
4.
The WB is by far the largest MDB financing carbon assets and climate in Africa.
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8. The paradox: MDBs investment in carbon intensive sectors
Investment ($ Billion)
Total Investment ($ Billion)
% of Total Investment
38
40
34.2
35
33
28
30
25
25
20
15
9.8
10
7.4
6.4
2.1
5
1.6 1.6
2.8
0
World Bank
(2007)
IDB (2006)
EBRD (2006)
Authors, based on Nakhooda (2008: 1)
ADB (2006)
9. World Bank carbon funds to Africa
Fund
Year
Established
Amount
Prototype Carbon Fund
BioCarbon Fund
2000
2004
$209 million
$90.4 million
Community Development Carbon
Fund
Italian Carbon Fund
The Netherlands CDM Facility
Danish Carbon Fund
Spanish Carbon Fund
2003
$128.6 million
2004
2002
2005
2005
Carbon Fund for Europe
2007
$155 million
90 million Euro
290
million
Euro
50 million Euro
Clean Technology Fund
Forest Carbon Partnership Facility
2008
2008
$4.4 billion
$221.27 million
Authors, based on World Bank (2010)
% of African
Portfolio (2009)
4
33 (Tranche 1)
20 (Tranche 2)
32
1
4
1
34 (Middle East &
North Africa
Not yet specified
Not yet specified
10. World Bank: Climate Investment Fund architecture
Climate
Investment Fund
(CIF)
Strategic Climate
Fund (SCF)
Forest Investment
Programme (FIP)
Authors
Clean Technology
Fund (CTF)
Pilot Program for
Climate Resilience
(PPCR)
Scaling Up
Renewable Energy
Program (SREP)
11. World Bank: Carbon asset and climate funds (as of 09/10)
4500
4400
4000
$ (Millions)
3500
3000
2500
2000
1500
972
1000
558
500
307
221
0
CTF
FIP
SREP
Authors, based on World Bank (2010: 25-31).
PPCR
FCPF
12. Future of Carbon Markets: IFC Fund for CERs
• January 2011: The IFC launched a €150million fund to forward purchase certified
emission reductions (CERs or carbon
credits) that were expected to be produced
between 2013 to 2020, from GHG reducing
projects, either directly financed by the IFC
or by local banks financed by IFC.
• This gives some certainty to CDM projects
after 2012
14. AFDB: Carbon and Climate Funds
Concessionary resources
– Climate Investment Funds (CTF and SCF)
– Global Environment Facility (GEF)
– Congo Basin Forest Fund (CBFF)
– Africa Water Facility (AWF)
– ClimDev-Africa Special Fund
– Bilateral trust funds
Private capital
– Clean Energy Bonds
Market mechanisms
– Africa Carbon Support Project
– Carbon markets
14
15. The Key challenges
1.
In as much as the MDBs are increasingly getting involved in financing
carbon and climate mitigation and adaptation, the key challenge has
been in the traditional protocols for approval of funds.
2.
Finances take even up to six years to be released and co-funding remains a
challenge.
3.
The G8 and other major shareholders in MDBs still have a stronghold in terms of
dictating the terms and conditions upon which funds can be released.
4.
If not managed well, MDBs carbon and climate funding can be used as a tool for
regime change.
5.
Many carbon credits projects require capacity to be build in Africa (of which
capacity we do not have)
15
16. The Key challenges
6.
Many African countries still have weak governance structures and this
has resulted in MDB finance being channelled elsewhere like the
Central and Latin Americas, Asia and the Pacific.
7.
As we present this paper there is confusion in the Arab World and
naturally, carbon and climate financing follow normal patterns of FDI
flows.
8.
Conditions for investment need to be improved in Africa.
9.
Following Cancun (COP16) that took place in Mexico, there is hope that
the global carbon market will remain alive.
10.
Efforts are being made for a smooth transition to a second Kyoto
Protocol commitment period
16
17. Future carbon and climate financing opportunities
11. New vibes in terms of the carbon and climate financing
emerged from Cancun, among them:
a.
b.
c.
d.
The acceptance of CCS as CDM projects
Mainstreaming REDD(+) projects into global climate architecture
Proposals to streamline the CDM project approval and evaluation
criteria
WB’s promise to finance national ‘cap-and-trade’ markets – South
Africa will be a good target for this.
12. The world is therefore looking forward to a new, legally
binding and fair climate deal in Durban 2011 (COP 17).
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