Climate change: Green investors bypass Africa

In 1997, the negotiators of the Kyoto Protocol, which regulates emissions of the industrial gases that contribute to climate change, adopted an interesting way to pay for clean development projects. It is called the Clean Development Mechanism (CDM).

The CDM is intended to reduce the cost of cutting emissions in the North while helping developing countries finance their own clean development projects. It allows businesses in developed countries to meet part of their domestic emissions-reduction targets by financing emissions-cutting projects in developing countries, where costs are often lower.

Projects are awarded one carbon emissions-reduction credit for each tonne of greenhouse gas they prevent from being released. These credits can be bought and sold like corporate stocks and used to lower the cost of green development projects.

After the first CDM project was approved in 2005, the world trade in emissions credits has grown rapidly, topping $64-billion in 2007. Industry analysts predict that the trade will exceed $100-billion by the time the Kyoto Protocol expires in 2012.

Great potential, few projects
For Africa and other poor regions struggling to adapt to climate change, access to carbon-trade financing could be vital. Scientists argue that global warming is damaging the Earth’s climate faster than expected, and a severe shortfall in funds is hampering African efforts to cope. Although Africa generates only a tiny percentage of global greenhouse gases, it is expected to be among the regions hit hardest.

“The accelerating growth of carbon markets resulting from the United Nations-brokered [Kyoto] climate-change agreement,” the head of the UN Environment Programme, Achim Steiner, told a meeting of African bankers in May 2007, “represents a significant economic and development opportunity for Africa.”

However, according to the UN Framework Convention on Climate Change Secretariat, the UN agency that oversees the CDM, Africa accounts for only about 3% of the more than 1 000 CDM-approved projects globally—and half those are in South Africa, whose sophisticated industrial and financial infrastructure lends itself to the complex CDM approval process.

Africa’s difficulties in attracting CDM projects are similar to those that have hampered the continent’s efforts to land purely commercial investments. Those include a lack of infrastructure, high poverty rates, limited financial resources, a shortage of the management and technical skills, weak government institutions, corruption and political instability.

African governments and environmentalists also note that the CDM’s rules favour pollution-reducing projects rather than those that could help Africa cope with climate change, such as irrigation schemes and flood-control programmes. Such projects are instead to be financed by the Kyoto Protocol’s Adaptation Fund, financed in part by a 2% levy on CDM credits.

Marshall Plan needed
In the view of some of Africa’s leading climate scientists and environmental officials, far more is needed to match the continent’s needs with resources.

Richard Muyungi, deputy director for the environment in the office of the Tanzanian vice-president, says that the cost of climate change in that East African country, among the world’s poorest, is already running into the billions of dollars and slowing economic growth.

“Our energy sector has been most affected,” Muyungi says, noting that drought has sharply reduced reservoir levels for hydroelectric power. “Many of our islands are threatened by rising sea levels” because of melting polar icecaps, he continues, while higher temperatures are making costly new demands on health systems. “We now have malaria around Mount Kilimanjaro. We never had that before.”

The severity of the drought, and mounting concerns about the effects of climate change on food production, Muyungi says, have already forced the government to shift spending from long-term sustainable development programmes to emergency relief. It has also downgraded its earlier target of 6% to 7% economic growth for 2008.

“We cannot estimate the total cost, as we don’t know how severe the impact will be. It is already not possible to grow cotton and maize in some areas. How much the losses will be is harder to say.”

Tanzania is collaborating with the UN to attract CDM funding, Muyungi explains. “But the procedures are complicated. Africa is already behind in attracting foreign direct investment. The same problems stand in the way of CDM projects.”

The CDM needs a comprehensive approach to Africa if it is going to help the region cope, he concludes. “We really need a Marshall Plan.”

Reforming the system
Ogunlade Davidson, a leading African environmental scientist and dean of postgraduate studies at the University of Sierra Leone, is even blunter. The CDM, he says, has been “hijacked” by the private sector and transformed into a profit-generating centre instead of a vehicle for greenhouse-gas reductions.

Under the current system, Davidson says, investors are able to “piggyback” carbon emissions credits on to commercial projects in countries such as China and India that are already attracting high levels of foreign investment. That is one reason so many CDM projects are located in Asia, he declares, and so few in sub-Saharan Africa.

Even more alarming, Davidson observes, is the failure of the CDM to require industrialised countries to actually cut their carbon emissions at home. “It’s a major flaw. Developed countries need to reduce their emissions by 90%. We need more drastic action. Market forces alone cannot deliver the reductions needed. Markets caused the problem in the first place.”

The CDM can be improved through reform of its criteria and procedures and tighter requirements for domestic emissions reductions, Davidson says. The mechanism also needs to be supplemented by programmes to make green technologies available to developing countries, tougher action against Northern greenhouse-gas emissions and more funding for adaptation.

“The needs are huge,” he emphasises. “Most adaptation finance will have to come via development aid. It must become mainstreamed into the development process.”

For Africa, however, fixing the market’s flaws may be less urgent than finding a way into it. “When Africa only has 30 CDM projects out of 1 000,” Muyungi notes dryly, “there is a problem.”

CDM projects (percentage of total)
India: 31,96%
China: 20,52%
Brazil: 12,56%
Mexico: 9,84%
Malaysia: 2,62%
Chile: 2,06%
Africa: 2,34%

Source: UN Africa Renewal from UNFCCC data, 2008

Michael Fleshman is a writer for United Nations Africa Renewal magazine

Reprinted from UN Africa Renewal

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