Fiscal barriers are hurting climate change in the global South | Climate crisis


In East Africa, start-up Ampersand Solar plans to shift millions of ‘boda boda’ taxi drivers to cheaper and cleaner electric motorbikes.

In Nigeria, energy company Phoenix Edison is preparing to build the country’s first waste-to-energy project to reduce municipal waste and its carbon footprint.

In Kenya, fertilizer maker Safi Organics aims to convert local biomass waste into fertilizer and provide income from carbon credits to farmers.

These projects are proven and ready to grow. These create jobs, reduce emissions and promote sustainable development. However, they and many similar ventures in developing countries struggle to raise adequate funding as capital is perceived as expensive and investment risky.

This is a symptom of a wider problem. The global financial system puts project developers at a disadvantage in countries on the front lines of climate change. This is paralyzing the actions of the communities most at risk from the adverse effects of climate change such as extreme cyclones, droughts, floods and heat.

Unlocking climate finance for mitigation, adaptation and nature restoration requires a fundamental overhaul and disruption of the global financial system, starting with three critical steps.

The first step is to get the project off the ground by attracting investment. Attractive business cases exist, but they often fail to meet the narrowly focused commercial requirements and constraints of private financiers.

Project preparation facilities remain too small and inaccessible, largely disconnected from subsequent funding and risk aversion mechanisms. In fact, according to the World Bank, the volume of project finance in low- and middle-income countries fell from $91 billion in 2019 to less than $60 billion in 2022.

That’s why we need to build an environment that can accelerate high-quality projects and promote fundraising. Countries can lay the groundwork by including support for such projects in their climate change and development plans. The private sector can also add value by sharing early feedback and expertise with project developers.

We, the UN High Level Champions, are also taking action. Last year, we hosted a Regional Finance Forum, showcasing over 100 out-of-the-box projects in emerging markets and developing countries, including Ampersand, Phoenix Edison and Safi Organic. The aim was to dispel that perception and demonstrate that we already have a strong pipeline of projects. This year we are working on matching a number of project developers with public and private funders.

The second step is to extend below-market or concessional capital to emerging market and developing economies. Borrowing money for climate projects in poorer countries is more expensive than in richer ones.

We help multilateral development banks, such as the World Bank and the International Monetary Fund (IMF), strengthen their adaptive capacities and build resilience to climate change. This will allow domestic banks to lower interest rates on these projects.

In addition, governments and philanthropic organizations should create large and flexible pools of concessional capital. This provides easier and more transparent access to capital for the best proposals, based on agreed standards, and spreads the associated risks.

The third step is to reduce and halt the debt of low- and middle-income countries. The more these countries are hit by the impacts of climate change, the more they borrow to try to recover, and the more their debt grows. About 60% of low-income countries are in or near debt crisis, according to the IMF.

De-risking project finance and increasing concessional capital can help alleviate debt by providing alternative financing options. In addition, loan agreements should include debt suspension clauses for natural disasters, and lenders should support natural debt swaps and climate swaps, in which recipients invest in natural restoration and climate change measures in return for repayment.

As we saw at the New World Financial Agreement Summit in Paris last week, the global financial system is beginning to understand its weaknesses and respond to them. The IMF has delivered $100 billion in special drawing rights to climate-vulnerable countries, fulfilling a promise to provide much-needed liquidity.

The summit also saw Senegal reach a $2.7 billion deal on clean energy investments from developed countries and Zambia finalize a $6.3 billion debt restructuring.

While these are important developments, there are many unfinished business that need to be addressed this year, including the African Climate Summit in September and the UN COP28 conference in November.

Emerging market and developing countries will need at least $1 trillion in external climate finance annually by 2030 to adapt to climate change and pursue low-carbon development pathways, according to Climate Finance Report becomes.

Leveraging this funding is not only meaningful, it is also essential for business, climate action and sustainable development.

Ampersand expects to distribute more than 700,000 electric bikes and reach $1.7 billion in annual revenue by 2031, according to the project fact sheet. This will allow Boda Boda drivers to cut their income in half, as well as reduce their carbon footprint and air pollution.

Phoenix Edison expects the $116 million investment to reach $41 million in revenue within five years, according to the project fact sheet.

According to the project factsheet, Safi Organics expects to generate nearly $18 million in revenue in 2028. This will increase farmers’ crop yields by 30 percent, increase income by 50 percent, create up to 20,000 direct jobs, and recycle biomass waste.

Investors will flock to support and scale these and many other projects. They just need to see the possibilities and overcome the risks. The financial community has the means and the opportunity to do this, and in doing so can be a catalyst for a just and equitable transition.

The views expressed in this article are those of the author and do not necessarily reflect Al Jazeera’s editorial stance.

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