Climate challenge: how can EIB and other Development Banks address it?
Africa needs grants provided by Development Banks to cope with climate change consequences. Nevertheless, European Investment Bank and European Bank for Reconstruction and Development are not able to solve this problem. The forthcoming climate conference in Paris is a high hope for Africa in this case.
Climate challenge becomes more and more threatening with every passing day. Africa, which is the poorest continent at present, comes under the influence of this problem to the fullest extent. Development Banks, for instance European Investment Bank and European Bank for Reconstruction and Development, pledged to fund climate aid for these countries. However, what is the real result?
The core of African climate challenge
African countries contribute only 2 per cent of world greenhouse gas emission – it is the lowest level in the world. The main reason is that almost all African countries are poor and do not have enough production facilities. However, this continent suffers from environmental pollution the most.
It is obvious, that Africa is not able to cope with this problem on its own authority. That is why the continent needs international financial aid. In this case, another problem arises: in which form will such funding be provided?
EIB and EBRD funding
There are two approaches to how to fund African countries. The first one is to supply financial assistance in grant form and the second one – in loan form. The borrowers are evidently applying for grants, which contradicts Development Banks policy.
European Investment Bank and European Bank for Reconstruction and Development offer loans with market or, at least, concessional rate instead of grants. However, it is too burdensome for African countries to pay loans even on concessional basis.
The Development Banks have already promised to make $100 billion available for African countries by 2020 in terms of long-term loan. In the meantime, Jonathan Taylor, the European Investment Bank vice president responsible for climate action and energy, underlines that EIB is not going to fund entire project. This bank intends to fund not more than a half of every project. He also adds that the private sector should be involved.
African climate challenge is addressed through two kinds of projects
Another challenge that has to be addressed is a reduction of greenhouse gas emission. In this case, there is two main directions of climate projects financing mitigation and adaptation. Mitigation means a decrease of harmful gases emission, while adaptation means necessary transformations caused by extreme weather conditions, which will lead to temperature increase.
The problem is that more than 75 per cent of funding is dedicated to mitigation. However, Africa needs adaptation financing much more. That is why a private sector funding is critically important. It will give an opportunity to maintain necessary balance.
Private sector is called on in order to address climate issue in Africa
Nevertheless, it is easier to say than to accomplish. The main stumbling block is money. Corporations, which are called on to take upon funding of climate aid for developing countries, state that this is a task of public institutions. According to Copenhagen pledges, approved on 2009, the main sources of funding are taxes paid by citizens of developed countries.
Climate challenge and African Development Bank
In this case, Akinwumi Adesina, president of the African Development Bank in Abidjan, announced during the International Monetary Fund and World Bank annual meeting in Lima, that level of climate aid financing is not high enough. For instance, Africa has to receive $100 billion every year, but this region received only $62 billion last year.
In order to address this issue the African Development Bank will provide grants for low-income countries and concessional loans for middle-income economies through its African Development Fund. This climate financing will be provided by 2020 in an amount of $5 billion.
Climate conference in Paris is to address environmental issue
The problem of climate change and climate aid funding is supposed to be solved during the forthcoming United Nations Climate Change Conference in Paris (COP21), which will take place on December current year.
These negotiations are to approve conventions touching reduction of greenhouse gas emission in order to prevent temperature increase. The document, which will be approved during this conference, is to be a basis for the world environmental policy for a decade (2020-2030). There is also a hope for African countries that after these negotiations they will receive a fair financing to address its climate challenge.
Climate challenge: how can EIB and other Development Banks address it?
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