Will setting up of funds deter countries from the global south like Uganda from exploring oil?
By Andrew Aijuka
As the world races to cut its carbon emissions to 1.5 degrees, most parties are calling for the setting up of funds to cash in on renewable projects hoping to discourage investing in fossil fuels.
The year 2022, has seen several funds being set up as means of combating the still worrying environmental challenges that are causing some of the world’s most devastating calamities like floods and droughts, especially in developing countries.
In Senegal, Dakar, from 21st to 26th March 2022, Sub- Saharan Africa saw the first-ever World Water Forum. This was in a bid to raise the need for bilateral and multilateral entities to pay close attention to water policies at the subnational and regional levels. The 9th World Water Forum revolved around SGD 6 and recommended adopting sustainable and integrated management plans to preserve water resources and ecosystems.
The United Nations University Institute for Water, Environment and Health (UNU-INWEH), estimates that 19 African countries with a total population of around 500 million do not have access to safe water.
Sub-Saharan Africa is one part of the world with a problem of water access among its masses. This means that the Blue agreement as many call it is intended to speed up the application of the right to drinking water for all human beings but also addresses issues relating to water sanitation, safety, peace, and development.
The forum mainly vied for a financial resource mobilization fund to cater for the cost of having the population have access to safe water and improve the governance of water resources.
With the emphasis being put on the need for cooperation between regional and international parties in dealing with water as a subject, at the closing of the forum, the water minister of Senegal, Serigne Mbaye Thiam, announced the creation of a high-level international panel on investments in water in Africa.
The main objective of this panel is to develop concrete ways to mobilize 30 billion dollars by 2030 in order to close the investment gap in Africa. The Senegales minister retaliated the need for a quick follow-up on the commitments in the Blue Deal while giving a keynote speech at the second-week opening of the water pavilion hosted by SIWI during the COP27.
November of this same year 2022, has seen the formation of another fund. In a tweet from the official handle of the COP27, the tweet read “History was made today at COP27 in Sharm El-Sheikh as parties agreed to the establishment of a long-awaited loss and damage fund for assisting developing countries that are particularly vulnerable to the adverse effects of climate change.”
According to the United Nations Secretary-General António Guterres, the establishment of the fund is an essential step towards justice.
Though many have welcomed the decision to establish a loss and damage fund, many questions linger around its operationalization in the coming period.
Most analysts believe this is not enough to combat climate change but rather a “…much-needed political signal to rebuild broken trust.” This is according to the United Nations Secretary. One other commentator compared the establishment of the fund to a bucket that now needed to be filled. Also, the fund does not directly support the transition to a no-carbon economy but instead bandages climate effects, which will worsen if fossil fuels are not phased out.
A combined adaptation and mitigation finance flow in 2022 fell at least US$ 17 billion short of the US$100 billion promised to developing countries. Whereas the African continent contributes the least to climate change, it is yet the most vulnerable in terms of climate change impacts. According to United Nations Environment Program, African countries have to spend five times more on adapting to the climate crisis than on healthcare.
United Nations Environment Program research points to a shortfall in the finance for adaptation. The 2022 Adaptation Gap Report points out that international adaptation finance flows to developing countries are five times to ten below estimated needs and there is a need for over US$300 billion per year by 2030. The United Nations also warns that the ability to mitigate and adapt to climate change is closely connected to loss and lamage financing.
According to Janat Malongo, the Coordinator for the Platform for Action, Renewable Energy, at the Climate Action Network International, “Africans would need assistance and support as far as finance is concerned for renewables and even the fossil fuels that are being discussed as well.” Janat reasons that ideally both activities need financing, and suggests that the continent leaders should go into renewables financing.
The issue is however the delay in availing these finances for renewables. At COP 26 a commitment to avail least developed countries with $1 billion is yet to be met. This money is meant to finance renewables projects as a means of discouraging this set of countries that is more progressive for the region and the continent.
However, some leaders from the global south have been straight to the point calling out the hypocrisy showcased by the western powers.
According to the Petroleum Authority Uganda, the country plans on monetizing its oil and gas assets valued currently at US$ 116 billion. The government will also export 57% of the crude oil to improve the country’s export base and the balance that lies in a deficit.
The Ugandan government also is looking to set up a refinery to meet the petroleum products needs of the country currently estimated t 36,000 barrels/day with an annual rate of 7% and saving on foreign exchange expenditure of over US$ 1.23 billion per year.
In a tweet, the President of Uganda Yoweri Kaguta Museveni states:
“For some years we have been told fossil fuel investment in Africa for Africans is unacceptable. Now with Europe reinvesting in its own fossil fuel power industry, it makes a mockery of western commitments to climate targets.”
Warning on the reactance in funding by the developed world, Uganda’s president stated in a tweet that “If Europe still does not help then we will get there through our own endeavors and with support from the willing who do not sermonize Europe’s failure to meet its climate goals should not be Africa’s problem.”
Wanjira Mathai is the vice president and regional director of Africa at World Resource Institute and agrees with the president’s urgent need to improve the lives of his people.
“You have only 2% of global investments in renewable energy that make it to Africa. How on earth is Uganda supposed to develop renewable energy capacity? We know for wind, for solar. All of these technologies need upfront investment. They’re very capital intensive, upfront. So you need the capital right there and then. And we cannot suspend economic development for the people of Uganda. So these are really important discussions.”
“…The development agenda is what will build the level of resilience we need to withstand the terrible impacts of climate change that are coming. If we do not get the sort of deep decarbonization that’s needed from the global North, we are going to see a much worse situation than we are seeing now.”
Mathai states that “…the opportunity cost must therefore come from the goodwill and from the commitments that have been made for climate finance, for investments in renewables, and of course for building and repatriating, in my mind, profits that should be in our countries.”
Still, on highlighting the hypocrisy and lack of political will by the developed countries, Mathai echoes that “… In the last nine months alone, the fossil fuel profits that some countries have made and companies have made have been absolutely outrageous in billions of dollars. There are a lot of resources if the political will was there.”
Tim Morris the business developer at Global Evergreening Alliance explains that there’s an enormous opportunity to explore some of the Renewable energy funds, such as the Nordic Climate Fund, some of the technologies coming out of different countries, such as Germany, renewable energy, and credit funds…”
According to Tim Morris, “many banks are looking to develop both re-greening Programs and Renewable Energy Programs as opposed to Partnering up with the fossil fuel sector.”
“…Some of those Multilateral funds are specifically looking at pure-play with renewables and investment that is associated with renewable only and re-greening only. So I think there’s a real opportunity for a country to look at a future that is self-sustaining…”
Whereas banks are being looked at as potential financers, for most of these funds, Edward Okot Omoya the environmental and social management specialist of the East African Development Bank highlights the need for urgent financing of the banks in the global south citing the need for support of their clients. “The clients who are already working with us should be trained on how to transition. They need to make their project energy efficient. They need to make their projects climate-smart.”
Edward adds that it would be a very good stimulus package for his bank to go back with not less than $100 million to Africa to support the East African region in our just transition to renewable energy.
On the other hand, as financial institutions are slowly financing these renewable projects, private entities are going ahead to engage different governments in pursuing business. One of these banks has been Afreximbank.
Meeting Uganda’s president, Prof Oramah revealed that Afreximbank is willing and considering the financing of the Oil Refinery adding that the Bank views oil and gas as a strategic business that will uplift the African economies especially in fighting against poverty.
Prof Oramah noted that the Bank had approved 200 million US dollars towards the implementation of the East African Crude oil Pipeline (EACOP) as well as other Intra trade projects in the country.
Gaps in the carbon trade have also contributed to the distrust among least-developed countries towards these funds set up to discourage the exploration of fossil fuels into considering a more familiar technology other than renewable energy.
In an article titled “Carbon trading continues: What’s wrong with the voluntary market” by the Global witness, the lack of tough quality controls, supervision, and transparency, the carbon credit markets are looked at as a distraction than a mechanism to address the threat of climate change.
This story was produced by InfoNile
