Developing Africa’s mineral resources: What needs to happen

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Key points:

  • Africa possesses a significant share of global mineral reserves – including 92% of platinum, 56% of cobalt, 54% of manganese and 36% of chromium. These minerals are used to produce green technologies such as electric vehicle (EV) batteries and wind turbines.
  • Currently, minerals are largely exported from Africa in their raw states to be refined abroad. Increasing processing capacity within Africa to export intermediate goods or final products, known as value addition, could help drive economic development on the continent by creating jobs and resulting in higher tax and income revenues.
  • African countries have huge energy, housing and transport needs and minerals could play a role in the sustainable development of these sectors. Minerals also present an opportunity for Africa to be a frontrunner in the global transition to renewable energy and to shift its position in global value chains.
  • Several African countries have already adopted policies aimed at developing their mineral value chains, such as export restrictions on raw minerals. Regional initiatives have also been launched to try and increase the benefits of mining for African communities.
  • To develop their mineral sectors, African countries need to attract investment, improve geological mapping and expand their skilled workforces. They also need to address challenges in their mining sectors such as infrastructure shortcomings and environmental and human rights issues.

Africa’s mineral reserves

Africa hosts a significant share of global reserves and production of raw minerals. The continent has more than 50% of global reserves and production of cobalt and manganese, and more than 20% of aluminium and copper. For the 15 most mineral-rich countries in sub-Saharan Africa, mining accounts for 8% of government revenue. Revenues from copper and other battery metals extracted in Africa reached USD 20 billion in 2020 – about 13% of the global market. However, African minerals are currently largely exported in their raw states and refined abroad. China dominates the market, accounting for 85% of global processing capacity and 60% of worldwide production for critical minerals. Meanwhile, the Democratic Republic of Congo (DRC) refines about 7% of all copper products produced locally, and Zambia refines 1.3%.

Since minerals such as copper and cobalt are key to manufacturing renewable energy technologies, rising demand for these minerals presents an opportunity for Africa to play a key role in the global transition to renewable energy, and to change its position in global value chains. Many African countries currently operate in the upstream segment, extracting minerals and exporting raw materials without substantial value addition (Box 1). This perpetuates the continent’s position at the lower rungs of global value chains, constraining economic benefits and its ability to negotiate favourable trade terms. By engaging in processes that add value to mineral resources and increasing processing capacity within Africa, countries could export intermediate goods or final products and shift their positions in value chains to the midstream or downstream segments. This could create jobs in the processing sector as well as result in higher tax revenues and increased income from exports. According to McKinsey, Africa could generate between USD 200 million and USD 2 billion of additional annual revenue by 2030 and create up to 3.8 million jobs by building a competitive, low-carbon manufacturing sector. Additionally, minerals could play a role in meeting African citizens’ huge housing and transport needs by driving the sustainable development of these sectors.

Box 1: Value chain for green minerals

A value chain is a series of activities that add value at each stage of producing and delivering a product to the market. The value chain for minerals consists of five stages:

  1. Geological mapping and exploration to identify and assess potential locations of minerals.
  2. Mineral extraction to obtain the minerals and metals.
  3. Intermediate processing to refine and prepare them for further use.
  4. Advanced manufacturing where the refined minerals are used in the production of advanced materials or components, such as electronics, batteries or renewable energy technologies.
  5. Recycling of minerals from end-of-life products or waste materials.

Fig. 1: The value chain for green minerals
Source: Government of Canada, The Canadian Critical Minerals Strategy, 2022.

Which minerals are important for Africa?

The factors that make a mineral important, or critical, change over time and vary by country. These can include the availability of a mineral within a country, how concentrated it is in the ground, the relationship of the country to trade partners who could sell it, whether it can be substituted by another mineral, as well as global economic importance and national demand drivers.

Minerals for green technologies

As the world moves away from fossil fuels, rising demand for minerals used to produce renewable energy technologies holds the potential to lift some of Africa’s poorest people out of poverty. According to the International Energy Agency (IEA), over the next two decades, renewable energy technologies could account for 40% of total demand for copper and rare earth elements, between 60-70% of total nickel and cobalt demand, and almost 90% of lithium demand.1Assuming the Paris Agreement goals are met. This is a major opportunity for Africa, which hosts 30% of the world’s green mineral reserves. Table 1 shows the minerals required for different renewable energy technologies, where they are available in Africa and the continent’s share of global reserves.

Table 1: Availability of green minerals in Africa
Sources: UNCTAD, Critical Minerals and Routes to Diversification in Africa, 2023; USGS, Mineral Commodity Summaries, 2023; UNEP, Environmental aspects of critical minerals in Africa in the clean energy transition, 2023; IRENA, Geopolitics of the Energy Transition: Critical Materials, 2023.
Box 2: China’s role in the global value chain for green minerals

China controls the manufacturing of renewable energy technologies and plays a key role in the processing of green minerals exported from the African continent.

Fig. 2: Share of processing volume by country for selected minerals
Source: IEA, Share of processing volume by country for selected minerals, 2019.

Between 2005 and 2015, Chinese investment in the African mining industry grew 25 times. China’s control over mines in Africa has also been growing, reaching almost 7% of the total value of mines in 2018 in countries like Gabon, Ghana, South Africa, Zambia and Zimbabwe. Chinese firms control almost 41% of cobalt extraction in the DRC and nearly 28% of copper in the DRC and Zambia.

Africa’s development needs

African countries have huge energy, housing and transport needs and minerals could provide the basis for developing these sectors in a sustainable way. In Africa, 120 million people do not have access to electricity, and 200 million people need modern, clean cooking solutions at home. “Africa needs to connect 90 million people annually to electricity in the next eight years and shift 130 million people from dirty cooking fuels every year” to ensure access to affordable, reliable, sustainable and modern energy for all citizens, according to the IEA.2Based on the United Nations’ sustainable development goals.

The expansion of renewables could help meet these energy needs, with demand for solar and wind power on the continent set to rise in the coming years. Fossil fuels constituted over 75% of Africa’s energy mix in 2020, with wind and solar accounting for about 3% in total. However, prices for renewable energy in Africa are nearing price parity with fossil fuels. In light of these market dynamics, by 2030, solar power could represent between 23% and 38% of the total installed capacity on the continent (Figure 3). The production of solar panels requires silicon and cobalt. Wind energy could account for between 14% and 23% of installed capacity and is set to grow by 900% based on projects announced to date. Wind turbine production requires copper, zinc, nickel, manganese and chromium, while offshore wind also requires rare earth elements. Hydroenergy accounts for 25% of current installed renewable capacity and requires platinum and zirconium.

An almost complete shift to renewable energy is feasible for the African continent by 2050 but would require increasing annual investments to between USD 40 billion-80 billion until 2030 and USD 80 billion-120 billion from 2030 to 2050. The lower estimate roughly corresponds to the nominal GDP of Uganda and the higher to the GDP of Côte d’Ivoire. Such a transition would result in many benefits: renewables emit considerably less greenhouse gas than fossil fuels, need fewer raw materials over their lifetime and could play a vital role in expanding electricity access in Africa. A case study in Kenya, Ethiopia and Rwanda also showed that off-grid solar systems had benefits for health, IT and micro-enterprises in rural areas.

Fig. 3: Projections for the share of hydro, solar and wind energy in Africa’s total installed capacity by 2030 in three scenarios
Source: IRENA, Renewable Energy Transition in Africa, 2021.32020 is the average estimate of installed capacity used across the three scenarios.

The development of mineral value chains could also play a role in building infrastructure such as housing and transport. Although significant regional disparities exist, the average share of the urban population living in inadequate housing in Africa is almost 40%. Additionally, only 28% of the African population has convenient access to public transport. Africa is also the least motorised region in the world, accounting for only 1% of cars sold globally. Despite this, traditional fossil fuel-powered transport bears high costs: an analysis by Carbon Tracker shows that African countries currently spend USD 80 billion a year on transport fuels, equivalent to 2.5% of the continent’s GDP. Minerals such as copper which is used in the manufacturing of EVs or iron which is used in housing construction could play a role in developing these sectors.

What needs to happen?

Governments in Africa are already recognising the transformative potential of their mineral reserves by taking steps to develop the sector. Some African countries have started to restrict exports of minerals in their raw states to promote local processing, such as the DRC. Ghana has approved a policy to manage the production and extraction of lithium, which “demands that not a single volume of lithium produced in this country will be allowed to be exported in its raw state”, according to Lands and Natural Resources Minister Samuel Jinapor. However, to reap the benefits of such policies, countries will need to expand their processing capabilities to produce intermediate goods or final products of higher value.

African governments have also tried to increase the benefits of mining for local communities by introducing local content policies, for example by requiring mining companies to employ a certain level of local workers. However, miners sometimes decide to open up operations elsewhere when these requirements are too stringent or constantly changing. Pan-African cooperation could prevent a potential ‘race to the bottom’ where countries try to attract investors by offering the least stringent requirements. Table 2 shows efforts by different African countries to develop their green mineral industries.

Table 2: African countries’ actions to develop green minerals4Source: African Ministerial Conference on the Environment, Environmental aspects of critical minerals in Africa in the clean energy transition, 2023.

While the growth in demand for green minerals presents a huge opportunity for Africa, more work is needed to develop the continent’s mineral value chains. The sector needs more regional cooperation, improved geological mapping, the development of a skilled workforce and higher levels of investment.

Regional cooperation

Establishing all segments of a mineral supply chain within a single country is often not feasible due to a lack of economies of scale.5Economies of scale refer to the cost advantages that an industry can achieve by increasing the scale of production, leading to lower average costs per unit. For this reason, regional cooperation is key to achieving value addition of minerals in Africa. Some progress has been made, with The African Green Minerals Strategy, to be launched in 2024, advocating for upstream value addition, expanding technical expertise, common external tariffs and tackling Africa’s energy deficit. It builds on previous agreements such as the Africa Mining Vision, a framework established by the African Union in 2009 for member nations to harness mining for equitable growth. Areas of focus included improving the quality of geological data, improving contract negotiation capacity, improving mineral sector governance, better management of mineral wealth, tackling infrastructure constraints and elevating small-scale mining. However, the implementation of the vision was criticised for being too slow and not including civil society actors.

The Africa Continental Free Trade Agreement, signed by 54 countries, also entered into force in 2021 and aims to increase economic integration, value addition and export diversification on the continent. The deal is projected to increase exports by 29%, including in green minerals and the manufacturing sector. Ghana, Kenya, Rwanda, Tanzania, Egypt, Mauritius, Cameroon and Tunisia have already started trading under the agreement. Despite this progress, intra-Africa trade currently accounts for less than 17% of the continent’s total trade, lower than Asia at 47% and Latin America at 27%. Further collaboration between African countries could “facilitate the emergence of regional value chains, attract investments, and increase the competitiveness of African countries in the mining sector,” according to The African Ministerial Conference on the Environment.

Geological mapping

Africa’s mineral resources remain under-explored and its total exploration budget has fallen since 2012, when the continent accounted for 18% of the global exploration budget. In 2022, Africa accounted for about 10% of global exploration spending. According to the IEA, improving surveys and mapping is the first major step to attracting investors as they can reduce geological risks such as landslides that would impede mining. However, transparency concerns can arise when mining companies carry out mapping instead of the government, as well as the risk of environmental damage. Competitive bidding, which has already been introduced in the DRC, Guinea, Sierra Leone, Nigeria and Zambia, could increase transparency, and governments could establish no-go environmental zones prior to mapping exercises to limit environmental damage. Progress has already been made: Kenya suspended the issuance of mining licences to conduct large-scale mapping of the country’s mineral deposits between 2019 and 2023.

Need for investment

Investment in Africa’s mining sector has been rising since 2020, with low production costs and an expanding workforce providing an attractive environment for mining operations. However, the continent’s share of global investment in minerals fell to 8% in 2023 from 15% in 2014. According to the IEA, increased investment hinges on improved geological surveys, robust governance, improved transport infrastructure and a strong focus on minimising the environmental and social impacts of mining operations. In 2018, West Africa received the largest share of mining investment on the continent, mainly in fossil fuels and gold rather than green minerals. Southern Africa followed, drawing investments primarily in gold, platinum, nickel and cobalt. Despite having some of the largest resources, Central Africa received the least investment, largely due to political instability and conflict which restrained exploration activities.

Fig. 4: Africa’s mining investment inflows in 2018 by region
Source: PwC, Investing in Africa, 2019.
Skills development

Regions with higher levels of foreign investment tend to have larger workforces, since employment is concentrated in regions with more skilled populations and better technological capabilities. The number of mining employees in Africa has shrunk since 2014, and direct employment accounts for between 1% and 4% of the formal workforce in countries with large mining sectors. Investment in education and skills development programs is key to developing minerals value chains. Governments could require mining companies to commit to up-skilling local residents, for instance through public-private partnerships.

Challenges in Africa’s mining sector

To develop its mineral value chain, Africa must address environmental, geopolitical and trade challenges in its mining sector. Ambitious mining projects have previously failed due to high costs, inadequate infrastructure, skill deficits and governance issues. An example is the Brazilian miner Vale’s plan to extract iron ore from the Simandou mine in Guinea, which fell through amid allegations of bribery.

Limited tax revenues

While some Sub-Saharan African countries have imposed royalties and corporation taxes on the mining sector, government revenue generated from mining in many resource-rich economies across the region remains limited. State revenue from taxing multinational enterprises is especially small, despite their large influence in the sector. This is because countries impose low tax rates on corporations with the aim of attracting investment, which has stoked regional competition to offer the lowest tax burden. Pan-African cooperation is key to prevent such tax dumping. In addition, the International Monetary Fund estimates that African countries are losing between USD 450 million and 730 million per year in corporate income tax on average from tax avoidance by multinational enterprises. Some countries have already taken steps to address tax vulnerabilities in the mining sector. South Africa and Nigeria have imposed restrictions on interest deductions, while Sierra Leone has stopped negotiating fiscal terms on a mine-by-mine basis.

Infrastructure shortcomings

Africa’s mining sector is burdened by logistics-related costs that are 250% higher than the global average. This is largely due to shortcomings in countries’ transport and energy networks, such as poor road conditions or an unreliable electricity grid. The mining sector is a major consumer of electricity, accounting for about 54% of consumption in the Central African Copper Belt.6The Central African Copper Belt is a geological zone rich in copper and cobalt, located between DRC and Zambia. Adding mineral processing activities could further strain supply to this sector. In order to make African countries competitive for mineral processing, significant investments need to be made in transport and energy networks. African governments could make mining licences conditional on company commitments that will benefit the local or national economy. In Guinea, the government required financing for a 670 km rail link from the iron ore deposits to the port to be included in any development agreement. The current government in Chile, the world’s second biggest lithium extractor, is seeking a bigger share of profits from mining to go towards funding schools and hospitals.

Environment and governance issues

Long before the rise in demand for renewable energy technology, many mining projects have had negative social, economic and environmental impacts on local communities. The IEA has listed several issues plaguing Africa’s mining sector, including human rights violations such as child labour. In the southern DRC province of Lualaba, where mining of copper and cobalt has expanded in recent years, local communities have been displaced for large-scale industrial mining projects, according to Amnesty International. Miners also face big health and safety risks, especially in small‐scale mining operations, where regulatory standards are weak, and healthcare or compensation in the event of an accident are often non‐existent.

Effective governance and regulation of the mining sector are needed to minimise negative impacts and ensure that local communities benefit from minerals extraction. At the same time, reducing corruption and boosting transparency in mining has the potential to create economic growth for local communities. Some attempts have been made, with 24 African countries signing up to the Extractive Industries Transparency Initiative (EITI) – a global scheme promoting transparency and accountability in the mining sector through the mandatory publication of detailed government and company reports on activities and revenues. However, there are concerns that countries and companies which are EITI members often disclose information that is insufficient or lacking in detail.

The extraction and production of green minerals also generate a substantial amount of waste, potentially carrying harmful chemicals that pose risks to ecosystems and water sources. Implementing effective waste management practices, including safe disposal and the adoption of advanced treatment technologies, is crucial to limit pollution and safeguard the environment and human health.

Loss and damage funding for Africa will be back on the table at COP28

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Key points:

  • A landmark decision was reached last year at COP27 to create a loss and damage fund to provide financial assistance to countries most vulnerable to climate change.
  • Key details for the fund still have to be agreed on at COP28, and the main hurdle will be ensuring adequate financing is available for vulnerable countries.
  • African countries are disproportionately affected by climate change, with many facing extreme weather events, such as heatwaves and floods, that are increasing in frequency and severity.
  • Weather, climate and water-related hazards in Africa caused more than USD 8.5 billion in economic damages in 2022.
  • Low-income countries can become trapped in a cycle of borrowing and debt that prevents investments in climate resilience and economic development.
  • Malawi faced significant destruction from Tropical Cyclone Freddy in March 2023, with reconstruction costs topping USD 680 million.
  • Climate change impacts in Malawi could result in annual GDP losses as high as 20% by 2040.

Loss and damage fund

At COP27 last year in Egypt, a milestone achievement was reached with an agreement to establish a new loss and damage fund. The fund is aimed at assisting “developing countries that are particularly vulnerable to the adverse effects of climate change”. A committee of developed and developing countries has begun work on the fund, and key details will be discussed during COP28 later this year in the United Arab Emirates. In their last meeting in early November, the committee agreed on a draft proposal for consideration at COP28, that would see the fund housed under the World Bank, with only voluntary contributions.

The debate on what is considered loss and damage, as well as who should compensate for it and how, has been ongoing for decades. While high-income countries are responsible for the majority of carbon dioxide emissions, they have been reluctant to commit to loss and damage funding due to concerns around legal liability.

What is loss and damage?

Loss and damage refers to the inevitable impacts of climate change experienced by the Global South that have not been avoided through mitigation and adaptation due to socio-political or economic constraints, or that cannot be avoided because it is impossible to do so. It may include circumstances such as:

  • Extreme weather or rapid-onset events, such as storms, cyclones, heatwaves and floods
  • Slow-onset events, such as drought, desertification, increasing temperature, land degradation and sea level rise
  • Non-economic impacts, such as loss of cultural heritage, animals, plants and tradition
  • Economic impacts, such as loss of lives, livelihoods, homes, agriculture and territory

Some of these risks can be addressed through adaptation measures. If the measure is not yet available but could become available in the future, the risk is considered to be a soft adaptation limit. An example of this might be the development and implementation of an early warning system for floods in a region that is becoming increasingly flood prone. However, some risks have a hard adaptation limit, meaning the available technologies and actions for averting this risk are not feasible. An example is when an island becomes uninhabitable because of sea-level rise.

It is helpful to think about climate risks as being situated along a continuum of risks that have or will be avoided through mitigation, unavoided risks that cannot presently be avoided or reduced due to socio-economic constraints, and unavoidable risks with hard adaptation limits (see Figure 1).1Adapted from Finance for loss and damage: A comprehensive risk analytical approach. Loss and damage is centered around unavoided and, particularly, unavoidable risks.

Fig. 1: Climate risks along a continuum of avoided, unavoided or unavoidable risks
Source: An introduction to loss and damage, Zero Carbon Analytics, 2022.

Loss and damage in Africa

Despite Africa being responsible for just 3% of all carbon dioxide emissions since the industrial revolution, it is the most vulnerable continent to the impacts of climate change. Nine of the 10 countries ranked as most vulnerable to climate disruptions are in Africa.

The loss and damage costs in Africa are estimated to range between USD 290 billion and USD 440 billion between 2020 and 2030, depending on the level of warming.

In 2022 alone, weather, climate and water-related hazards in Africa caused more than USD 8.5 billion in economic damages. More than 110 million people were affected by weather, climate and water-related hazards in Africa in 2022, and 5,000 deaths were recorded. However, the true toll is likely to be much higher due to underreporting.

Africa is already losing between 5% and 15% of its per capita economic growth due to climate change and related impacts, according to the African Development Bank.2Gross domestic product per capita measures a country’s economic output per person and is calculated by dividing the GDP of a country by its population. Studies estimate that African countries may face a 34% reduction in gross domestic product (GDP) per capita by 2050 on average even if warming is limited to 1.5°C.

The costs from climate change come in addition to the large amounts of funding African countries need for development and debt repayments. “The disasters triggered by the growing climate-related hazards threaten to undo decades of development gains and push millions back to poverty,” according to the United Nations Office for Disaster Risk Reduction.

Malawi’s vulnerability to climate change

Malawi is one of the poorest countries in the world, with over 50% of its population living below the national poverty line, and about 15% of its population experiencing acute food insecurity.3A national poverty line represents the cost of basic needs in a country, while an international poverty line represents the average national poverty line for the poorest 15 countries. The World Bank estimates 72% of Malawi’s population live under the international poverty line of less than USD 2.15 a day.

The southeast African country has contributed less than 0.01% of cumulative global carbon dioxide emissions associated with human activities, but is extremely vulnerable to climate impacts. This is partly because Malawi’s economy is heavily reliant on the agriculture sector, which employs up to 80% of the population. Around 90% of people live in rural areas and are mostly reliant on rain-fed and smallholder farming, which is vulnerable to changes in rainfall patterns and extreme weather.

Tropical Cyclone Freddy

In March 2023, Tropical Cyclone Freddy broke records as the longest-lasting cyclone since weather records began, according to the World Meteorological Organization. Malawi received six months’ worth of rain in six days. The government of Malawi estimates that about 2.3 million people were affected, with 659,000 people displaced, 669 killed and over 500 people declared missing by mid-March 2023.

The housing and transport sectors suffered the worst damage, with more than 260,000 houses affected and damage to road networks limiting relief and recovery efforts. The agricultural sector was also significantly affected, with the loss of crops and expected reduction in output having serious impacts on peoples’ livelihoods and worsening food insecurity.

A post-disaster needs assessment estimated the total cost of damage at USD 507 million, while the total cost of recovery and reconstruction came to USD 680 million – equivalent to almost 6% of Malawi’s GDP. The amount of climate finance received by Malawi – estimated at USD 130 million in 2021 – does not come close to the amount of funding needed for the country to recover and rebuild.

The assessment also highlighted many non-economic impacts, such as the destruction of fragile ecosystems in the districts of Zomba, Chikwawa and Nsanje and damage to cultural heritage sites, including the Mbona Sacred Rain Shrines.

Cumulative impacts

Cyclone Freddy is not a stand-alone event. Climate change induced extreme weather events in Malawi are becoming more frequent and causing losses and damages faster than the country is able to recover from them. Cyclone Freddy was the third extreme weather event to hit Malawi in just over a year, following Tropical Cyclone Ana and Gombe in 2022. The cyclones, as well as Cyclone Chedza in 2015 and Tropical Cyclone Idai in 2019, all led to significant loss of life, livelihoods and damage to infrastructure.4See here for additional case studies on the impacts of tropical cyclone Ana in Mozambique and Malawi.

The cumulative costs of damage and losses from these events came to well over USD 1 billion (Figure 2). When Cyclone Freddy hit, Malawi was still yet to recover from these disasters – alongside the lingering effects of the COVID-19 pandemic, Russia’s invasion of Ukraine, which disrupted supply chains and raised prices, and the deadliest outbreak of cholera in the country’s history.

Fig. 2: Costs of recent extreme weather events in Malawi
Source: Government of Malawi, 2023.

The urgent need for emergency response and rehabilitation efforts in the aftermath of disasters can divert resources away from long-term recovery and development efforts. Frequent and consecutive disasters, like those experienced by Malawi, can deplete financial and natural resources. The government of Malawi said that climate-induced shocks are worsening macroeconomic instability and “making it harder for Malawi to break the cycle of vulnerability”.

The government estimates suggest the country loses an average of 1.7% of its GDP every year as a result of climate change-related disasters. Climate change impacts could result in annual GDP losses as high as 20% by 2040 if Malawi remains on its current low-growth development trajectory, and are likely to exacerbate existing social and economic inequalities, particularly for vulnerable groups. National data has shown that households in Malawi are 14% more likely to fall into poverty after a climate shock.

Debt spirals and climate vulnerability

Analysis by ActionAid found that 93% of countries at the forefront of climate disasters “are drowning in debt”. When countries are hit with natural disasters and do not have the resources to respond and recover, they must borrow money. Finance is largely provided through loans, not grants, resulting in more debt. This often comes on top of existing loans that have to keep being paid back, which can push countries into a costly debt spiral. Borrowing money is expensive due to the perceived risk of lending to countries in crisis. The average cost of borrowing for the group of 58 climate-vulnerable nations is 10.5% – much higher than borrowing costs for developed countries, which is around 3.5%.

Currently, 38 out of the 63 most climate-vulnerable countries are spending so much on debt repayments that they are likely cutting spending on public services. Malawi is no exception – borrowing with high rates has “not only increased debt service costs but has also exacerbated vulnerabilities in public debt and pushed it to unsustainable levels”. Public debt in Malawi reached around 60% of GDP in 2022. Reserving a large part of the budget for debt servicing and disaster response threatens the allocation of funding for building climate resilience and slows progress towards development goals.

Next steps

Key details for the loss and damage fund that still need to be resolved at COP28 include:

  • Where the fund will sit: At its meeting in early November, the transitional committee agreed on a draft proposal that would see the fund sit under the World Bank for at least four years. Developing countries want the fund to be an entirely new mechanism in the hope that this would avoid institutional challenges they face when attempting to access funds. However, developed countries have suggested that housing the fund in an existing entity would avoid delays and the further fragmentation of climate finance.
  • Purpose of the fund: Developing countries agree that the fund should be demand-driven and cover all types of economic and non-economic losses. Some developed countries, such as the US and New Zealand, have suggested a more limited scope: that finance only covers slow-onset events, such as sea level rise, and that it should only cover non-economic loss and damage, such as loss of heritage.
  • How funds will be sourced: The committee’s draft proposal states that contributions towards the fund would not be obligatory. Wealthy countries that have historically contributed the most greenhouse gas emissions would pay into the fund, but there is disagreement over whether other major polluters, such as India and China, and high-income oil-producing states should also contribute. Developing countries agree that loss and damage finance needs to be “new, additional, predictable and adequate” as well as “grants-based”. Ensuring that these funds are not drawn from existing climate financing or overseas development assistance is also a priority.
  • Who will receive funds: Countries agreed at COP27 that the fund is intended to support “developing countries that are particularly vulnerable” to climate change. However, some countries want all developing countries to benefit from the fund while others claim only specific nations, such as Least Developed Countries and Small Island Developing States, should benefit.
Scaling up funding

The key hurdle will be ensuring adequate levels of funds are available to deal with the scale of current and future loss and damage. Estimates of total global costs of loss and damage by 2050 range from USD 500 billion to USD 4 trillion, depending on the level of warming. In 2020, developed countries provided and mobilised a total of USD 83.3 billion in climate finance, with only a quarter of that going to African countries.

Developing countries have proposed that the fund should provide at least USD 100 billion by 2030 as a “minimum”. So far, seven United Nations member states as well as the government of Scotland and the Belgium region of Wallonia have pledged financing, amounting to around USD 294 million, with about 61% of that coming from Germany. Some of this funding comes from existing commitments. 

Previous climate finance agreements, such as the 2009 goal to raise USD 100 billion in climate finance each year by 2020, have fallen short. It is critically important that the global loss and damage fund attracts adequate levels of funding to reinstill trust in international climate negotiations.

Exploring a comprehensive loss and damage facility for African countries

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Key points:

  • Africa is responsible for just 3% of all carbon dioxide emissions since the Industrial Revolution but is the most vulnerable continent to the impacts of climate change
  • These impacts will increasingly exacerbate poverty and inequalities and disrupt livelihoods 
  • Comprehensive loss and damage facilities could be established at the national level in order to address country-specific needs
  • These would function at multiple levels to cover unavoided and unavoidable, economic and non-economic losses and damages, and would encompass risk and curative (i.e. compensatory) finance mechanisms, with funding obtained through multiple avenues 
  • The finance sources could include philanthropy and solidarity funds, multilateral sources such as grants, loans and multi-donor trust funds, and other finance sources such as carbon levies and taxes, collected and distributed through a formal financing mechanism that is yet to be established.

The politics of loss and damage

Loss and damage – which refers to the negative impacts of climate change that may or may not be reduced by adaptation – is a contentious and highly politicised topic. This is because while developed nations are responsible for most of the greenhouse gases emitted since the Industrial Revolution, the warming caused by them is disproportionately impacting less developed countries that have contributed the least to global warming. For example, Africa is responsible for just 3% of all carbon dioxide emissions over the last few centuries but is the most vulnerable continent to the impacts of climate change.

Though the concept of loss and damage is formally recognised by the UN Framework Convention on Climate Change (UNFCCC) and has always been discussed at COPs, no provision has been made for the financing of loss and damage. Indeed it was a key sticking point in last year’s COP negotiations. Wealthy nations are reluctant to commit to loss and damage funding due to concerns around legal liability, fearing they may become locked into open-ended litigation and compensation for climate-induced disasters. A proposal for a dedicated financing facility for loss and damage at COP last year by the negotiating bloc of the Group of 77 + China – which was supported by many climate-vulnerable and developing countries and civil organisations – was rejected by the US and EU. A formal mechanism for collecting and distributing funds for loss and damage – whether by establishing a dedicated financing facility or placing it in an existing fund (such as the Adaptation Fund) –  will be high on the agenda for the Global South at this year’s COP 27 meeting.

Avoidable, unavoided and unavoidable risks

Loss and damage may encompass a wide range of circumstances, including:

  • Extreme weather or rapid-onset events, such as storms, cyclones, heatwaves and floods
  • Slow-onset events, such as drought, desertification, increasing temperature, land degradation, sea level rise and salinisation (an increase in concentrations of salt in soil)
  • Non-economic impacts, such as the loss of cultural heritage, native animals and plants and tradition 
  • Economic impacts, such as loss of lives, livelihoods, homes, agriculture and territory.  

These impacts will further exacerbate poverty and inequalities and disrupt livelihoods, and increasingly so as temperatures rise. Some of these risks can be addressed through adaptation measures. If the measure is not available yet but could become available in the future, the risk is considered to be a ‘soft adaptation limit’. An example of this might be the development and implementation of an early warning system for floods in a region that is becoming increasingly flood prone. However, some risks have a ‘hard adaptation limit’, meaning that the available technologies and actions for averting this risk are not feasible. An example of this might be when an island becomes uninhabitable because of sea-level rise. 

When considering risk financing mechanisms for loss and damage, it is helpful to think about risks as being situated along a continuum (see Fig. 1, adapted from here) of avoided risks (risks that have or will be avoided through mitigation), unavoided risks (risks that cannot presently be avoided or reduced due to socio-economic constraints) and unavoidable risks (hard adaptation limits). Loss and damage is centered around unavoided and, particularly, unavoidable risks.

The different finance mechanisms available

Risk finance

A comprehensive climate risk management strategy to avert, minimise and compensate for unavoided and unavoidable loss and damage would include ambitious mitigation, adaptation and disaster risk-reduction action. Various risk financing mechanisms based on risk pooling (spreading risk by sharing it across different lenders/insurers) and transfer exist that could be used to address loss and damage:

  • Catastrophe/disaster risk insurance
    • Aimed at developing tailored financing strategies for improving financial resilience to natural hazards
    • One example is the National Agricultural Insurance Scheme (NAIS) in India, which aims to mitigate risks related to crop and livestock loss from climate events. The NAIS is funded by a state-owned insurer and receives technical support from the World Bank
    • Microinsurance can provide financial support to low-income households following disasters. One example is Acre Africa, a World Bank initiative offering innovative and tailored microinsurance products to help small-scale farmers mitigate against crop failure from adverse weather   
  • National social protection schemes or social funds
    • These consist of a wide range of policies and interventions aimed at reducing poverty, inequality and vulnerability, including social protection programmes, contributory social insurance and social health protection
    • An example is South Africa’s Working for Water programme, which employs people in public sector projects to conserve water and ecosystems, thereby improving climate change adaptation and disaster risk reduction. The programme is funded by both government and private entities      
  • Contingency finance
    • Governments set aside public funds or obtain loans from multilateral financing institutions in order to respond rapidly in the aftermath of a disaster 
    • If a loan is secured from a development bank, governments will only incur a cost in the event that funds need to be drawn from the loan
  • Catastrophe-linked bonds
    • Risks are transferred from developing countries to the capital markets – financial markets where buyers and sellers trade bonds and other financial assets – in the event of a catastrophe, thereby filling in the financing gap for immediate post-disaster relief from extreme events 
    • For example, the World Bank issued a catastrophe-linked bond (listed on the Singapore Stock Exchange) to provide support for losses of up to USD 150 million from tropical cyclones in the Philippines   
  • Climate-themed and green bonds
    • These are instruments that finance green or climate-themed projects and provide investors with regular or fixed income. Investors hedge against climate risks and receive returns on their investments
    • The International Finance Corporation (IFC) – a World Bank institution – has contributed substantially by issuing and investing in green bonds
    • For example, in 2021, the IFC invested USD 100 million in Egypt’s first private sector green bond to help finance sustainable projects and the transition to a greener economy
  • Forecast-based financing
    • These are funds that are released for pre-defined actions based on scientific forecasts and risk analysis
    • For instance, in Bangladesh, emergency kits are distributed prior to a cyclone.  

These risk financing mechanisms are mostly appropriate for avoidable/unavoided loss and damage. However, it is not possible to prevent or minimise loss and damage that go beyond hard adaptation limits (unavoidable loss and damage) – such as many impacts from slow-onset events. For risks that cannot be addressed using these risk pooling and transfer mechanisms, curative finance may be needed:

Curative finance
  • Loss and damage funds
    • These are trust funds that facilitate access to international finance and raise local money for climate change mitigation, adaptation, risk management and compensation 
    • A significant amount of donor support is required for these funds, which may be sourced from various entities (see the box on ‘where the money comes from’ below) 
    • An example is Bangladesh’s National Mechanism for Loss and Damage, which  is financed through multi-donor trust funds and the national budget 
  • Impact investment funds
    • Environmental and climate projects are financed by private and public funds, providing investors with returns on their investment
    • An example is Livelihood Carbon Funds, which invest in projects such as mangrove restoration in Africa 
  • Trust funds
    • Funds are especially established to deal with a specific need, such as relocation due to climate change
    • For example, the Fiji Climate Relocation and Displaced Peoples Trust Fund for Communities and Infrastructure that was developed to respond to displacement due to sea-level rise
    • Funding is obtained from a climate and adaptation levy (whereby certain services, incomes and items are taxed) and, potentially, bilateral and multilateral funding. 

The finance sources discussed in the box below could be used for both risk finance and curative finance mechanisms.

Where might the money come from? 

Philanthropic and solidarity funds 

  • Philanthropic funds
    • At COP 26, several philanthropic climate funders, including the European Climate Foundation, Open Society Foundations, and Hewlett Foundation,  committed an initial USD 3 million in loss and damage finance as ‘start-up assistance’    
  • Solidarity funds. Here are examples of what solidarity funds could look like:
    • The European Union Solidarity Fund (EUSF) – financial contributions are made by EU member states and are administered by a flexible governing mechanism 
    • Unitaid – finance is obtained through national aeroplane levies, voluntary contributions by countries and philanthropy 
  • Government pledges
    • At COP 26, Scotland and Wallonia committed USD 2.5 million and USD 1 million respectively to financing loss and damage 
    • Denmark committed USD 13 million to loss and damage financing this year.

Multilateral sources 

  • Within the UNFCCC, the Green Climate Fund (GCF) is the only source providing adaptation and loss and damage financing.  Approximately 24% of GCF-approved projects refer to loss and damage
  • Global Facility for Disaster Reduction and Recovery (GFDRR), which is a grant-funding mechanism 
  • Global Risk Financing Facility (GRiF), which is a multi-donor trust fund that provides grants
  • Multilateral development banks, which could provide assistance in the form of grants (need not be paid back) and loans (need to be paid back)   
  • The multi-donor trust fund of the Climate Vulnerable Forum and the Vulnerable Twenty Group 
  • The World Bank’s International Development Association (IDA), which provides finance via concessional loans and grants and policy advice to developing countries   
  • Official development assistance (ODA) – between 2010 and 2019, 11% (USD 133 billion) of international aid was disaster-related, suggesting that ODA could be an important source of loss and damage finance. 

Innovative finance sources 

  • Luxury carbon tax or wealth tax
    • Levies and taxes could be added to luxury or high-emissions intensity products or activities, such as space tourism, buying luxury yachts and sports cars and using private jets 
  • Financial transaction tax
    • A small levy could be placed on the buying and selling of financial assets, which could provide up to USD 16 billion in revenue. 
  • International airline passenger levy
    • A modest fee on international aeroplane tickets could be paid directly into a loss and damage fund
  • Bunker fuels levy
    • The emissions and fuels of cargo transportation by ship and aeroplane could be taxed. The International Monetary Fund (IMF) estimated that a tax of USD 30 per tonne of carbon emitted by aeroplanes and ships (advanced economies only) would have raised USD 25 billion in 2014   
  • Fossil fuel majors carbon levy
    • The Carbon Majors report in 2013 found that 63% of emissions in the atmosphere are from coal, gas, oil and cement from only 90 companies
    • A global fossil fuel levy could be imposed on these companies and directed into a loss and damage fund that could be supplemented by a one-off fee from each company based on its historical emissions
    • For instance, the prime minister of Barbados has proposed a 1% tax on sales revenues for fossil fuels, which could raise USD 70 billion each year 
  • Global carbon tax
    • A global system of carbon pricing could help fund loss and damage either through taxation or auction revenues generated from trading schemes, such as the EU Emissions Trading System. 

What would a comprehensive loss and damage facility look like for African countries?

Comprehensive loss and damage facilities could be established at the national level in order to address country-specific needs. The facility would need to function at multiple levels to cover unavoided, unavoidable, economic and non-economic losses and damages and would encompass the risk finance and curative finance mechanisms discussed above, with funding obtained through multiple avenues. It would also require close cooperation and coordination among different levels of government, the multilateral system and various sectors across society. A potential loss and damage facility could be broken down into four main components:

  • Knowledge and capacity development
  • Resilience building
  • Funding collection and allocation
  • Compensation for, and recognition of, unavoidable loss and damage.
Knowledge and capacity development

These are knowledge and technology-sharing measures for averting and minimising loss and damage impacts:

Establish centralised and reliable climate change databases 

  • The database should include high-quality meteorological data, climate projections and warnings and archives of climate events 
  • National governments and research institutes need access to sophisticated technologies such as numerical flood monitoring and flood mapping infrastructure, and improved data collection tools and capacity in order to better understand trends and respond appropriately  
  • These tools would be fundamental for developing early-warning systems for floods, droughts, fires and other climate hazards
  • This information is also important for climate change attribution.  

Build collaborative and inter and trans-disciplinary research 

  • Encourage skills sharing between research institutes and universities in developing and developed nations to ensure that local entities have access to the latest and most sophisticated tools for monitoring events
  • For example, the University of KwaZulu-Natal in South Africa is working with the Dutch research institute Deltares to develop an early warning system for floods 
  • Increase university funding for research on loss and damage and climate change from international donors and public funding sources. 

Strengthen technical capacity building for local governments

  • Provide local governments with the tools, expertise and capacity to effectively coordinate preparations for and responses to climate disasters  
  • For instance, the Council for Industrial and Scientific Research (CSIR) in South Africa has developed a state-of-the-art online risk profiling and adaptation tool, called the Green Book, for assisting municipalities in assessing risks and vulnerabilities to climate change. The tool is co-funded by the Canadian International Development Research Centre and was produced together with South Africa’s National Disaster Management Centre.
Resilience building

These are physical measures for averting and minimising loss and damage impacts that prioritise climate-resilient interventions:

Investment into projects that promote climate resilience 

  • For example, Access Bank in Nigeria issued a certified green bond that will mostly go towards building coastal flood defenses to protect against sea-level rise.

Construction of physical climate barriers and adaptation measures 

  • For example, the construction of sea walls along Tanzania’s coastline, funded by the US Adaptation Fund and the Global Environment Facility’s Least Developed Countries Fund 
  • Through the Adaptation Fund Climate Innovative Accelerator, grants are being administered for innovative adaptation technologies. An example is Slamdam, an inexpensive technology for protecting people from flooding that is being piloted in Burundi. 

Preventative building measures, such as retrofitting houses to improve resilienceFor example, low-cost homes in South Africa were retrofitted with ceiling insulation through a local government project financed by South Africa’s Green Fund, which has a portfolio of investment projects and is managed by the Development Bank of Southern Africa.

Case study 1: Extreme precipitation in Durban, South Africa

Earlier this year, extremely intense rainfall (> 450 mm in 48 hours) led to flash floods and landslides in Durban in South Africa, killing more than 450 people, destroying 4,000 houses, displacing around 40,000 people and causing ZAR 1.7 billion in damages. This event is considered one of the worst natural catastrophes in South African history in terms of economic and human life loss and was made twice as likely due to climate change.

The floods disproportionately affected marginalised communities and the impacts were worsened by pre-existing structural vulnerabilities – a legacy, in part, of centuries of colonialism and apartheid, further exacerbated by current exploitative international relationships and global power imbalances.   

South Africa was ill-prepared to respond to the event:

  • There is no reliable disaster risk database
  • Local, provincial and national governments have not been proactive in planning and building resilience, which may be due to a lack of coordination, finance, capacity or expertise 
  • Early-warning systems and flood mitigation measures are inadequate, and so no rapid-response system is available. 

Other factors compounded the risks from this event, including uncontrolled urbanisation and a lack of land-use zoning enforcement (e.g. stopping people from building below the flood line). In addition, poor education in many communities means that people may not fully understand the danger posed by such an event and may be reluctant to move when asked to. The region is also reeling from the negative economic impacts of the Covid-19 pandemic and socio-economic unrest. 

Who paid for the impacts?

In addition to this, a comprehensive loss and damage facility for averting, minimising and compensating for this disaster might cover the following:

  • Developing an advanced early-warning and rapid-response system
    • Acquire funding from international sources, including research grants, to facilitate research
    • Facilitate skills and expertise sharing with international experts 
  • Relocating at-risk communities to suitable land above the flood line
    • Financed through trust funds set up for relocation  
  • Protecting at-risk infrastructure through flood control mechanisms
    • This could be funded through green bonds or impact investment funds.
  • Providing facilities in anticipation of events
    • Allocate forecast-based financing for distribution of health packs or mobile health facilities 
  • Uplifting local communities through resilience measures
    • Invest in national social protection schemes and preventative measures (i.e. retrofitting houses to make them flood or rain proof)
    • Invest in projects that empower local government to educate and communicate with communities on flood impacts.
Fund collection and allocation 

These are approaches for maximising fund collection and allocation for loss and damage impacts:

Diversify funding sources 

  • Design funding options that are not currently in place, such as from innovative sources
  • Encourage funding to be based on grants and concessional loans (i.e. loans that offer more favourable terms than market-based loans).

Streamline funding acquisition 

  • Maximise overall loss and damage financing through comprehensive risk management frameworks that include a range of funding sources, rather than relying on ex-post (after the event) aid, which is unreliable and difficult to monitor
  • Diversify social protection measures and the financing thereof 
  • Improve government capacity to undertake international negotiations on loss and damage financing.

Establish trust funds 

  • Multilateral development banks and national development banks have great potential to address loss and damage through trust funds
  • Trust funds geared towards country-specific needs should be established, such as the Fiji Climate Relocation and Displaced Peoples Trust Fund for Communities and Infrastructure, which was developed to respond to displacement due to sea-level rise.

Develop a dedicated loss and damage financing mechanism

  • A dedicated financing facility should be established to track and prioritise which aspects of loss and damage need funding
  • Ensure that the funds are reaching the most vulnerable.
Case study 2: Tropical cyclone Ana in Mozambique 

Mozambique experienced extreme rainfall from tropical cyclone Ana this year, displacing 180,869 people, destroying 12,000 houses, damaging 26 health centres, 2,275 km of road and 765 schools, and flooding 37,930 hectares of crops, severely impacting food security. Climate change increased the likelihood and intensity of the rainfall associated with these cyclones, and these events are projected to become increasingly severe with climate change. Mozambique has contributed 0.01% of global carbon dioxide emissions since the Industrial Revolution. 

Sixty percent of the population of Mozambique lives along the coastline and is vulnerable to tropical storms. Mozambique ranks 9th out of 191 countries globally in terms of high vulnerability to climate impacts, exposure to risk and lack of coping capacity. Recent military insurgence in some parts of the country, rooted in unemployment, underdevelopment, poor governance and poverty, has led to the death of around 4,000 people and the displacement of nearly one million. 

Current funding sources and mechanisms for climate disasters in Mozambique include: 

  • Contingency finance
    • This is the main disaster funding source in the country, but it only covers the initial emergency phase and is limited
  • Donors
    • Donations are a significant source of funding for extreme events but are difficult to monitor and predict, in part because there is no centralised monitoring and coordinating mechanism 
  • Emergency loans
    • These are organised in advance and can deliver funds in the event of an emergency. However, they are unpredictable, difficult to monitor and require long negotiations that cause delays in recovery and reconstruction
  • Contingency budget
    • The Ministry of Public Works, Housing and Water Resources is the only sector to use a contingency budget, which allocates emergency funds to the recovery of roads and bridges.

How could the response to tropical cyclones be improved under a comprehensive loss and damage facility?  

  • The Disaster Management Fund, which has been created by the Mozambican government to proactively budget for events rather than reallocate funds after the event. This has received funding in the form of a grant from the World Bank   
  • Contingent loans are being discussed by the Mozambican government and World Bank and would provide immediate access to liquidity for emergency response and recovery following a disaster. This is especially important for providing immediate relief while funds are being obtained from other sources  
  • Comprehensive rural insurance schemes, including microinsurance for agriculture, supported through entities such as the Global Index Insurance Facility, a multi-donor trust fund that supports smallholder farmers  
  • Trust funds and loss and damage funds, such as relocation trust funds for those living in high-impact areas
  • National social protection schemes and other resilience measures for uplifting vulnerable communities. Examples might include retrofitting houses, medical centres and schools to make them storm proof. Investment in infrastructure for protecting communities from storm impacts could be funded through green bonds and impact investment funds   
  • A comprehensive database on disasters as well as a sophisticated early-warning system could be developed with international expertise and financing. This would include means for disseminating information on imminent events, as rural areas are isolated and do not have reliable telecommunications.
Case study 3: Tropical cyclone Ana in Malawi

Together with Mozambique and Madagascar, Malawi experienced intense rainfall and winds from tropical cyclone Ana, affecting around one million people, destroying 115,388 hectares of crops and leaving 114,218 children without school facilities. Climate change increased the likelihood of this event in Malawi and is likely to increase the likelihood and intensity of tropical cyclones in the future. Malawi’s department of disaster management estimated that its four-month recovery plan required around USD 84 million. Malawi has contributed less than 0.01% of global carbon dioxide emissions since the Industrial Revolution.   

Malawi is one of the poorest countries in the world, with an economy that is heavily reliant on agriculture, which employs up to 80% of the population. This makes it particularly vulnerable to climate shocks. Around 90% of people live in rural areas and are mostly engaged in rain-fed subsistence and smallholder farming. Around 2.3 million people face food insecurity and require assistance. Armed conflict in Northern Mozambique has also impacted more than one million Malawians.

How were affected communities supported following this event? 

  • By the four-month recovery plan of Malawi’s department of disaster management, which received funding and technical support from humanitarian partners  
  • A ‘flash appeal’ launched by humanitarian partners of the Malawian government, including the Malawi Red Cross, seven national NGOs, 26 international NGOs and 10 UN agencies, all of which aimed to provide assistance for those affected in the immediate aftermath of the event 
  • By Oxfam and its humanitarian partners, who provided immediate relief in the form of cash, food, clean water and sanitation 
  • Provision of health and nutrition kits by UNICEF
  • By other humanitarian organisations, such as Partners for Reproductive Justice, which provided health kits and mobile clinics for girls and women, and Christian organisations such as the Catholic Development Commission. which provided cash and non-food items, such as blankets and soap.  

What are some of the major challenges in responding to, and preparing for, extreme weather events in Malawi? 

  • Because of its high poverty and low level of economic development, Malawi is not resilient to climate disasters 
  • As emphasised by the response to Ana, Malawi is highly reliant on humanitarian aid. The National Resilience Strategy of the Malawian government recognises the need for policy and new approaches to shift away from humanitarian aid and towards response plans and  programmes that strengthen resilience to shocks
  • Though Malawi’s Department of Climate Change and Meteorological Services started issuing weather warnings on radio and television three days before the cyclone, many living in rural areas do not have access to radios or other telecommunications. The Department of Climate Change and Meteorological Services also cites issues including relaying weather information to those who are less educated, difficulties translating technical weather language into understandable formats, and a limited capacity for authorities to take action.   

How could the response be improved through a dedicated loss and damage facility? 

  • An analysis by the Loss and Damage Collaboration on a national loss and damage mechanism for Malawi found that:
    • Key aspects missing in the loss and damage agenda at the government level include slow-onset events, which have been given no policy priority, and non-economic loss and damage. It suggested these impacts should be monitored and assessed in order to understand them better
    • A loss and damage mechanism wouldn’t require the invention of completely new tools and approaches but should  build upon existing institutions and frameworks 
    • The mechanism should include a financing facility that could track and prioritise which aspects of loss and damage need funding with a focus on the most vulnerable  
  • Given the challenges faced by the disaster warning system currently in place, the facility could focus on improving resilience and responses by:
    • Developing a comprehensive risk database and a sophisticated early-warning system that can reach rural communities. This could be both national and community-based to reach various sectors of society 
    • Investing in programmes that help improve the understanding of climate disasters and impacts in communities so that they are better equipped to respond to these events  
    • Developing multi-level contingency plans in order to improve disaster-response systems
    • Strengthening coordination between various sectors of society to manage early response systems 
  • To improve resilience against tropical cyclones, the facility could focus on:
    • Developing and improving existing infrastructure to protect against floods and other climate impacts
    • Providing facilities in anticipation of events, such as health facilities and shelters  
    • Relocating at-risk communities to suitable land above the flood line
    • Uplifting local communities through resilience measures, such as national social protection schemes
  • Malawi is the ninth country to join the Africa Disaster Risk Financing Programme (ADRiFi), which, together with African Development Bank and African Risk Capacity (a specialised insurance company established by the African Union), aims to enhance government responses to climate shocks and strengthen the resilience of rural communities 
  • This year, the African Development Bank approved a grant of USD 9.25 million for the financing of the ADRiFi in Malawi. The first part of the grant will come from the African Development Fund, while the ADRiFi multi-donor trust fund will provide the second part of the grant.
Compensation for, and recognition of, unavoidable loss and damage

These are various measures for compensating for and recognising loss and damage impacts that are unavoidable:

Recognition of impacts

  • Active remembrance of losses, such as through school curricula, museums and exhibitions
    • If people are relocated, efforts should be made to maintain a sense of cultural identity 
  • Encourage restorative dialogue
    • Official apologies 
    • Truth and reconciliation conferences
  • Trauma counselling
  • Enabling access to abandoned sites.

Compensation for impacts

  • Support for rebuilding livelihoods and infrastructure 
  • Support for developing alternative livelihoods
    • For example, educating  people on an alternative skill due to livelihood being lost, such as fishers who can no longer fish due to sea-level rise
  • Facilitating safe migration and resettlement.

These could be financed through curative finance mechanisms.

Case study 4: The Cape Town water crisis, South Africa 

The Western Cape province of South Africa, where Cape Town is situated, experienced three years of consecutive drought from 2015 to 2017, leading to a major water shortage that almost saw the taps run dry for the four million residents of Cape Town. Unlike the tropical storms and floods mentioned in the previous case studies, this is an example of a slow-onset event that, despite having disastrous consequences, is often less likely to be on the political and policy agenda. However, scientists have found that climate change tripled the likelihood of this event and will increase the likelihood of it occurring again in the future. While the current water system in place in Cape Town was designed to provide sufficient water to mitigate drought once every 50 years, climate change has significantly increased drought frequency. This means the system is more vulnerable to drought than previously thought.  

The water crisis had severe economic impacts for the region. Industries that were hit particularly hard include agriculture and tourism. The region produces 60% of the country’s agricultural exports and contributes 20% of domestic agricultural production. The estimated loss to agriculture alone during the water crisis was USD 0.4 billion and included the loss of 30,000 jobs. Cape Town is one of the most visited cities in the country and is a tourism hub of Africa, and the water crisis saw major declines in the numbers of overseas tourists visiting the region.  

How might a comprehensive loss and damage facility improve the resilience of this system? 

Investment in technologies and schemes

  • The system is entirely dependent on rainfall, making it highly vulnerable
  • Investment could focus on alternative technologies such as water de-salinisation plants, groundwater extraction and updated integrated urban water management, as well as the updating of existing infrastructure. This could be supported by:
    • Technology and information sharing by international experts to help devise an integrated urban water management programme, funded by research grants 
    • Green bonds and impact investment funds to finance these technologies
    • Investment in national social protection schemes, such as South Africa’s Working for Water project, which has already contributed significantly to improving drought resilience through removing alien vegetation from key water catchment areas 

Support for farmers and other industries at risk

  • Investment in preventative measures, such as retrofitting or upgrading farms with improved capacity to store water 
  • Investment in water-saving management approaches and tools
  • Empowering local governments and other entities to educate communities on water management  

Emergency support in the event of another water crisis

  • Catastrophe-linked bonds
  • Disaster risk insurance
  • Contingency finance.

Risks & rewards of Just Energy Transition Partnerships

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Key Points

  • Just Energy Transition Partnerships (JETPs) are a pioneering approach that could ensure effective financing for a just transition in global south countries, potentially offering a template for future country-level financing deals
  • The South African JETP investment plan is due to be agreed before COP27 and will be seen as a crucial test of commitments made at COP26. India, Indonesia, Senegal and Vietnam are also developing their own JETPs with G7 countries, with pilot projects also announced for Egypt, Ivory Coast, Kenya and Morocco
  • The JETP process for South Africa has lacked transparency and adequate civil society engagement, limiting its effectiveness 
  • To be effective, donors must prioritise grants and concessional financing in JETP deals to fund the most critical elements of a just transition, such as support and retraining for workers
  • All JETP countries are seeking to expand fossil gas extraction and power, raising the question of whether donor countries may break the commitments made to end international fossil fuel finance at COP26.

What is a Just Energy Transition Partnership?

At COP26, a “historic international partnership” was agreed to support a just transition to a low carbon economy in South Africa. This Just Energy Transition Partnership (JETP) saw France, Germany, the UK, US, and EU (the International Partners Group, or IPG) commit to providing USD 8.5 billion over three to five years to support South Africa’s national climate plan. The finance could be provided as grants, concessional loans (with interest rates lower than would be available from commercial banks), through private finance, guarantees or technical support.

The JETP aims to phase out coal and rapidly accelerate the deployment of renewables in South Africa’s heavily coal-dependent electricity system. This would enable the country to reduce its emissions, consistent with keeping global warming below 2°C. A key focus of the agreement is supporting a just transition that protects vulnerable workers and communities – especially coal miners, women and youth – affected by the move away from coal. The partnership also aims to support private sector investment, including through changes to government policy in South Africa.

This agreement has been described as a potential “new model for climate progress,” a bespoke multilateral agreement developed by and for a single country with greater focus on ensuring a just transition. Even before the implementation plan for the South Africa JETP had been agreed, the model was replicated – in June 2022, the G7 announced it was “working towards” further JETPs with India, Indonesia, Senegal and Vietnam. Pilot projects to develop JETPs for Egypt, Ivory Coast, Kenya and Morocco were also announced at the EU-AU summit in February 2022. While the model has been quickly replicated for other countries, serious questions remain about the transparency, consultation and financing model of the South Africa deal.

An investment plan for South Africa’s JETP has been approved by the South African cabinet and is due to be publicly released during COP27. This implementation plan will play a pivotal role in shaping the financing of the energy transition in South Africa. It could also be seen as a crucial test of this new partnership model and a key milestone in demonstrating progress on delivering on funding commitments ahead of COP27.

The positive impacts JETPs could deliver

Bespoke country-level approach

JETPs could fill a key gap in international climate finance, between broad global-level funder commitments that lack detail and accountability and project-specific financing that does not provide a comprehensive approach to the energy transition. Instead, JETPs are country-led and bespoke – South Africa’s lead climate negotiator described the USD 8.5 billion package as “groundbreaking” because it was “co-created” by South Africa and donor countries, rather than imposed by wealthy nations. 

Linked to this, JETPs are designed to incorporate national policy reforms alongside project financing. These policy reforms should be aimed at removing barriers to the investment and scaling up of clean energy technologies, for example through energy market or domestic subsidy reforms.

Ensuring the energy transition is just

The energy transition has significant social impacts – most acutely on workers and communities that rely on high-emitting industries that need to be phased out. The transition also offers huge opportunities, with investments in renewable energy and infrastructure creating new jobs and economic growth. Significant government and international financing, alongside the right policies, are needed to mitigate the negative impacts of phasing out high emitting industries and ensuring those communities benefit from the shift to clean energy.

A replicable model for the early closure of coal power plants

Ensuring a rapid phaseout of coal-fired power generation is essential to limiting warming to 1.5°C, with richer nations needing to end coal use by 2030 and a global end to coal power by 2040. Coal plants have an average lifetime of 46 years but to align with a 1.5°C goal, plants need to reduce their operational lifetime to an average of 15 years. The early closure of these power plants can come with significant financial costs as the high upfront costs are usually paid off over the life of the project. This is particularly acute in the global south where coal fleets are comparatively young and shorter lifespans would further reduce earnings and increase losses.

Proposals for how to finance the early retirement of coal power plants have developed significantly in recent years, including the possibility of running plants for a shorter period with a lower cost of capital, or buying out existing power-purchasing agreements. JETPs could provide a fully-developed model for financing an accelerated coal phaseout that could be replicated across coal-power dependent countries in the global south.

In parallel with the JETPs, the Asian Development Bank is developing an Energy Transition Mechanism (ETM) for the early retirement of coal power plants. The ETM is currently developing pilots for combining public and private finance to retire or repurpose between five and seven coal-fired power plants in Indonesia, the Philippines and Vietnam.

Deliver on rich countries’ climate finance commitments

Climate finance has become a key sticking point in international climate negotiations, with the failure of rich countries to deliver on the USD 100 billion commitment made in Paris a major block to progress at COP26. While pledges of funding have increased, governments in the global south are also keen to see those pledges delivered and flowing to projects and programmes that urgently need funding. Effective delivery of JETPs could show that donor countries are serious about meeting their funding commitments, building trust in the multilateral process.

G7 countries are not the only potential donors for energy infrastructure projects in the global south, with Russia and China also providing project financing. If the G7 countries want to maintain their position and influence as a provider of finance to global south countries, they must deliver on finance, and do it in a way that genuinely meets the needs of the recipient countries.

The challenges JETPs need to overcome

Lack of transparency & civil society engagement

Of the proposed JETPs, South Africa’s is the most advanced, yet very limited information about the deal has been released publicly. While the South African government has conducted a countrywide consultation on the just transition, the consultations on the JETP itself have, so far, only involved the South African government, the IPG and development finance institutions. Apart from two events at COP26 in Glasgow, there has been no formal civil society consultation on the proposed partnership.

After the initial announcement at COP26, there was no public communication regarding the partnership for six months, until an update was released by the South African government and the IPG. 

The South African government has been working on a proposed investment plan – the core of what the JETP will fund. A draft of the plan was reportedly sent to the IPG in early October, and was approved by the South African cabinet in mid-October. Unusually, public consultation on the investment plan is only due to take place after it has been agreed by both the IPG and the South African government, limiting the scope for meaningful input. 

From the donors’ side, the IPG has sent financial offers to the South African government for evaluation – however these offers remain confidential. Again, the lack of transparency on the sources and types of funding proposed by the donors severely limits public scrutiny over the financing of the deal.

This lack of transparency and consultation is a key concern, as consultation and engagement with civil society, communities and trade unions should be a cornerstone of a just transition.

Providing the right kind of finance

A core element of the JETP model is the use of blended finance, where public finance from governments is used to leverage further new private sector investment. This model has been proposed for over a decade and pitched as a way not only of ensuring greater value for money for donor governments and their taxpayers, but creating a greater role for the private sector in the traditionally government-focused world of development finance. However, real leverage rates – the ratio of public finance to private finance – are low. On average, for every USD 1 development banks have invested in low income countries, private finance has mobilised just 37 cents.

Part of the challenge with blended finance has been that public funding has come in the form of loans through development banks that have a mandate to deliver a return on their investment. This means that public finance can end up funding commercially-viable projects, rather than being used to take on greater risk or fund activities that don’t generate a return. In other words, the funding does not end up where it is needed most.

This will be a particular challenge for JETPs, as the financing covers a broad spectrum of needs with varying rates of return. These range from renewable energy generation to the costs of supporting communities and workers that need financial support. In order to be successful, public finance should be targeted at zero and low-return needs, which means the majority of the public finance should be provided as grants, guarantees or on highly concessional terms.

Adapted from Making Climate Capital work: Unlocking $8.5bn for South Africa’s Just Energy Transition by the Blended Finance Taskforce and the Centre for Sustainability Transitions at Stellenbosch University

Recipient countries have publicly stated that they are not interested in taking on more debt at near-market rates. As South Africa’s environment minister has said: “We would have no interest in borrowing money that isn’t cheaper, what would be the point?”

While the details of the financing for South Africa’s JETP remain confidential, early signs are not promising – in the case of funding currently being negotiated by France, reports suggest only a small portion would be in the form of grants, which would only cover research studies. Similarly, in early October the German government announced it had pledged EUR 320 million for the JETP, with EUR 270 million in low interest loans and only EUR 50 million in grants. 
A leaked draft of the financing plan for South Africa indicated that just 2.7% of the total USD 8.5 billion would be provided as grants, with 43% provided as commercial loans or guarantees. These figures were disputed by South Africa’s lead official on climate finance, who stated that: “The numbers cited do not reflect the current status of the financing package, details of which will be provided once the plan is released to the public.”

Financing fossil gas

Multiple studies have shown that to limit warming to 1.5°C, no further fossil fuel infrastructure can be built. Yet all five JETP countries have plans to significantly increase the use of fossil gas in power generation and Senegal is set to become a major new gas producer. The five countries alone make up 19% of gas power plant capacity currently under development in the world.

In many of the countries, these gas expansion plans are closely linked to the JETPs:

During COP26, 39 countries committed to end new direct international public finance for the unabated fossil fuel energy sector by the end of 2022 – with Japan the final G7 to join the commitment in May this year. However, this commitment contained an exemption to allow fossil fuel funding in limited and clearly-defined circumstances that are “consistent with a 1.5°C warming limit”. The commitment was further weakened at the G7 summit in June in the wake of the global energy crisis driven by Russia’s invasion of Ukraine. The group’s communique acknowledged that: “Investment in this sector is necessary in response to the current crisis… In these exceptional circumstances, publicly supported investment in the gas sector can be appropriate as a temporary response.” 

In this context, the JETPs serve as a crucial test of whether the G7 countries will keep to their COP26 commitment to end international fossil fuel financing.

False solutions

There are significant risks that JETP deals could finance ‘false solutions’ to the energy transition, either wasting scarce resources on unviable technologies or, worse still, financing technologies that actively harm the environment:

  • Hydrogen exports – Expanding green hydrogen production and use is a core component of South Africa’s ambitions for its JETP, and both South Africa and Senegal have plans to become hydrogen exporters. While green hydrogen can reduce emissions in applications that are hard to electrify, like heavy industry, shipping hydrogen internationally is likely to be prohibitively expensive and inefficient.

Ukraine war and the global food system

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Key points

  • Russia’s invasion of Ukraine has unsettled an already unstable global food system and placed additional pressure on the global economy
  • Rising food and energy prices are having ripple effects across the economy, as seen by a jump in inflation, and are deepening the hunger crisis in developing nations
  • The food crisis will continue if trade disputes persist and no political consensus is found.

The global food system is in the midst of its third major food crisis in 15 years. Droughts in major producing regions, excessive speculation in agricultural markets and demand for biofuels disrupted the market in 2007/8. Between 2010-2012, spiraling oil prices, biofuel mandates and trade barriers triggered a new crisis. This year, extreme weather, the worldwide pandemic and a conflict between two agricultural superpowers have pushed cereal and vegetable oil prices higher than during the 2008 crisis, while the FAO Food Price Index reached its highest level since its inception in 1990 in March 2022.

Together, Russia and Ukraine account for 12% of global calories, supplying 28% of globally-traded wheat, 29% of barley, 15% of corn and 75% of sunflower oil. Russia’s invasion has thrown these supplies into disarray and unsettled an already-fragile global food system. By blockading Ukrainian ports and suspending its fertiliser exports, Russia has put Ukrainian farmers and the region’s food production under extreme stress – for example, an estimated  30%-50% of the country’s wheat fields will not be planted this year, while 20%-30% of winter cereals, maize and sunflower seeds currently planted will not be harvested during the 2022/2023 season.

Market disruption

This has led to substantial global supply constraints for such foodstuffs, causing prices to jump. Wheat prices soared by 68% in May, compared to the January average, while fertiliser costs have risen by 30% since the beginning of 2022, following an 80% spike last year triggered by high natural gas prices (a key component of fertiliser prices) in Europe. 

According to the World Bank’s April 2022 Commodity Markets Outlook, high food price inflation has hit several countries across different income divides. The Ukraine conflict has disrupted global patterns of commodity trade, production and consumption in such ways that are likely to keep prices at historically high levels until the end of 2024.

Hunger on the rise

African countries rely heavily on Russia and/or Ukraine for food supplies, having imported 44% of their wheat from both countries between 2018 and 2020. Countries such as Somalia, Senegal and Egypt rely on one or both of Russia and Ukraine for between 50% and 100% of their wheat. Eritrea, for instance, sources all of its wheat from the two countries. Since the start of the year, wheat prices in Kenya have risen by 58%, largely due to the deficit in imports from Ukraine and Russia. These price spikes, along with trade and import disruptions, are having a devastating impact.

The UN has said the war’s impact on the global food market alone could cause up to 13 million more people to go hungry, with Arab and African countries most at risk. The World Food Programme estimates that the number of severely food insecure people (defined as those that have run out of food and gone a day or more without eating) doubled from 135 million pre-pandemic to 276 million at the start of 2022. The ripple effects of the war in Ukraine are expected to drive this number up to 323 million in 2022.

Protectionism intensifying crisis

After months of Russian embargo, Ukraine and Russia reached an agreement on 22 July to enable the resumption of grain and other agricultural commodity shipments from Ukrainian Black Sea ports. However, ongoing Russian provocations on Ukrainian territory have brought the agreement to a standstill. Amidst this uncertainty, the world’s economies have been trying to find solutions to ensure better food access, although these have been undermined by the introduction of protectionist measures – in an effort to secure domestic sufficiency, governments have been stockpiling, restricting food trade and banning fertiliser exports.

Argentina has increased taxes on soybean oil and meal exports and lowered the cap on wheat exports. India has banned wheat exports while Malaysia has halted chicken exports. Export restrictions are generally taken in order to protect the domestic consumer and ensure there are no supply shortages, however they can intensify global food insecurity and cause price jumps – during the 2007/08 food crisis, export restrictions accounted for 40% of the increase in agricultural prices. The scale of current restrictions is greater than in 2007/08, affecting 17.3% of total calories traded globally.

Other governments, such as the US, Ireland, Canada, Mexico and the EU, have suggested increasing food production, which may result in an expansion of cropland. However, according to an analysis of the EU market, increasing cropland is problematic. One driver of the food price crisis is the cost of fertilisers and the fossil fuels used to produce and transport them. Producing more food would need the use of additional fertilisers and fossil fuels, which could exacerbate climate change and biodiversity loss and result in minimal price reductions.

Cooperation and support key

We have more than enough food to sustain us. To appropriately address food security and increase access, experts call for a proactive approach focused on the engagement of governments and international development partners. It is also essential to continue funding the World Food Programme’s emergency-relief efforts. But beyond immediate humanitarian assistance, governments must equip the world’s most vulnerable with the safety nets they require to overcome the current crisis, according to the International Food Policy Research Institute. Measures such as cash transfer programmes and enhanced aid to smallholder farmers, such as access to credit schemes, markets and healthy food, have the potential to strengthen food system resilience in affected regions such as Sub-Saharan Africa and the Middle East.

Meanwhile the G7 has urged all nations to “keep their food and agricultural markets open” and work to maintain free trade flows. Protectionist policies are harmful to the global market and governments must work together to prevent stockpiling. Comprehensive action and consensus on what needs to be done in the medium-to-long term will be critical to avoid a lasting crisis.

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