Climate Finance in Simple Terms (CFiST)

What is it about the Climate?

As a way of an introduction, I would like to say that they would have been no talk on Climate Finance if there is no adverse effect of Climate Change on the earth that causes intense drought, crop damage, massive flooding, loss of Biodiversity (variety of living organism in our ecological system) e.t.c. This affects the world but the developing nations more. The challenge with Climate Change is how to reduce Green House Gas (GHG) and Global mean surface temperature. The former which is caused by the atmospheric concentration of 3 major gases namely Carbon Dioxide, Methane and Nitrous Oxide has increased to a level unprecedented with Carbon Dioxide alone increased by over 40% since pre-industrial times. The use of Fossil fuels for energy is a major source the GHG. Nigeria relies heavily on Fossil Fuels for almost all its energy need in the transportation and power sectors. Agriculture is another area of concern especially on the burning of waste, rice cultivation and rearing cows. Agreed action include is to keep global temperature below 2.0°C targeting 1.5°C by reducing greenhouse gas emission, which sets the foundation for the transition global economy to transit to low-carbon and climate-resilient economies. To achieve this, an additional investment at an order of magnitude of at least USD 60 trillion is required, from now until 2050. The developed countries also committed to jointly mobilize USD100 billion per year by 2020, from a variety of sources for the developing nations like Nigeria. And this is where Climate Finance comes in.

 So, what is Climate Finance?

 Climate Finance is simply looking at how fund can be sourced (from and by different parties) and invested to support climate action. A more institutional meaning is provided by United Nations Framework Convention on Climate Change, (UNFCCC). To it, ”Climate Finance refers to local, national or transnational financing—drawn from public, private and alternative sources of financing—that seeks to support mitigation and adaptation actions that will address climate change”. 

 Adaptation and Mitigation strategies are the major intervention currently used to address climate action. In simple terms, Mitigation means action taken to reduce Green House Gas emissions, while Adaptations means action taken to adapt to life under climate change. Mitigation actions tackle the causes of climate change while the Adaptation action tackles the effects.

 Mitigation and Adaptation Finance

 Mitigation Finance is the finance sourced to support interventions that reduce the sources of GHG thereby preventing increases in the global mean temperature. Examples of Mitigation Finance is sourcing for funds to invest in renewable energy sources like solar, wind, biofuels, developing efficient transport such as bus rapid transit thereby reducing the number of cars on the road, new technologies like building electric vehicles, making older technologies more efficient e.t.c. Developing countries need to invest between 145 - 175 billion US Dollar per year over 20 years for mitigation finance.

 Adaptation Finance is the finance sourced to support interventions that help us to adapt and adjust in response to the current effects of climate change and the predicted impacts in the future, majorly to prevent it. Examples of Adaptation Finance is sourcing funds for the development of drought-resistance crops, building flood barriers, promote effective utilization of water e.t.c. 30 - 100 billion US Dollar is needed per year till 2050 for Adaptation in developing countries.

 What area of cost does Climate Finance address?

 There are three major types of investment/cost under Climate Finance, and they include i. Incremental Cost, ii. Incremental Investment, and iii. Cost to remove barriers. 

The incremental cost is generally public Climate Finance that covers the present value of extra capital and operating costs associated with mitigation and adaptation measures. for example, the incremental cost for the present value of solar energy capital and operating cost less than the present value of the capital and operating cost of a natural gas unit displaced. i.e., incremental cost = New/PvCc + PvOc/ - Old/PvCc + PvOc/

 Incremental Investment is generally private Climate Finance that covers the extra capital cost required to implement mitigation and adaptation measures. for example, the incremental investment cost to cover the extra capital cost to implement wind power plant as opposed to fossil fuel power plant.

 Lastly, the cost to remove barriers are related to cost but domestic and foreign to technology introduction and create an enabling environment that promotes low carbon and climate resilience development plan. These barriers include knowledge gap, lack of certified operators, lack of greenhouse champions, limited capacity, lower returns e.t.c.

 Climate Finance and Nigeria.

 Nigeria has made significant progress in Climate Finance. It became the first country on the African continent and the fourth globally to issue a security that raises funds for environmental projects after the launch of its first and second tranches of an NGN 150bn Sovereign Green Bond programme. The Nigeria Sovereign Green Bond is a financing mechanism to facilitate and assist Nigeria in meeting its Nationally Determined Contribution (NDC) target. It helps the country pursue a low carbon pathway for socio-economic development. Under the Green Climate Fund, Nigeria is currently benefitting from 8 projects (Mitigation 5, Adaptation 1 and 2 cross-cutting) totalling USD 73.4 Million among multiple countries.

 Nigeria took part in the inaugural Climate Finance Accelerator (CFA) process in 2017, which has significantly increased dialogue between its public and private sector actors and improved its understanding of how to identify ‘bankable’ projects. A portfolio of 15 projects around renewable energy and climate-smart agriculture was reviewed. The CFA is an innovative international initiative supported by the UK Government and other international donors.

 Also, Nigeria has developed a Clean Technology Fund (CTF) investment plan for an expected $250 million to contribute to national strategies for sustainable, low carbon development. Projects include bus-based urban transport improvements in the cities of Lagos, Kano, and Abuja, and a financing facility to catalyze private sector investment for renewable energy and energy efficiency across various industries. Clean Technology Fund's (CTF) contributions to avoiding greenhouse gas emissions and increasing finance for low carbon development, supply of renewable energy, access to low carbon public transport, and energy efficiency.

 Conclusion

 The effect of climate change is all around us, and the world is coming together to see best this could be addressed using Mitigation and Adaptation strategies to reduce greenhouse house and make our economies more resilient to climate change. There is an urge gap between the estimated fund required and the actual fund available, but step by step, progress is being made, and I am particularly impressed by the effort of Nigeria. To win climate change we must all play a part, and there is no time that is too late, you can start now, just as I have started, share the knowledge.