Rising climate activism may weaken AFCFTA’S benefits for energy sector

Successful implementation of the African Continental Free Trade Agreement is set to have a profound impact on the continent’s energy sector but with rising climate activism, funding for Africa’s fossil fuel resources is also drying up.

AFCFTA promises regional integration pertaining to energy, a viable solution for emerging economies, to enhance their energy landscapes in furtherance of realising social, environmental and economic benefits. Regional integration is pivotal to ensure that energy resources get from localities where they are most affordable, to where they are required.

Regional integration on account of the AFCFTA is forecast to improve the security of supply. Integrating operational reserves and installed capacity enables combined power systems from having to invest in additional facilities. In the event of emergency situations, regional collaboration provides an alternative source of supply for operating reserves and support thereof.

Sharing with neighbouring countries can provide advanced system flexibility and reliability by expanding the supply portfolio of diverse energy resources, as opposed to exclusively relying on regional and established resources and supply infrastructure.

In countries with large natural gas reserves such as Mozambique, Tanzania, South Africa, Nigeria, Algeria, Equatorial Guinea, Ghana, Cameroon, Senegal, and many others, the best deal for producing electricity cheaply, reliably and cleanly for both households and businesses is gas. Politicians and businessmen are best advised to focus on this resource, some experts say.

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It is an industry with job creation opportunity, both directly and indirectly, and promotes trade with neighbouring states that also need energy. Natural gas is also the least polluting of the fossil fuels and cheaper than renewable energy solutions that are less reliable and more expensive per unit of power generated.

Nevertheless, with rising climate activism, funding for fossil fuel projects continue to dry up. A little more than a year ago, in November 2019, the European Investment Bank (EIB) declared its intention to phase out funding for fossil fuels.

Specifically, it said that it would no longer grant loans for projects involving crude oil, natural gas, and coal as of January 1, 2022 (with a scant few exceptions for gas projects that meet rigorous environmental criteria).

In October 2020, Antonio Guterres, the secretary-general of the United Nations (UN), called on the world’s publicly funded development banks to follow suit. Less than a month later, all 450 of these institutions — including, incidentally, the African Development Bank Group (AFDB) — agreed to bring their lending policies into line with the Paris climate accord.

The agreement did not include a categorical ban on fossil fuel loans, since some of the lenders involved, such as the Asian Development Bank (ADB), were unwilling to make this commitment. However, a group of European lenders did exactly that — and they were hardly alone in doing so.

Since the beginning of 2020, a number of major private lenders — including but not limited to giants such as Barclays, HSBC, and Morgan Stanley — have rolled out plans to reach net-zero in greenhouse gas (GHG) emissions by 2050.

“I think Africa should have the chance to use its own oil and gas to strengthen itself especially with the coming into force of the Africa Continental Free Trade Agreement,” NJ Ayuk, executive chairman, African Energy Chamber, said.

Some energy experts on the continent have argued that African oil and gas producers ought to stand up for themselves and make a case for developing their own resources; particularly for using the least-polluting fossil fuels to deliver as much electricity as possible to as many people as possible.