Finance needed as Africa risks $415b annual losses from climate change – Stakeholders

Energy and financial experts are worried over sustainable financing for Africa, especially in the energy sector, stressing that Africa risks annual economic losses due to climate change of $415 billion by 2030 if infrastructure is not improved.

While the experts on one hand said Africa needs over $23 billion to upgrade existing refineries on the continent to produce cleaner fuels and displace charcoal with modern fuels, they insisted that without significant improvements in infrastructure resilience, annual economic losses from natural disasters’ damage to urban infrastructure alone would increase from $300 billion currently to $415 billion by 2030.

Speaking at the recent African Refiners and Distributors Association (ARDA) Virtual Sustainable Financing Workshop, Anibor Kragha, executive secretary of ARDA, said strategic options are needed for financing energy transition in the African downstream petroleum sector.

Kragha disclosed that sub-Saharan Africa’s import needs for transport fuels will continue to grow for the foreseeable future, making the region the world’s largest importer by 2030.

He lamented that complex, inefficient supply chains, intra-African trade challenges impede implementation of cost-effective clean energy solutions on the continent but that the African Continental Free Trade Act presents an opportunity for the continent to address these issues and deploy an inclusive, equitable energy transition roadmap that captures the priorities, challenges and perspectives of Africa’s low-carbon emitting countries.

Kragha and other stakeholders insisted that Africa’s share of global emission remained low, therefore the roadmap for energy transition must not prioritize near-term emissions reductions (with relatively little climate benefits) over support for economic development and energy transformation.

Ayaan Adam, a senior director at Africa Finance Corporation (AFC) and CEO of AFC Capital Partners, noted that climate change, including high temperatures and prolonged heat wave phenomena, changing precipitation patterns, droughts, floods, rising sea levels may significantly damage infrastructure assets, leading to the loss of $415 billion by 2030 in Africa alone.

Read also: Green Climate Fund approves $194m financing for Nigeria, 12 others

“With Africa being the most vulnerable continent to climate change, mainstreaming climate change is a key requirement for the long-term viability of its infrastructure,” she noted.

Adam said the effect of climate change in Africa is disproportionate to its share of global emissions – with implications on future infrastructure requirements.

Future infrastructure developments, Adam said need to be able to reduce, accommodate or recover from the effects of natural disasters and climate extremes, adding that this would require climate resilient infrastructure planning plus additional cost consideration for development. As such, AFC and AFC Capital Partners are promoting their Infrastructure Climate Resilience Fund (ICRF) which will drive investments in climate resilient infrastructure projects across the African continent in the AFC’s core sectors – Transport & Logistics, power, Telecoms and Industrial Parks.

Rene Awambeng, global head, Client Relations at Afreximbank, noted the impacts of growing urban population in Africa on energy demand for industrial production, cooling and mobility.

According to Awambeng, energy demand in Africa grows twice as fast as the global average, and Africa’s vast renewable resources and falling technology costs can drive double-digit growth in deployment of utility-scale and distributed solar photovoltaics (PV), and other renewables, across the continent.

He noted that although clean energy and decarbonizing international investment and finance seem to be dominating the development discourse, Africa could leverage on its vast base of existing solid minerals, including rare-earth minerals and metals, that would fuel clean energy.

While making a joint presentation, experts at Vitol, Michael Curran (Vitol Global Head of Carbon Trading) and Maryro Mendez (Vitol Refineries Research Team Lead) noted that technologies already exist to develop refineries that produce net zero carbon emissions but that Environment, Social & Governance (ESG) investment mandates and capital reallocation away from hydrocarbons into renewables/energy transition amongst other issues have resulted in reduction in financing options and increased debt service costs for carbon -intensive sectors.

“Most companies already have plans for reducing emissions. These include measurement and reporting, operational improvement, and incorporating carbon-abatement objectives in investment proposals. Implementation, however, is in an initial stage and faces several barriers: resources are scarce, in terms of both capital and technical capabilities, and CO2 reduction is not always a top priority,” the experts said.