Ministerial Roundtable Speech on “Just Energy Transition in Africa” By Prof. Kevin Chika Urama FAAS Chief Economist and Vice President, Economic Governance and Knowledge Management, African Development Bank Group

Protocols

Your Excellencies, Distinguished Delegates, Ladies and Gentlemen.

It is my great honour to speak to you today on a subject that is most central to the achievement of the Sustainable Development Goals (SDGs) and overall economic, social, and environmental sustainability of our common planet.  

The subject of energy transition is at the centre of the development discourse in Africa and globally and it is directly linked to climate change, a global commons problem. This is because, energy is a key driver of economic and social wellbeing everywhere. And the types of energy technologies used to meet the energy needs of a people, define their impacts on greenhouse gas emissions, which are impacting negatively on the sustainability of our common planet, and the wellbeing of all its inhabitants.  

Over the past two years, the African Development Bank Group’s African Economic Outlook Reports have highlighted climate change as the most pressing existential threat to Africa’s development. And finding policies that can help countries to concurrently grow their economies, adapt to climate change effects and reduce greenhouse gas emissions is among the most enduring policy challenges of our time. Achieving this policy goal will lead to the achievement of inclusive green growth – one that triangulates the three pillars of sustainable development: economic, social, and environmental.

At the centre of the quest to grow economies at reduced carbon emissions, is the subject of  Just Energy Transition. This concept refers to the process of finding energy pathways that are technologically adequate, cost optimal, economically viable, and environmentally sustainable over time.

To unpack what this means for Africa, let me provide some stylised facts.

First, Africa’s historical share of global emissions is below 3%, with an average carbon footprint per capita of 0.95 tCO2eq, well below the 2.0 tCO2eq required to achieve the target for net-zero transition. But it is the least climate-resilient region of the world. It also ranks least globally in climate readiness. Consequently, it bears a disproportionate burden of climate change impacts.

Second, about 85% of the “global carbon budget” is already used up, most of it by the developed countries. Compared to other regions such as North America where the average carbon footprint per capita is up to 14 tCO2eq, Africa still has significant carbon headroom to grow its economies while remaining below its global carbon budget.

Third, Africa is already losing between 5% and 15% of its GDP per capita growth annually due to climate change. This is in addition to increasing mortality, climate-induced conflicts, human displacements, and migration, among other impacts.

Fourth, electricity consumption is highly correlated with gross domestic products (GDP) of countries and Human Development Index (HDI) everywhere. As shown in the African Economic Outlook Report 2022, low per capita electricity consumption, significantly constrains structural transformation and the achievement of the sustainable development goals (SDGs) in African economies. An estimated 600 million Africans have no access to electricity and about 600,000 African women and children (300,000 of each) die annually from indoor pollution due to lack of access to clean cooking technologies. To put this in perspective, an average Korean is consuming 10,497 kWh of electricity, about 19 times more than an average African.

Fifth, climate action is just one among 17 global Sustainable Development Goals (SDGs). “Ensuring access to affordable, reliable, sustainable and modern energy for all” is a key SDG (SDG7), and a key factor in achieving all the other SDGs, including climate goals (SDG13) which calls for “urgent action to combat climate change and its impacts”. With the clear empirical evidence that electricity consumption is highly correlated with gross domestic product (GDP) of countries and human development index (HDI) everywhere, climate policies that constrain access to affordable, reliable, sustainable, and modern energy for all is intrinsically constraining the economic and social wellbeing of people.

Excellencies, distinguished guests, ladies, and gentlemen.

The above stylised facts already frame the concepts of historical, distributive, moral and economic justice that should underpin just energy transition that should be pursued to implement climate policies in Africa. We cannot ask Africa to stop its economic and social progress to solve global climate change challenges which it did not cause. Africa cannot develop without access to affordable, reliable, sustainable, and modern energy for all its citizens. The latter will constrain the achievement of other critical SDGs in Africa and globally.

Another key aspect of energy transition is the fact that it is, indeed, “a transition” – moving from current to a desired future, not an automatic switch in energy technologies.

Historical evidence shows that energy transition evolves gradually over time, often over several decades, defined by technologies, market incentives, policy shifts, and consumer behaviour. It does not happen spontaneously or serendipitously. It took North America, Europe, and China 35 years (between 1985 and 2020) to reduce the share of coal in their energy mix by 60%, 54%, and 2%, respectively. Africa reduced the share of coal in its energy mix by almost 50% (much higher than China and about the same as Europe) over the same period. In contrast, India increased the share of coal in its energy mix by 16% over the same period.

Natural gas has served as a transition fuel in most regions of the world that has access to it, allowing countries to gradually reduce coal in the energy mix cost-effectively.

The reduction in coal in the energy mix has also been accompanied by increases in the share of renewable energy in the global energy mix since the 1980s, but it remains a small share of the mix in all regions - the highest in the European Union where it stood at 23% by 2019. The reason for this is clear. Renewable energy technologies are still evolving, offering mostly intermittent supply that can at best supplement existing base load in the energy mix to gradually decouple energy use from CO₂ emissions.

Currently, Africa’s energy mix is among the least carbon intensive compared to other regions. The share of coal in the mix declined progressively from 54% in 1985 to 29% in 2020. Similar transitions are observed in the United States and the European Union. In other regions, the share of coal in the energy mix remains very high, and with recent challenges of energy price inflation, several countries are building out new capacity in fossil fuel-based energy generation plants.

African countries have significantly embraced the renewable energy technologies during the past decade with new investments in fossil fuel-based energy technologies declining significantly, but lack of affordable finance limit the pace of renewable energy roll out in Africa. For a just transition, Africa should massively leverage its natural gas resources as part of its energy mix, while investing in renewable energy value chains during the transition period.

Just energy transition requires a common but differentiated responsibility for climate finance flows to climate vulnerable countries, most of which are in Africa.

The African Economic Outlook 2022 report estimates that if historical emissions are considered, Africa’s carbon credit – calculated with the current social cost of carbon could reach up to $4.8 trillion by 2050. Paid annually, this could reach $173 billion per year from 2022 to 2050.

To implement the revised Nationally Determined Contributions (NDCs) submitted by African countries, between US$2.6 trillion and US$2.8 trillion are needed cumulatively over 2020-2030, translating to between US$234.5 billion and US$250 billion (or US$242.2 billion on average) per year.

However, despite being home to about 17% of the global population, hosting most of the World deposits of green minerals and 60% of global renewable energy potential, and most of the highly climate vulnerable countries, Africa received only US$29.5 billion (4.5% of global climate finance flows) in 2019/2020. This is about eight times less than the financing required to implement Africa’s NDCs.

Out of the US$29.5 billion of climate finance flows to Africa in 2019/2020, about US$9.4 billion or 32% of the total, was allocated to energy systems, including energy education and research, energy conservation and demand-side efficiency, energy policy, and administrative management or development of hydropower plants. This leaves an energy financing gap of US$22.6 billion–US$30.6 billion annually.  

Just Energy Transition also requires that African countries harness opportunities in the fast-expanding global green growth technologies and renewable markets. Africa’s green resource potentials present unique opportunities for the continent to lead in several green development sectors, especially in renewable energy, battery technologies and electric vehicles. More than half of African countries have at least one of the critical metals (such as lithium, cobalt, nickel, manganese, graphite, iron, and phosphate) needed to produce lithium-ion batteries used in EV and electricity storage that are essential to building the global green economy of the future. With over 45% of the global technical potential in renewable energy – the highest in the world, Africa is the best continent for renewable energy manufacturing and deployment.

But several types of injustice in the climate and energy transition process are short-changing opportunities for African countries and the global community to optimise these resource potentials in Africa.

The African Economic Outlook 2022 report found that the structure, flow, and scale of the current global climate finance mirror the current global finance architecture, making it difficult for the most vulnerable African countries to effectively harness climate resilience opportunities.

First, the climate finance structure is complicated and loosely defined, with multiple, and rapidly evolving sources, instruments, channels, and financing mechanisms. Several development finance instruments are therefore increasingly deployed as climate finance in Africa. For example, debt instruments constituted two thirds of all climate finance to African countries in the 2011–2019 period. Some 33% of this was non-concessional. This raises concerns about further increasing debt vulnerability in Africa and potential trade-offs with other SDG financing commitments and mechanisms.

Second, current climate finance flow is misaligned with climate vulnerabilities and climate risks. The AEO 2022 report found that climate finance is often mobilised for more resilient and less vulnerable countries. This perverse association between climate finance and countries’ climate resilience and vulnerability leads to misallocation of resources.

Third, while the buzz words in the current climate finance discourse centre around the promises of innovative financing instruments and the need for leveraging the private sector, the 2023 African Economic Outlook report which focused on leveraging private sector financing for climate and green growth in Africa found sobering results.

Private climate finance in Africa averaged about 14% in 2019/2020 compared to around 42% in other developing regions. Like in other aspects of development, several market barriers limit the participation of the private sector in financing climate and just energy transitions in Africa. Significant information asymmetries and knowledge gaps about Africa drives high perceptions of risk and unfavourable risk-return profiles of climate and green energy projects.

In addition, for every dollar of public climate finance, African countries were able to mobilise only 0.16 cents, again the lowest share of all regions of the world. In comparison, the leverage ratio is 18.5 in North America, while it is at least 0.5 in South Asia and Latin America.

Finally, instead of targeting more vulnerable and less resilient countries, climate finance is flowing more to less vulnerable and more resilient countries, further disadvantaging the climate vulnerable countries most of which are in Africa.

To respond to the unjust structures and systems that are short-changing Africa’s access to affordable, sustainable, and reliable modern energy systems, national governments, development finance institutions and the international community need to consider several policies:

For National governments:

Policy coordination is required: Countries need to coordinate climate, energy, and development policies to triangulate the benefits and co-benefits of sector development plans, with economic growth and the wellbeing of citizens at the centre. Isolated single sector policies will not deliver sustainable outcomes.   

Strengthen regional green markets and resource value chains: Africa needs to build and strengthen regional value chains in key green sectors to reduce external export of raw materials and unfettered import of green technologies. This will deliver economic and social benefits to countries and significantly reduce the carbon footprint of green products.

Invest in green technologies: The green transition presents an opportunity for Africa to recalibrate how it engages with industrial transformations. With the abundance of green development minerals in Africa, the continent has an opportunity to lead in development and deployment of green technologies rather than operating at the low level of the value chain.

Build institutional capacity for green transitions: Countries need to invest in institutional capacity for green transitions, along with regulatory and other policy reforms that foster energy efficiency and create jobs, especially for youths and women in key sectors.

Expand the use of innovative financing instruments: African countries need to expand and deepen the utilisation of innovative financing instruments such as green bonds and loans, sustainability or sustainability-linked bonds and loans, debt-for-climate swaps, blended finance, more efficient and better-priced carbon markets, realignment of perverse subsidies and other progressive tax instruments.

 

International Community:

Honour climate finance commitments: Developed countries should honour their commitment to make available at least US$100 billion annually to developing countries as new and additional resources. As part of the Paris Climate Accord, African countries’ NDCs included some 80% conditional targets subject to external climate finance flows. This means that African countries should receive at least $2.24 trillion by 2030 in external climate finance to be able to meet the NDC targets. This is part of the principle of common but differentiated responsibility which a central part of the Paris Climate Accord.  

Devolve climate finance from debt instruments: To address the looming debt crisis in Africa, there is need to devolve climate finance from debt instruments. Climate finance should be new and additional to reduce the growing paradox of climate vulnerable countries deepening their debt vulnerability in the process of addressing climate change impacts which they did not cause.

Reforms in the global climate finance architecture is needed: Going forward there is need to revisit the global climate finance definition and architecture to align the structure, flow, and scale with the global climate financing needs of countries. The current definition encourages rebranding and risks negative trade-offs with other sustainable development goals including poverty reduction, universal access to modern energy services, etc., and discredits the most vulnerable countries.  The current climate finance flows are also in inversely related to climate vulnerability and risks, and the scale is far below the amounts needed to achieve the NDCs.

Development Finance Institutions:

More concessional financing required: Development Finance Institutions need to increase concessional financing to support climate adaptation and a just energy transition in vulnerable countries. Channelling some of the additional climate finance through the African Development Fund (ADF) offers opportunities for greater cost-efficiency and leverage. Therefore, healthy replenishments of the African Development Fund (ADF), support for its Climate Action Window and allowing the Fund to leverage resources from the capital market is critical for the most fragile countries in Africa.

Conclusions:

Climate change is a global commons problem. It demands global cooperation and adequate support for sustainable resolution. Like COVID-19, if any region of the world fails to meet net-zero emission targets by 2050, global sustainability targets will not be reached. If Africa does not have sufficient resources to implement climate actions to reach net-zero emissions targets, efforts taken by Europe or other regions of the world will not achieve sustainable outcomes.

Just energy transitions demand that energy systems in Africa are designed to be technologically adequate, cost optimal, and economically viable. In this regard, Africa’s energy mix needs to harness less-polluting sources of base-load energy capable of driving industrialisation and structural transformation. Natural gas should, therefore, be a central part of Africa’s energy mix during the transition period.

Decentralised renewable energy systems are critical for rapid energy access in Africa. The huge resource potentials in several green development minerals in Africa positions the continent to be the leader in the new green economy. Countries need to explore policies that encourage investment flows and location of green technology industries in the zones of relevant resource deposits to create opportunities for job creation, knowledge and technology sharing, economic activities and reduced carbon and environmental footprints of green products. Several policy options that could be explored include local content policies; franchising; and other progressive tax incentives tailored to specific country realities.

Africa needs a people-centred just energy transition to address current and future challenges of its energy system while achieving its development goals. Given that energy transition requires changes and shifts in technologies, jobs, and other economic opportunities and the development of new skills, capacities, and expertise, it is important to ensure that African populations are well prepared and equipped to embrace these unavoidable changes.

The process of energy transition takes time. Countries should therefore be allowed to use their carbon headroom to grow their economies while taking steps to transition to cleaner energy technologies, markets, and consumer behaviours by 2050. 

To make energy transitions work for Africa, access to knowledge, technologies and finance that deliver clean and affordable energy and important investments in the energy sector will be crucial. This is the reason the African Development Bank Group is working with Partners to develop a knowledge and capacity fund (KCDF) to mobilise resources to support inclusive green growth capabilities across African Institutions.

Thank you for listening.

Merci de votre attention.

들어 주셔서 감사합니다 (deul-eo jusyeoseo gamsahabnida).