Multilateral development banks in carbon assets and climate financing in Africa
Multilateral development banks in carbon assets
and climate financing in Africa
Alfred Bimha (MSc) and
Godwell Nhamo (PhD)
Paper presented during the 8th African
Finance Journal Conference, 14-16
April 2011, Windhoek, Namibia
Cell: 073-163-1114; firstname.lastname@example.org
• Climate and carbon financing is still relatively new globally and in Africa, in
• Lattanzio (2010) observes that MDBs are now major players in global
climate and carbon assets financing.
• The MDBs are viewed as having a comparative advantage compared to
bilateral, multilateral, UN backed systems and other carbon asset
financing mechanisms as they dispense funds more efficiently.
• The environmental focus of MDBs shifted significantly following the G8
leaders meeting that took place in Gleneagles in 2005.
• The Gleneagles meeting encouraged MDBs to play a leading role in
sustainable development and environmentally friendly.
• Among the multilateral and own carbon asset funds available to the MDBs
and African countries are:
Clean Technology Fund (CTF),
Congo Basin Forest Fund (FBFF),
Forest Carbon Partnership Facility (FCPF),
Forest Investment Program (FIP),
Pilot Program for Climate Resilience (PPCR),
Scaling-Up Renewable Energy Program for Low Income Countries (SREP) and
the Strategic Climate Fund.
• The World Bank Prototype Carbon Fund had grown to $2 billion worth in
2008 (Nakhooda, 2008).
• The World Bank has provided more than $4.8 billion of its own funds and
more than $13.8 billion in co-financing on climate initiatives and currently
operates more than 10 carbon funds (SPREP, 2010).
• Paper aims to establish key climate and carbon assets funding
mechanisms in Africa that are drawn from and administered by the MDBs,
especially the World Bank and the African Development Bank.
• Main question: Which climate and carbon assets financing mechanisms
are in place from both the World Bank and the African Development Bank
for use by African countries and under which conditions?
• Aligned to the set aim and research question are the following objectives:
– to evaluate the extent to which MDBs have embraced and mainstreamed climate
change into their funding mechanisms;
– to determine key climate and carbon asset funding mechanisms from the World Bank
and the African Development Bank and establish how such funds are utilised in Africa;
– to establish if there is any difference in the approval process and disbursement
protocols of funds for climate and carbon assets funding compared to other traditional
portfolios of the World Bank and the African Development Bank.
Theory of MDBs
MDBs are public financing institutions with mandates to alleviate
poverty through financing projects and policy in developing countries
MDBs are now major players in networked global system of
Environmental focus of MDBs shifted significantly following the G8
leaders meeting Gleneagles in 2005
Role of the USA in MDBs financing and membership is undisputable
USA is the single largest donor to many MDBs funding including carbon
and climate financing.
Theory of MDBs …
MDBs administer both market-based and concessional loans.
Such loans are for governments or other organizations with
government repayment guarantees.
Ownership and share option for MDBs is complex with the WB owned
by more than 180 member governments that are shareholders
Number of shares a donor country holds roughly corresponds to the
size of its economy.
USA is the largest shareholder in WB, followed by Japan, Germany, UK
and France. To this end, the G8 is very influential in WB policy regimes.
Climate and carbon financing: The paradox
Nakhooda (2008) concedes that at a conceptual level, MDBs
acknowledge that climate change considerations need to be
mainstreamed into their operations.
MDBs have launched various new initiatives to address climate change
However, the paradox in all this is the fact that MDBs still invest heavily
in sectors that are carbon intensive such as transport, oil and gas,
electric power and mining (see next slide)
The WB is by far the largest MDB financing carbon assets and climate in Africa.
The paradox: MDBs investment in carbon intensive sectors
Investment ($ Billion)
Total Investment ($ Billion)
% of Total Investment
Authors, based on Nakhooda (2008: 1)
World Bank carbon funds to Africa
Prototype Carbon Fund
Community Development Carbon
Italian Carbon Fund
The Netherlands CDM Facility
Danish Carbon Fund
Spanish Carbon Fund
Carbon Fund for Europe
90 million Euro
50 million Euro
Clean Technology Fund
Forest Carbon Partnership Facility
Authors, based on World Bank (2010)
% of African
33 (Tranche 1)
20 (Tranche 2)
34 (Middle East &
Not yet specified
Not yet specified
World Bank: Climate Investment Fund architecture
Pilot Program for
World Bank: Carbon asset and climate funds (as of 09/10)
Authors, based on World Bank (2010: 25-31).
Future of Carbon Markets: IFC Fund for CERs
• January 2011: The IFC launched a €150million fund to forward purchase certified
emission reductions (CERs or carbon
credits) that were expected to be produced
between 2013 to 2020, from GHG reducing
projects, either directly financed by the IFC
or by local banks financed by IFC.
• This gives some certainty to CDM projects
AFDB: Carbon and Climate Funds
– Climate Investment Funds (CTF and SCF)
– Global Environment Facility (GEF)
– Congo Basin Forest Fund (CBFF)
– Africa Water Facility (AWF)
– ClimDev-Africa Special Fund
– Bilateral trust funds
– Clean Energy Bonds
– Africa Carbon Support Project
– Carbon markets
The Key challenges
In as much as the MDBs are increasingly getting involved in financing
carbon and climate mitigation and adaptation, the key challenge has
been in the traditional protocols for approval of funds.
Finances take even up to six years to be released and co-funding remains a
The G8 and other major shareholders in MDBs still have a stronghold in terms of
dictating the terms and conditions upon which funds can be released.
If not managed well, MDBs carbon and climate funding can be used as a tool for
Many carbon credits projects require capacity to be build in Africa (of which
capacity we do not have)
The Key challenges
Many African countries still have weak governance structures and this
has resulted in MDB finance being channelled elsewhere like the
Central and Latin Americas, Asia and the Pacific.
As we present this paper there is confusion in the Arab World and
naturally, carbon and climate financing follow normal patterns of FDI
Conditions for investment need to be improved in Africa.
Following Cancun (COP16) that took place in Mexico, there is hope that
the global carbon market will remain alive.
Efforts are being made for a smooth transition to a second Kyoto
Protocol commitment period
Future carbon and climate financing opportunities
11. New vibes in terms of the carbon and climate financing
emerged from Cancun, among them:
The acceptance of CCS as CDM projects
Mainstreaming REDD(+) projects into global climate architecture
Proposals to streamline the CDM project approval and evaluation
WB’s promise to finance national ‘cap-and-trade’ markets – South
Africa will be a good target for this.
12. The world is therefore looking forward to a new, legally
binding and fair climate deal in Durban 2011 (COP 17).