Aligning Financial Flows with the Paris Agreement in Africa

The Paris Agreement is a global commitment to addressing climate change, signed by 194 countries. It contains a clause, Article 2.1(c), which states that all signatories agree to “Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.” To achieve this, countries need to align their financial flows with investments in low-carbon assets. Likewise, financial flows need to be directed towards climate-resilient infrastructure and development activities.

In Africa, the alignment of financial flows with the Paris Agreement would benefit countries by:

1. increasing access to global and domestic investments for low-carbon assets, and
2. aiding in sustainably bridging the large infrastructure gap across the continent through the development of climate-resilient infrastructure.

The economies of several African countries currently depend on carbon-based assets (such as coal, natural gas or crude oil) as a primary source of energy or key source of national income (or both). This raises concerns that an abrupt change away from carbon-intensive assets to low-carbon assets could constitute a systemic risk by creating large amounts of stranded carbon-based assets. This would set back progress made by several African countries in achieving the Sustainable Development Goals (SDGs).

This systemic risk could be mitigated by establishing sound, evidence-based policy options, allowing for the just transition of African financial flows towards assets and development activities that support low greenhouse gas (GHG) emissions and foster climate-resilient development. This transition must take cognisance of Africa’s unique economic and development characteristics.

To this end, the Aligning Financial Flows with the Paris Agreement in Africa (AFF) programme seeks to develop a robust evidence base and knowledge tools to support African countries in identifying pathways and strategies to meet the overarching imperative of Article 2.1(c) of the Paris Agreement.

The AFF programme will achieve this goal by creating an evidence base to inform the development of policy options required to enable the climate-appropriate alignment of financial flows. As a consequence, this process will also support African countries in presenting ambitious climate actions in future Nationally Determined Contributions (NDCs).

Specifically, the AFF programme will:

• Assess the volumes and sources of African financial flows that may be aligned with the Paris Agreement.
• Identify and analyse sectoral prospects for re-investing financial flows, while identifying opportunities to leverage existing funding of high-risk countries to attract sustainable/green financing for climate adaptation.
• Recommend specific short-to-medium term actions for decision-makers to support Africa in aligning financial flows to Article 2.1(c).

The AFF programme recognises that a nuanced approach is necessary to formulate knowledge tools required by African policymakers, due to the diversity of economic and development circumstances across the continent. For this reason, the AFF’s evidence-based options will be developed for a specific number of countries that exhibit pervasive climate-risk complexities and have an urgent need for decisive interventions in financial flow alignment.

The main focus countries will therefore be:

1. South Africa, as a country with high carbon assets that support legacy energy infrastructure, which previously spurred economic development, but which is now ageing and in need of diversification and upgrading;
2. Mozambique, as a Least Developed Country (LDC) and frontier market in Africa with recent discoveries of high carbon assets, but faced with extremely low energy access coupled with vulnerability to adverse climate events; and
3. Ethiopia, as a country where a large percentage of the population is without access to clean and affordable energy supply despite the country’s geographical proximity to abundant renewable sources.

Clusters of knowledge exchange countries will also be identified, so that the learnings from the focus countries can be disseminated across a broader field. This multiplier effect will enable the AFF programme to have a broader reach. As a result, policymakers across the continent will have a wide array of evidence-based options at their disposal, be it for immediate adoption, comparison and contemplation, and/or future scenario planning.

In addition to publishing bespoke evidence-based options that will form the cornerstone knowledge brokering element of the programme, the AFF will also arrange key stakeholder engagements. These will take the form of organised regional dialogues and engagement throughout the programme, which will anchor findings and learnings in the community of practice during the knowledge discovery process – a grassroots approach.

The AFF programme falls under the auspices of the International Climate Initiative (IKI) funding window of the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU).