EXPLORING OPERATIONAL PATHWAYS FOR ARTICLE 2.1C OF THE PARIS AGREEMENT IN AFRICA

Advancing Sustainable Finance for Clean Energy Access – Safeguarding Rural Household Financial Assets in Ethiopia

The third long term goal of the Paris Agreement, Article 2.1(c), sets forth the urgent imperative to ‘make financial flows consistent with a pathway towards low emissions and climate-resilient development’. As such, Article 2.1(c), has the potential to transform financial sectors regionally and nationally by encouraging investments aligned with low-emissions and climate resilient development that will help safeguard the financial assets vulnerable communities spend on energy access.

As of 2021, only 45% of Ethiopia’s population of 120.3 million inhabitants had access to the national grid with rural communities faring far worse at an access rate of only 22% compared to their urban peers with an access rate of 81%. In terms of clean cooking, Ethiopia faces a colossal challenge whereby 82% of the population still relies on firewood as the predominant cooking fuel which portends a plethora of severe health and climate risks. Successful operationalisation of Article 2.1(c) can enable the provision of sustainable climate finance to achieve universal access to clean energy while safeguarding the financial assets of rural households by mitigating the proportionally high expenditure on energy services for both livelihood purposes and clean cooking.

As home to Africa’s largest hydroelectric dam project, the Grand Ethiopian Renaissance Dam (G.E.R.D) which has an installed capacity of 6,450 megawatts, Ethiopia provides a perplexing case study around universal clean energy access. Ethiopia’s case brings into sharp focus the paradox across most of Sub-Saharan Africa (SSA) where immense potential for renewable and clean energy exists yet 600 million Africans who reside in the region live without any form of energy access.

The energy transition faced by a large number of African countries is thus one of moving from limited access to modern energy services, towards accessing sufficient energy for sustainable livelihoods in regions and countries with an abundance of clean and renewable energy sources such as Ethiopia where the source of the formidable River Nile is situated.

This paper interrogates how advancing sustainable finance can bring about a paradigm shift and spark an exponential expansion of universal clean energy access in countries such as Ethiopia. Using guidance provided by Article 2.1 (c) that calls for alignment of financial flows towards pathways of low greenhouse gas emissions and climate resilient development, the paper presents options for the formulation and recalibration of national policies that can help unlock and attract sustainable finance for expansion of universal clean energy access.

While noting that Ethiopia’s Nationally Determined Contributions (NDCs) recognise the need of reducing global temperatures below 1.5 degrees Celsius and that the country’s Climate Resilient Green Economy (CRGE) strategy demonstrates determined climate ambition, the paper also spotlights the urgency for both endogenous and exogenous financing avenues becoming available to bolster the sustainability of the mostly public domestic resources that have been relied upon so far in developing Ethiopia’s energy system. In doing so, the paper posits that major multilateral finance compacts that are emerging to support decarbonization efforts should also consider supporting universal clean energy access to ensure that no one is left behind as the global community seeks to transition to a greener and climate resilient future.

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