By Caroline Kende Robb
on 17.07.2015 in APP in the Media Editorials
Can we
stave off catastrophic climate change while building the energy systems needed
to power growth, create jobs and lift millions of people out of poverty? That’s
a crucial question for Africa. No region has done less to contribute to the
climate crisis, but no region will pay a higher price for failure to tackle it.
Meanwhile, over half of Africa’s population lacks access to modern energy.
Africa’s
leaders have no choice but to bridge the energy gap, urgently. They do have a
choice, though, about how to bridge the gap. Africa can leapfrog over the
damaging energy practices that have brought the world to the brink of
catastrophe – and show the world the way to a low-carbon future.
To
achieve that vision, however, national and global financing arrangements must
be reformed and boosted. The Third International Conference on Financing for
Development, in Addis Ababa this week, offered a rare opportunity for global
leaders to join forces and commit to the necessary changes. The new Addis Ababa
Action Agenda, the comprehensive agreement reached at the end of the
Conference, now provides a foundation for innovative, scaled up financing of
the global sustainable development agenda, including the energy sector.
Africa
stands to gain from developing low-carbon energy, and the world stands to gain
from Africa avoiding the high-carbon pathway followed by today’s rich world and
emerging markets. Unlocking this “win-win” will not be easy. It will require
decisive action on the part of Africa’s leaders. Tackling Africa’s interlocking
climate and energy problems also requires strengthened international
cooperation.
Africa’s
energy challenges are immense. Power shortages diminish the region’s growth by
2-4 per cent a year, holding back efforts to create jobs and reduce poverty.
Despite a decade of growth, the power generation gap between Africa and other
regions is widening.
Energy-sector
investment in Sub-Saharan Africa is inadequate, at only US$8 billion a year or
0.4 per cent of gross domestic product. A ten-fold increase in power generation
is needed to achieve the United Nations sustainable development goal of
universal access to energy by 2030; if current trends continue, the goal won’t
be reached until 2080.
Africa’s
energy financing gap – the extra investment it needs to bring modern energy to
all – stands at $55 billion per year until 2030. That sounds like a large sum,
but it would deliver high social and economic returns.
The
Africa Progress Panel, chaired by Kofi Annan, spells out in its latest report
the bold action required from African leaders, their international partners and
the private sector. The report, Power, People, Planet: Seizing Africa’s Energy
and Climate Opportunities, outlines ten ways to finance Africa’s energy future:
ONE:
Increase tax revenues
One of the greatest barriers to the transformation of the power sector is the
low level of tax collection and the failure of some African governments to
build credible tax systems. Almost half of the gap could be covered by
increasing Sub-Saharan Africa’s tax-to GDP ratio by 1 per cent of GDP.
TWO: Cut
pro-rich subsidies
African governments need to phase out the US$21 billion in energy subsidies
geared towards the rich. Subsidizing connections for the poor is more efficient
and equitable than subsidizing energy consumption by the rich and subsidizing
kerosene is of limited value as a tool for achieving universal access.
THREE:
Remove tax concessions
Many countries provide foreign investors with excessively generous tax breaks
in the form of tax holidays, capital-gains tax allowances and royalty
exemptions.
FOUR: Reform energy utilities
Long-term national interest must override short term political gain.
Energy-sector governance and financial transparency will help bring light in
the darkness. Energy entrepreneurs can join the reformed utilities in investing
revenues and energy funds in sustainable power. Sustained regulatory reform is
critical for investment. Unbundling power generation, transmission and
distribution is one step towards creating more efficient and stable energy
markets. Independent regulation is another. But private investors require an
energy buyer such as a utility or dedicated power-purchasing agency and it is
hard to build a convincing business case when the main buyer is a
highly-indebted, corrupt and inefficient utility.
FIVE:
Seize the low carbon opportunity
Governments should strengthen the market for low-carbon energy through predictable
off-take arrangements, utility purchase arrangements, feed-in tariffs and
auctions. Recognizing that the initial capital costs of renewable energy
investment can be prohibitive, governments and regulators should seek to reduce
risks and support the development of the market through appropriately
subsidized loans.
SIX:
Boost aid
Aid can play a supportive, catalytic role. Aid donors should commit to the
longstanding target of devoting 0.7 per cent of gross national income (GNI) to
aid. African governments should mobilize around US$10 billion to expand on-grid
and off-grid energy access. The international community should match this
effort through US$10 billion in aid and concessional finance aimed at
supporting investments that deliver energy access to populations that are being
left behind. President Barack Obama’s Power Africa initiative, which promises
US$7 billion over five years, has acted as a focal point for a range of US
agencies and the private sector. Energy cooperation between the European Union
and Africa is deepening. The game-changer, though, is the emergence of China as
a source of integrated project finance for large-scale energy projects.
SEVEN:
Phase out fossil fuel subsidies in G20 countries
Governments in the major emitting countries should place a stringent price on
emissions of greenhouse gases by taxing them, instead of continuing effectively
to subsidize them, for example by spending billions on subsidies for
fossil-fuel exploration. The three 2015 summits should aim at a comprehensive
phase-out of all fossil fuel subsidies by 2025, with appropriate support for
low-income countries. Eliminating subsidies for fossil-fuel exploration and
production – especially coal – should be a priority.
EIGHT:
Redouble efforts to combat illicit financial flows, including tax evasion
In 2012, Africa lost US$69 billion from illicit financial flows. G8 and G20
countries must act on past commitments to strengthen tax-disclosure
requirements, prevent the creation of shell companies and counteract money
laundering. Implementation of the G20/OECD’s planned actions on base erosion
and profit shifting should be accelerated; and the international community
should support African efforts to strengthen tax and customs administration and
reduce illicit financial outflows, especially via trade misinvoicing. Other
priority actions to mitigate illicit financial flows include public registries
of beneficial ownership of companies and, with the assistance of the IMF,
agreeing on how to define, measure and track such flows. A more efficient and
equitable global tax system would decrease multinational companies’ ability to
dodge their tax obligations.
NINE:
Overhaul the climate finance architecture
Climate finance has failed Africa. Detailed analysis of financial transfers
points to two structural weaknesses in the climate-finance architecture:
chronic under-financing and fragmentation. The separate multilateral agencies
offering facilities to support adaptation should be merged into a single
facility, perhaps under the auspices of the Green Climate Fund. Rich countries
should set a clear timetable for delivering by 2020 the outstanding US$70
billion per annum in climate finance, which they committed to in Copenhagen,
with greater transparency on financial commitments, the identification of new
sources of finance and delivery mechanisms.
TEN:
Unlock private finance
Development finance could play a more catalytic role in attracting investment.
Risk-guarantee provisions should be increased and coordination strengthened
between international financial institutions, development finance agencies and
bilateral donors. The World Bank and the African Development Bank should lead
an international effort to unbundle risk, structure guarantees and align
Africa’s risk premium with market realities.
Once
strong global development goals are in place, backed by smart financing and a
fair climate deal, African countries will be in a better position to rethink
their energy policies and transform their economies.
If
financed correctly, Africa can both grow and show the way, by embracing a
dynamic energy mix in which renewable sources will gradually replace fossil
fuels. And the continent’s energy potential will transform lives.
Published
in: The Huffington Post
The theme of the AGM is "Mapping our profession, beyond Boundaries with technical sessions, businesses and social functions from 27th to 31st of July, 2015.
