CARBON FINANCING STRATEGIES FOR LOW CARBON EMISSIONS AND CLIMATE CHANGE MITIGATION AND ADAPTATION-Presented to KCCA Urban planning committee. Communities around the world are already feeling the impacts of climate change today, with the planet only 0.8 ºC warmer than in pre-industrial times. Many of us could experience the harsher impacts of a 2ºC warmer world within our lifetimes – 20 to 30 years from now – and 4ºC is likely by the end of the century without global action. It is reported that if the world warms by 2°C – warming which may be reached in 20 to 30 years – that will cause widespread food shortages, unprecedented heat-waves, and more intense cyclones," says World Bank Group President Jim Yong Kim. According to the World Bank (2010) “Major cities are essential to achieving sustainable development from economic, social, and environmental perspectives. By 2050, as many people will live in urban areas as the total world population in 2000”. Climate change is one of the major sustainable development challenges facing our country, and Africa is the most vulnerable continent to its impact. “A crucial determinant of the continent's future is how well adaptation strategies are developed and implemented throughout the region. Adaptation is data intensive, and there is an urgent need for improved access to relevant and useable data to support new initiatives”. Uganda is at early stages of urbanization. Cities are recognized leaders in mitigating GHG emissions; however, there are numerous reasons for the limited experience of cities in developing carbon finance projects. Three stand out :(i). Broader climate change mitigation priorities and actions have primarily been discussed at the level of national governments, (ii). Individual city-level GHG emission reduction projects, such as efficiency improvement in street-lighting, are not large enough to warrant the transaction costs associated with carbon finance, and (iii). Cities, especially those in developing countries, have limited financial resources and improving access to basic urban services receives greater priority. There is, however, growing awareness that cities can fulfill their local needs while reducing their contribution of greenhouse gas emissions. Consequently, many cities around the world are voluntarily adopting mitigation targets as they realize the direct local benefits of these measures to cut costs, save energy, and to meet the broader goal of addressing climate change. A number of low carbon strategies have been initiated especially of developing nations. These could be funded from locally generated sources multilateral and bilateral donors. Carbon finance offers an opportunity to access financial resources to reduce the incremental costs of implementing projects that mitigate greenhouse gas (GHG) emissions in cities. Most GHG emission reduction projects provide significant ancillary local benefits, such as improved air quality, reduced commuting times, more sustainable natural resource use, reduced pollution, financial savings, and improved customer satisfaction for the users of services. While carbon finance activities have gained momentum, cities have been unable to reap the full benefit of participating in global carbon markets. Major urban areas experience air pollution mainly coming from the combustion of fossil fuels - in industrial processes and motor vehicles. Poorly managed urban areas contribute to unsustainable production and consumption patterns which lead to the generation of unmanageable wastes that harm the land and water resources, as well as the atmosphere. Sustaining healthy environments in the urban areas represents a major challenge for urban development and management. Uganda’s urbanization is estimated at 5.2% which is very high by international standards. It is projected that Uganda will become an urbanized country by 2050. This calls for a deliberate action to accord priority attention to proactively integrate planning and 1
development of the urban areas in order to harness their potential as engines of economic growth.
Poor waste disposal in Kampala The high urban growth in Kampala has negatively impacted on the environment with air, water and noise pollution, as well as the problems related to the poor waste disposal. In Uganda, more than 90% of the households depend on wood-fuel for their energy requirements. This has resulted into depletion of forests for purposes of charcoal burning as well as timber for construction. Kampala also remains at risk from natural hazards such as droughts, floods, earthquakes, and landslides. These could be attributed to climate change. Given that the poor are forced to live in the most marginal areas of urban areas the poor have to bear the effects of environmental deterioration. Whenever it rains, settlements in wetlands experience flash floods which result not only into death, destruction of properties and disruption of businesses, but also in the overflow of fiscal matter which consequently leads to cholera outbreaks in the urban centers. This enormous rate of urban growth highlights the challenges now faced by cities to ensure the provision of essential urban services while maintaining economic growth, protecting the environment, and strengthening social cohesion. These challenges require the City proactively develop low carbon strategies in order to mitigate the effects of the anticipated disaster as well as adapt to those already being experienced.
Effects of rain flooding in Kampala Global action on climate change presents a number of opportunities for Uganda to benefit from mitigation efforts that could generate income from carbon credits, although there is currently limited awareness and access to these across East Africa. There is extensive wetland 2
degradation through brick making, sand/clay extraction, cultivation, waste dumping, human settlement and other forms of development. Degradation of wetlands is a drain on district resources for instance, higher incidents of diseases like cholera and diarrhea, washed out roads and bridges. Proper management of wetlands is, therefore, very important. The public in most cases is not fully aware and may do not appreciate the diversity of values and functions of some of the natural resources. This has always led to degradation of resources. Assessment and evaluation of environmental impacts of development activities helps to minimize the economic and social costs of preventing damage before occurrence as compared to restoring a degraded resource. The success of low ‐ carbon and climate ‐ resilient development depends on the quantity and type of finance made available to support these efforts. Sectors for intervention include Energy, transport solid waste management, urban forestry and water and waste water. A major problem with dealing with climate change mitigation in Kampala lies with inadequate funding. Government revenues alone cannot be expected to fund all actions related to climate and disaster risk. However, Kampala is eligible to receive funding from some carbon finance international initiatives. Climate finance is made of all financial flows that include climate ‐ specific support for mitigation, adaptation, capacity building, and technological R&D. Such flows can be from developed to developing countries, but also be the result of South- South cooperation, or even private sector involvement into specific initiatives. These can help address and alleviate KCCA budgetary constraints. These include; i.
Climate Investment Funds/ClimDev-Africa Special Fund (CDSF) is a joint initiative of the African Development Bank, the African Union Commission and the United Nations Economic Commission for Africa, formed to strengthen the institutional capacities of national and sub-regional bodies to formulate and implement effective climate-sensitive policies. Adaptation Fund. Adaptation Fund (AF) supports concrete adaptation activities that reduce the adverse effects of climate change facing communities, countries, and sectors. AF Fund was established by the Parties to the Kyoto Protocol. Global Environment Facility (GEF) serves as an operating entity of the financial mechanism of the UNFCCC and is working under the guidance of the Council and The COP. GEF supports pilot and demonstration projects that address local adaptation needs and generate global environmental benefits.GEF caters for small and medium size renewable energy and energy efficiency projects in developing countries and economies in transition. Green/Climate Bonds, Green climate fund: these WB funds are aimed to make a significant and ambitious contribution to the global efforts towards attaining the goals set by the international community to combat climate change. They could be invested in Bus rapid transport for public transportation, geothermal and solar energy installations and other GHE projects. Corporate Social Responsibility: Under the United Nations Global Compact – local network Uganda, the business community can be mobilized to contribute financially and in-kind towards pre-disaster and post-disaster responses to natural disasters from their CSR budgets. Capital Markets Authority (CMA): With the growth of the capital market, Kampala City can float financial instruments to raise funds for much-need developments and enhancements to the city’s essential services infrastructure. Securities offer a kind of liquidity that attracts investment from both domestic and foreign investors alike. Public-private-people partnerships (PPP): The use of strategic partnerships with key stakeholders in both the public sector (Governments and multi-lateral lenders) and the private sector (investment firms, philanthropic foundations) creates a 3
sustainable flow of funds for capital-intensive projects. Private companies can play a key role in providing more and improved services in urban areas. viii. REDD+ Carbon Credit Facility: the Carbon Market where polluting companies and countries can invest in the development of carbon sinks elsewhere in the world would see Uganda’s fertile soils as a good destination that can benefit from Carbon Credits; Kampala and surrounding neighborhoods can access this funding facility. ix. Government national budget/Municipal budget.-fuel, land and property taxes, user fees and charges. 1. Insurance policies in Kampala City. Insurance (Donor, private & Government.2, Catastrophe bonds.3.Contingent credit funds. Conclusion Despite prevention and mitigation efforts, no country can fully insulate itself against major natural disasters. It is very important to create a cost ‐ efficient and sustainable Disaster Risk Disaster risk Financing reduces the opportunity cost of disaster namely the cost of securing funds to sustain a natural disaster occurrence. Developing an optimal disaster risk management strategy with combinations of the above financial instruments is key. Sustainable financing for climate change and disaster risk in cities need to maximize synergies and complementarities and be tailored to the specific challenges of the city. An efficient combination of resources from the instruments described above can leverage public and private sources while encouraging low carbon development. Combination of financial instruments will be needed, with approaches customized to address specific needs, risks and or barriers, while also reducing transaction costs. Budget contingencies together with reserves are the cheapest source of ex‐ante risk financing and are generally used to cover the recurrent losses. Other sources of financing such as contingent credit, emergency loans and possibly insurance should enter into play only once reserves and budget contingencies are exhausted or cannot be accessed fast enough. A “bottom‐up” approach is recommended: the government first secures funds for recurrent disaster events and then increases its post‐disaster financial ability to fund less frequent but more severe events. Collaboration, participation, and innovation between a number of stakeholders and sectors are needed to address the major challenges imposed by climate change in a cost-effective way. Due to declining donor and state-level funding, only through innovative, collaborative and public-private partnerships will it be possible to attract adequate and appropriate private sector climate smart investments that lead to increased climate change adaptation strategies. Regulation?? Taxes??