Nigeria has proposed a debt-for-climate swap deal to help African countries participate more the quest to realise global net-zero emissions targets, facilitate energy access and ensure the development of the Continent.
Nigeria’s Vice President, Yemi Osinbajo, made the proposal during a lecture he delivered on a just and equitable energy transition for Africa at the Center for Global Development in Washington D.C.
The VP said the deal, which involves the swap of bilateral or multilateral debts by creditors for commitment by debtor by African countries to pursue national climate action programmes, would significantly advance the course of the global net zero emissions.
“Typically, the creditor country or institution agrees to forgive part of a debt, if the debtor country would pay the avoided debt service in local currency into an escrow or any other transparent fund, and the funds must then be used for agreed climate projects in the debtor country,” Osinbajo explained.
He said the rationale behind such a debt swap deal was that the commitment to it would “increase the fiscal space for climate-related investments and reduce the debt burden for participating developing countries.
“For the creditor, the swap can be made to count as a component of their Nationally Determined Contributions (NDC),” he said.
To make this efficient, Osinbajo said there were significant policy actions necessary to make the deal acceptable and sustainable.
The Vice President also proposed the greater participation of African countries in the Global Carbon Market, while exploring financing options for energy transition projects.
For him, there is a need to take a comprehensive approach in working jointly towards common goals, including the market and environmental opportunities presented by the financing of clean energy assets in growing energy markets.
In addition to conventional capital flows, both from public and private sources, the VP said it was also essential that Africa could participate more in the global carbon finance market.
Currently, he noted that direct carbon pricing systems through carbon taxes have largely been concentrated in high and middle-income countries.
However, he said carbon markets could play a significant role in catalyzing sustainable energy deployment by directing private capital into climate action, improving global energy security, providing diversified incentive structures, especially in developing countries, and providing an impetus for clean energy markets when the price economics looks less compelling – as is the case today.
He encouraged developed countries to support “Africa to develop into a global supplier of carbon credits, ranging from bio-diversity to energy-based credits,” which would be a leap forward in aligning carbon pricing and related policy around achieving a just transition.
On the concerns of the African continent and other developing countries regarding a just energy transition, Osinbajo said “the central thinking for most developing countries was that they are confronted on this issue of a just transition with two, not one, existential crises, and namely climate crisis and extreme poverty.
“The clear implication of this reality is that our plans and commitments to carbon neutrality must include clear plans on energy access, if we are to confront poverty.
“This includes access to energy for consumptive and productive use and spanning across electricity, heating, cooking, and other end-use sectors,” he said.
He said nearly 90 million people in Asia and Africa who had previously gained access to electricity can no longer afford to pay for their basic energy needs.
The inflationary pressures caused by the COVID-19 pandemic and other macroeconomic trends, he pointed out, have been exacerbated further by the ongoing Russian war in Ukraine.
Apart from countries worldwide that have been hit by record prices on all forms of energy, he said power prices were breaking records across the globe, especially in countries or markets where natural gas is playing a key role in their energy mix.
On a note of caution, Osinbajo said in such a global reality, limiting financing of gas projects for domestic use would pose a severe challenge to the pace of economic development, delivery of electricity access and clean cooking solutions, and the scale-up and integration of renewable energy into the energy mix.
On Nigeria’s initiative to combat the unfolding crisis, the VP revealed that the country’s Energy Transition Plan was designed to tackle the dual crises of energy poverty and climate change and deliver Sustainable Development Goal (SDG)-7 by 2030 and net-zero by 2060, while centring on the provision of energy for development, industrialization, and economic growth.
“We anchored the plan on key objectives, including lifting 100 million people out of poverty in a decade, driving economic growth, bringing modern energy services to the full population and managing the expected long-term job losses in the oil sector due to global decarbonisation,” he said.
He underscored the role that natural gas must play in the short-medium term to facilitate the establishment of baseload energy capacity and address the nation’s clean cooking deficit in the form of LPG.
Besides, the Vice President identified some double standards evident in the response to the current energy crisis by many countries in the global North, noting that, and apart from South Africa, the remaining one billion people in Sub-Saharan Africa were serviced by an installed capacity of just 81 gigawatts of electricity.
Sub-Saharan Africa, he said, has contributed less than one percent of cumulative CO2 emissions.
By comparison, Osinbajo said the United States alone has an installed capacity of 1,200 gigawatts to power a population of 331 million people, while the United Kingdom has 76 gigawatts of installed capacity for its 67 million people.
The per capita energy capacity in the United Kingdom, he said, is almost fifteen times than in Sub-Saharan Africa.
He said barely a year ago, many of these countries had seriously advocated or implemented policies on limiting public funding for fossil fuel projects in developing countries, making no distinction between upstream oil and coal exploration; and gas power plants for grid balancing.
“But today in the wake of the energy crisis, many European nations have made recent announcements to increase or extend their use of coal-fired power generation through 2023, and potentially beyond in violation of their climate commitments. Analysis suggests this will raise power sector emissions of the EU by 4 percent, a significant amount given the high base denominator of EU emissions,” he observed.
He said Europe’s energy crisis has not been ignored, as it continues to be met with support, and international resources.
This, he noted, was in stark contrast with the situation with the developing world, which is still being held to account for its emission reduction without adequate support and investment for its energy transitions.
Acknowledging the contrast to the wider responses to the climate crisis on the African continent, the Vice President said the world was not seeing careful consideration and acknowledgement of Africa’s aspirations.
For instance, he said despite the tremendous energy gaps, global policies were increasingly constraining Africa’s energy technology choices.
Regardless, the VP confirmed that with the Kigali communique and several other formal and informal consultations, African nations were now more intentional in taking joint ownership of their transition pathways and designing climate-sensitive strategies to address their growth objectives.
“This is what Nigeria has done with its Energy Transition Plan,” he said.
“Our Energy Transition Plan finds that an additional $10 billion over business as usual is required annually till 2060 to shift the entire economy to a net-zero pathway.”
On energy investments, he identified the mismatch in the volume of investments experienced in developed countries as opposed to developing countries.
While high-income countries, representing just 15 percent of the world’s population, received 40 percent of global energy investment in 2018, compared with developing countries with 40 percent of the world’s population, which received just 15 percent of global energy investment.
On what the ultimate goal of the global energy transition should be, Osinbajo it was to achieve reliable net-zero carbon energy systems to power prosperous, inclusive economies.
On the Nigerian context, he said energy transition means building sustainability into the country’s economic planning developed in an Economic Sustainability Plan in the aftermath of the COVID-19 pandemic.
This, he said, included an ambitious plan over the near term to provide five million homes and small, and Medium Enterprises (SMEs) with cleaner energy through its decentralized solar power programme.