Economy
Treasury gets new cash cow in climate financing billions
Friday February 02 2024
Submerged section of what was once the bank of Lake Naivasha. Rising water levels is due to climate change. FILE PHOTO | NMG
The Treasury has netted more than Sh200 billion through climate finance initiatives, helping to offset part of its budget funding requirements and easing fiscal pressures.
Over the past year, for instance, the Exchequer has tapped into various climate-related funding programmes allowing it access to billions of shillings for budget support.
For instance, Kenya has seen commitments of more than Sh99 billion ($621.4 million) from the Climate Investment Funds—made up of a coalition of multilateral lenders and the International Monetary Fund (IMF) Resilience and Sustainability Fund (RSF).
The RSF has been the most notable source of climate financing funds so far with the facility approved last year committing Sh88.5 billion ($551.4 million) with Sh9.6 billion ($60.2 million) of the funds being disbursed last month.
Funding from the facility is expected to replace previous budgetary allocations on the financing of climate-related infrastructure, including the development of clean energy and afforestation.
Equally, the financing has been projected to catalyse private sector funds unlocking additional resources for the exchequer.
“RSF resources will help augment the financial year 2023/24 budgetary allocations for investments in ongoing renewable energy projects, improvements in the coverage and dissemination of Kenya early warning systems, restoration efforts implemented through the National Forest Action Plan and the National Tree Planting Campaign and the construction of climate-related infrastructure through the National Irrigation Development Project,” says the IMF.
The funding is expected to free up an estimated Sh29.8 billion previously set aside for the initiatives.
Read: Climate finance key to sustainability future
Earlier this week, the Trust Fund Committee of the Climate Investment Funds (CIF) endorsed a Sh11.2 billion ($70 million) plan with an initial allocation plan of Sh7.4 billion ($46.39 million) to advance the integration and utilisation of renewable energy in the Kenyan power grid.
The funding is part of the CIF’s renewable energy integration investment programme, which seeks to support Kenya’s ambition of reducing greenhouse gas emissions by 32 percent by 2030.
The CIF is a leading multilateral climate finance partnership that channels concessional finance through six multilateral banks for upstream advisory and downstream investment activities to support climate action.
The lenders implementing the CIF’s investments include the World Bank, the International Finance Corporation, the African Development Bank, the Asian Development Bank, the European Development Bank, and the Inter-American Development Bank.
“The plan will assist Kenya in her ambition to achieve 100 percent clean energy in the power system by 2030 and place it well on the trajectory to achieving net zero by 2050.
“This programme is expected to promote gender balance among the professionals and resource persons who undergo training, creating a gender-responsive and diverse pool of skilled manpower in the renewable energy sector,” said Energy PS Alex Wachira.
While easily tapping from climate financing programmes, funds disbursed come with strings attached with the government being required to adhere to reforms geared towards addressing climate change mitigation.
Last year National Tree Planting Day on November 13, for instance, aligned with the afforestation campaign, which forms part of the conditions for the RSF financing from the IMF.
The IMF lists various reform priorities and reform measures under the funding, including the dissemination of a digital early warning system platform for multi-sector climate-related information to the most vulnerable counties.
By May, the National Treasury with approval from Parliament is expected to implement carbon pricing in line with the recommendations of the IMF to better reflect the externalities of fossil fuel consumption and to achieve emission reduction targets.
Meanwhile, the Cabinet is expected to approve net metering regulations, electricity market, bulk supply, and open access regulations to promote energy efficiency, electricity wheeling, and distributed renewable power generation in the residential, commercial, and industrial sectors including Special Economic Zones and Industrial Parks.
Kenya’s vulnerability to climate change shocks has allowed it access to climate financing billions as intermittent drought and flooding continue to pose a threat resulting in human, social, and economic costs.
Read: IMF to review Sh80.2bn climate linked loan in November
“The Kenya meteorological department expects that the ongoing rains are likely to remain enhanced until January 2024 and could last until April. Temperatures are also expected to be warmer than average in most parts of the country and cooler than average in parts of the Northeast and Coastal region. The above pattern points to the special variation in the impacts of climate change that vary according to the biophysical conditions across the country and depend on where population and economic activities are concentrated,” the World Bank observes.
