The COP29 conference held in Baku, Azerbaijan in November this year put the spotlight on the wide chasm between money coming into Africa to address climate change and the funds flowing out.
The continent faces a ‘disproportionate burden’ from climate change and the associated adaption costs, with the World Meteorological Organization (WMO) reporting that on average, African countries are losing 2-5% of their GDP in responding to climate extremes, despite being responsible for fewer than 10% of global greenhouse gas emissions.
These prolonged droughts, devastating floods, severe heatwaves, and cyclones displace millions, compound poverty, threaten food security, and destabilise economies. The need to invest in climate adaptation and mitigation is urgent – bringing an alarming need for African countries to reassess their financing models to bridge this gap.
The financing chasm
The global capital flow disparity remains one of the most significant hurdles to tackling climate change. Wealthy nations continue to dominate climate financing, leaving developing countries struggling to secure the resources needed to fund their transition.
The issue of “money in vs money out” was a central theme of COP29, resulting in a $300 billion deal tripling climate finance to developing countries by 2035. Yet the scale of investment required to drive Africa’s climate transition feels almost boundless. Delivering a full-scale transformation will demand action from outside of the negotiation room at COP alone – it requires a fundamental rethinking of our existing financial systems.
Developing nations were right to call at COP29 for a big increase in the quantum of international climate finance. But the flow of funds, as well as being bigger, will also need to be much more smartly and strategically deployed, with a far bigger focus on catalytic capital.
One potential solution is tapping into domestic pools of capital to help generate the additional funding needed to fuel this transition. Mechanisms like climate-related levies can bridge this gap.
Small levies on equity and bond transactions, for example, could generate revenue which can then be channelled towards renewable energy projects, climate resilience programmes, or carbon offset schemes.
This approach mirrors mechanisms like the UK’s Stamp Duty, which imposes a tax on share transactions to raise public revenue. Adopting this model for climate finance would create a steady stream of income dedicated to addressing Africa’s climate priorities.
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Further revenue could be generated through levies on shipping emissions, additional taxes on jet fuel, and “frequent flyer” charges targeting emissions from high-volume travel.
These measures would not only provide funding, but also incentivise lower-carbon alternatives in transportation. What’s more, the energy-intensive nature of cryptocurrency mining presents another opportunity for targeted taxation.
Cryptocurrency mining and data centres consume vast amounts of electricity and account for nearlyone percent of all global emissions, with their environmental footprint becoming larger by the year. Levying small taxes on crypto activities could discourage excessive energy use in this industry and redirect these resources towards climate finance.
Crowding in private sector financing
These funding mechanisms could help raise vital resources, but on their own, they cannot carry the weight of the financing shortfall. With sovereign debt levels already constraining many governments, public capital alone cannot meet Africa’s climate financing needs. Private capital is essential for scaling up investments.
For example, South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) is a public-private partnership with the goal of increasing the country’s electricity capacity via private sector financing.
Before the programme’s establishment in 2011, South Africa had a very minimal private power sector. Today, the country has majorly expanded its installed energy capacity and is one of the largest financiers of renewable energy across the African continent.
South Africa has seen the highest growth in renewable energy capacity on the continent, including the highest installed wind capacity, accounting for 41 percent of total installations.
This transformation was made possible by policies that encouraged private investment while aligning with public climate goals. These models demonstrate how governments across Africa can attract private sector participation to drive the energy transition by creating supportive policy frameworks.
The climate crisis needs collaborative efforts
The climate crisis is a defining challenge of our time, and many had hoped for a more ambitious outcome at COP29 – on both finance and mitigation – to tackle it.
But this agreement provides a base on which to build. It’s now essential that this framework is fully honoured, and without delay. Commitments must quickly become cash – and all countries must come together to ensure the top-end of this new goal is met.
As the global race for climate capital continues to accelerate, African countries must embrace innovative and inclusive financing models that truly move the needle.
Leaning on public-private partnerships, exploring tax system reform, and harnessing domestic resources are key to addressing the continent’s complex, and urgent, climate financing challenges.
