Africa faces enormous energy challenges. Power shortages reduce the region’s annual growth by 2-4 percent, stifling creating jobs and alleviating poverty. Furthermore, the power generation gap between Africa and other areas is widening despite a decade of growth.
Can we avoid catastrophic climate change while constructing the energy infrastructure to drive economic growth, generate jobs, and raise millions of people out of poverty? For Africa, this is a critical question. No region has contributed less to the climate catastrophe, but no part will pay a more significant price if it is not addressed. Over half of Africa’s population, on the other hand, lacks access to modern energy.
Africa’s leaders have no choice but to close the energy gap—and they must do so quickly. They do, however, have an option regarding how to close the gap. Africa has the opportunity to skip beyond the harmful energy habits that have pushed the globe to the verge of disaster and show the world how to transition to a low-carbon future. Africa will benefit from generating low-carbon energy. The rest of the world will help Africa avoid the high-carbon road taken by today’s developed countries and emerging economies.
The Paris talks on a new global climate pact in December 2015 are rapidly approaching. If the world wants to raise the degree of ambition required for the Paris discussions to end with a credible global climate deal, a cohesive list of everyday African demands is needed.
In its most recent report, the Africa Progress Panel, chaired by Kofi Annan, lays out the bold actions African leaders, their international allies, and the corporate sector must take. Power, People, Planet: Seizing Africa’s Energy and Climate Opportunities lays out the facts and steps that may be taken to improve Africa’s energy future.
The Energy & Climate Problems in Africa.
- In Sub-Saharan Africa, about 620 million people do not have access to electricity. And the number continues to rise.
- Africa now accounts for slightly under half of the world’s unconnected people. Two out of every three people without electricity in the globe will be African by 2030.
- Sub-Saharan Africa uses less electricity than Spain, excluding South Africa, which generates half of the region’s electricity.
- It would take an average Tanzanian eight years to utilize the same amount of electricity as an average American in a month.
- Cooking with wood causes around 600,000 fatalities annually due to home air pollution and contributes to climate change through deforestation. Children under the age of five account for half of these deaths.
- Every year, households earning less than $2.50 a day spend $10 billion on energy-related products like charcoal, kerosene, candles, and torches.
- The poorest households in Africa pay roughly $10 per kilowatt-hour on lighting, 20 times more than the wealthiest households in Africa. For instance, the national average cost of power in the United States is $0.12 per kWh, while $0.15 per kWh in the United Kingdom.
- Africa’s energy financing need is expected to reach $55 billion per year by 2030. To meet the United Nations Sustainable Development Goal of universal access to energy, a tenfold increase in power generation is required; if current trends continue, the goal will not be met until 2080.
- Sub-Saharan Africa (excluding South Africa) accounts for only 2.3% of global greenhouse gas emissions.
- It would take 240 years for the average Ethiopian to produce the same carbon dioxide as the average American.
Ten Primary Steps for Africa’s Low-Carbon Future.
- Subsidies for the wealthy should be reduced.
The $21 billion in energy subsidies aimed at the wealthy must be phased out by African nations. Subsidizing poor people’s connections is more efficient and equitable than subsidizing the rich’s energy usage, and subsidizing kerosene has limited utility as a measure for achieving universal access. Kerosene is the most frequent lighting source for low-income households, but it is also one of the least efficient. Kerosene is 150 times more expensive per unit of energy than even the most inefficient incandescent bulb.
Subsidizing fossil fuel use distorts energy prices, encourages overconsumption, discourages investment in renewable energy, leads to unsustainable fiscal expenses, and locks families and energy systems into inefficient fuel-use patterns, perpetuating the underlying energy dilemma.
2. Subsidies to fossil fuels are being phased out in G-20 countries.
In 2013, the G-20 contributed $88 billion in fossil fuel subsidies solely for exploration and production according to UNEP. Instead of subsidizing greenhouse gas emissions effectively, governments in the major emitting countries should impose a strict price on them by taxing them. Subsidies for fossil fuel exploration and production should be phased out.
3. Tax revenue should be increased.
The low level of tax collection and the failure of some African governments to develop legitimate tax systems are two of the most significant obstacles to transforming Africa’s power sector. Increasing the tax-to-GDP ratio in Sub-Saharan Africa by 1% of GDP may close nearly half of the gap. Tax breaks should also be eliminated. Many governments offer unduly substantial tax benefits to foreign investors, such as tax holidays, capital gains tax allowances, and royalty exemptions.
4. Reduce corruption and improve the energy sector.
Investment requires long-term regulatory reform. Unbundling electricity generation, transmission, and distribution is one step toward making energy markets more efficient and stable. Another example is self-regulation.
5. Take advantage of the low-carbon opportunities.
Predictable off-take agreements, utility purchase agreements, feed-in tariffs, and auctions should be used by governments to enhance the market for low-carbon energy. Recognizing that the initial capital costs of renewable energy investment can be prohibitive, governments and regulators should aim to mitigate risks and promote market development by providing adequately subsidized loans.
6. Restore agricultural land that has been deteriorated.
This idea would help small-scale farmers earn more money, lessen their vulnerability, and improve national food security. Reduced emissions from agriculture, forestry, and land use would have significant global advantages that would extend beyond Africa. Africa has the opportunity to establish global leadership in this area, which is critical for international climate change initiatives.
7. They are combating nefarious financial flows, such as tax evasion.
Illicit money flows cost Africa $69 billion in 2012. Countries in the G-8 and G-20 must follow through on previous promises to enhance tax-disclosure laws, restrict the formation of shell corporations, and combat money laundering.
8. Restructure the climate funding system.
Africa has been let down by climate funding. It is perennially underfunded and disorganized. Independent international bodies that provide adaptation help should be consolidated into a single facility, possibly under the aegis of the Green Climate Fund. Rich countries should set a firm deadline for delivering the outstanding $70 billion per year by 2020.
9. Boost your help.
Aid can be both helpful and catalytic. Help donors should commit to the long-standing goal of allocating 0.7 percent of their GDP to aid. Africa’s governments should raise $10 billion to expand access to on-grid and off-grid energy. The international community should match this commitment with $10 billion in aid and concessional financing to fund developments that provide electricity access to underserved populations.
10. Unlock the world of private money.
Development finance may be able to attract more significant investment by acting as a catalyst. Risk-guarantee provisions should be expanded, and international financial institutions, development finance organizations, and bilateral donors should work together more closely.
African countries will be better positioned to rethink their energy policy and modernize their economies if global solid development goals are backed by innovative funding and a fair climate accord. The continent’s energy potential will also change people’s lives. For example, Ethiopia, Kenya, Rwanda, and South Africa are already establishing themselves as frontrunners in the worldwide transition to low-carbon energy.
Ken is a Quantitative Trader with experience in investments, quantitative finance, financial modelling and algorithmic trading in Global Investable Markets (GIM). He enjoys using Bayesian Statistics, Time Series and Machine Learning in developing Robust consistent Alphas in Equities Market, FX, ETPs and Derivatives instruments. He enjoys deep dives in understanding High Frequency Trading infrastructures and improving how the African financial markets work. He holds a Bachelor's in Actuarial Science from Strathmore Institute of Mathematical Sciences : An Executive Program in Algorithmic Trading (EPAT) certificate in Algo Trading from QuantInsti : A current MSc student in Financial Engineering at World Quant University.