Non-fossil to fossil energy ratio and scaling up climate investment in all sectors

Explanation 

Africa has consistently been recognised as having some of the greatest potential for renewable energy generation globally. Despite this, for every USD 1 the AfDB provided to fossil fuels in the fiscal period 2019–22, only USD 3.19 went toward clean energy, with USD 2.22 going to transmission and distribution (which typically cannot be attributed to any specific energy type), and USD 1.05 to other energy projects (which can include mixed energy, nuclear, or biomass projects). is comparable to several other MDBs covered by E3G’s Public Bank Climate Tracker Matrix, but short of leading institutions.[2] These numbers must be viewed with AfDB’s unique context of pressing development and energy access priorities in mind. Similarly, funding for transmission and distribution (which includes increasing access to renewable energy) and for other energy (which includes biomass projects) should also be viewed through that lens. 

The ratio of clean to fossil energy finance has fallen compared to the fiscal period 2015–2018, when the AfDB provided USD 5.63 of clean energy finance for every USD 1 of fossil finance. It is worth noting, however, that the aggregate ratio for 2019–22 is heavily influenced by 2019 energy lending figures, when the ratio was 1:1. Total funding for each was far greater in that year than in any other year of the sample, with the exception of clean energy financing in 2022. The high 2019 figure for fossil fuel funding was largely driven by a USD 400 million Liquefied Natural Gas (LNG) project in Mozambique. Total fossil financing was recorded as USD 567 million in 2019, USD 0 in FY 2020, only USD 1 million in FY 2021, and USD 25 million in FY 2022.

This steep decrease since 2019 represents a highly promising trend. Apart from 2019, the AfDB consistently achieved a much stronger ratio across the other years of the sample (although total levels of energy financing were mostly considerably phase-down in fossil financing. However, in this regard it is worth highlighting the impact of the COVID-19 pandemic on the AfDB’s lending portfolio to accommodate the emerging needs of member countries in response to the pandemic. Accordingly, total clean energy financing rebounded to USD 701 million in FY 2022.

Financing for transmission and distribution is only approximately USD 150 million (10%) lower than clean energy financing when totalled across the measurement period of FY2019–2022. Given the relevance of transmission and distribution for both access to energy and the climate transition across Africa, this figure is also an important indicator of the AfDB’s investment in the energy transition.  

Climate finance

AfDB climate finance as a share of total approvals has steadily increased from 34% in 2020 to 41% in 2021, 45% in 2022, and 55% in 2023.[3] Of the total USD 5.85 billion in 2023, 53% was committed to adaptation, and the remaining 47% to mitigation. This remains the highest share of climate finance going towards adaptation reported by any of the MDBs covered in the E3G Matrix and is reflective of the AfDB’s leadership in adaptation financing. The AfDB was the first MDB (and is still one of only two, the other being the Islamic Development Bank) to have reached (and/or exceeded) parity between adaptation and mitigation finance.

As such, the AfDB fulfilled the climate finance targets it established in its Climate Change Action Plan (2016–2020), i.e., 40% of approvals being categorised as climate finance and parity between adaptation and mitigation finance (with priority for mobilising the former from the climate funds). The AfDB has committed to maintaining the 40% annual threshold over 2020–2025, and to mobilise a total of USD 25 billion in climate finance over that period.

Recommendations: 

• The AfDB should continue the precedent set by the low levels of fossil fuel financing in 2021 and 2022. This should form part of developing an “AfDB long-term strategy” for phasing out fossil financing in accordance with the decarbonisation and climate-positive growth trajectories of African countries and in line with the goals of the Paris Agreement. This would align well with the system-wide shift toward more programmatic and strategic forms of country level engagement, such as through country platforms.
• Given the consistent achievement of its climate finance target and leading progress on adaptation finance, the AfDB should update its climate finance target to establish an aspirational goal (beyond an annual floor). For example, in line with a number of other MDBs (such as the ADB and the AIIB), the AfDB could consider increasing its climate finance target to at least 50% of its total operations.

[1] These calculations are derived from the transaction level dataset compiled by Oil Change International for the Public Finance for Energy Database. For further details, please see information regarding the data source and calculation methodology.

[2] For example, MDBs such as the Inter-American Development Bank (IDB) have made strong progress in terms of managing to minimise the ratio of fossil finance relative to clean energy, while retaining sensitivity to the operating context of development needs and the energy transition.

[3] Across these years (and prior to this) total climate finance consistently exceeds fossil fuel expenditure by a large margin.