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In a US lecture, VP Osinbajo proposes a debt-for-climate swap deal

Yemi Osinbajo lecture in USA

A Debt-For-Climate (DFC) exchange agreement has been proposed by Vice President Yemi Osinbajo to help African nations get toward the global net-zero emissions targets and ease energy access.

Osinbajo made the suggestion during a speech on a just and equitable energy transition for Africa at the Center for Global Development in Washington, D.C., according to a statement issued by the Vice President’s spokesperson, Laolu Akande.

According to Osinbjao, “debt for climate swaps are a sort of debt swap in which creditors forgive bilateral or multilateral debt in return for a promise from the debtor to use the outstanding debt service payments for national climate action projects.

“Typically, the creditor country or institution agrees to forgive part of a debt, if the debtor country would pay the avoided debt service payment in a 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.”

Justifying the rationale behind such a debt swap deal, the Vice President submitted 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).”

“There are of course considerable policy activities necessary to make this acceptable and sustainable,” he continued, “in order to make this efficient.”

Global Market for Carbon

While looking into financial options for the energy transition, the vice president also suggested that African nations participate more actively in the global carbon market.

Osinbajo claims that in order to effectively work together to achieve shared objectives, it is important to take a comprehensive approach that considers both the market and environmental potential provided by the financing of clean energy assets in expanding energy markets.

“in addition to conventional capital flows both from public and private sources, it is also essential that Africa can participate more fully in the global carbon finance market,” he said.

“Currently, direct carbon pricing systems through carbon taxes have largely been concentrated in high and middle-income countries. However, carbon markets can 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.”

In order to further the alignment of carbon pricing and related policy toward achieving an equitable transition, he urged developed nations to assist “Africa’s development into a global supplier of carbon credits, ranging from bio-diversity to energy-based credits.”

Prof. Osinbajo noted that “the central thinking for most developing countries is that we are confronted on this issue of a just transition with two, not one, existential crises; the climate crisis and extreme poverty.” He also addressed the concerns of the African continent and other developing countries regarding a just transition.

“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.”

According to him, “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 have been further exacerbated by the ongoing war in Ukraine.

“Countries worldwide have been hit by record prices on all forms of energy. Power prices are breaking records across the globe, especially in countries or markets where natural gas plays a key role in the energy mix.”

Osinbajo issued a warning, stating : Limiting the financing of gas projects for domestic use would be extremely disruptive to the speed of economic growth, the provision of clean cooking solutions and access to electricity, as well as the expansion and integration of renewable energy sources into the global energy mix.

The Vice President of Nigeria discussed the country’s initiative to address the crisis, revealing that the Energy Transition Plan “was designed to tackle the dual crises of energy poverty and climate change and deliver SDG-7 by 2030 and net-zero by 2060 while centering on the provision of energy for development, industrialization, and economic growth.

“We anchored the strategy on fundamental objectives including extending modern energy services to the entire population, accelerating economic growth, handling the predicted long-term employment losses in the oil sector owing to global decarbonization, and lifting 100 million people out of poverty in a decade.”

The short- to medium-term role that natural gas “must play to allow the construction of base load energy capacity and address the nation’s clean cooking shortfall in the form of LPG” was another point he highlighted.

The Vice President pointed out some apparent double standards in how many nations in the global North have responded to the present energy crisis.

According to him, “today excluding South Africa, the remaining one billion people in Sub-Saharan Africa are serviced by an installed capacity of just 81 gigawatts. Sub-Saharan Africa has contributed, based on information that is already out there, less than one percent of cumulative CO.2 2 emissions.

“By comparison, the United States 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 is almost fifteen times than in Sub-Saharan Africa.”

He added that “many of these countries had barely a year ago 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. This is in violation of their climate commitments and analysis suggests that this will raise power sector emissions of the EU by 4%, a significant amount given the high base denominator of EU emissions.”

Osinbajo then observed that “Europe’s energy crisis has not been ignored, it continues to be met with support, and international resources. In stark contrast, the developing world 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, “we are not seeing careful consideration and acknowledgement of Africa’s aspirations. For instance, despite the tremendous energy gaps, global policies are increasingly constraining Africa’s energy technology choices.”

Nevertheless, the Vice President confirmed that “with the Kigali communique and several other formal and informal consultations, African nations are now happily more intentional in taking joint ownership of our transition pathways and designing climate-sensitive strategies that address our growth objectives. This is what Nigeria has done with our Energy Transition Plan.

“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.”

He pointed out the disparity in the volume of investments experienced in rich and developing nations when it comes to energy investments.

He claims that although though high-income countries only make up 15% of the world’s population, they got 40% of all global energy investments in 2018. Conversely, only 15% of global energy investment went to developing nations, which account for 40% of the world’s population. Recent years have seen no improvement in this.

Osinbajo responded to the question of what the ultimate objective of the global energy transition ought to be by saying that it should be the development of “reliable net-zero carbon energy systems to power wealthy, inclusive economies.”

In the context of Nigeria, he continued, it means “integrating sustainability into our economic planning, which we had produced in an Economic Sustainability Plan in the wake of the COVID-19 pandemic.

This includes an ambitious ambition for its decentralized solar power initiative to supply 5 million homes and SMEs with cleaner energy in the near future.

The Vice President answered questions about a just energy transition and the recently unveiled Nigerian Energy Transition Plan following his remarks at the American research group.

The Minister of Works and Housing, Babatunde Raji Fashola; the Minister of Finance, Budget, and National Planning, Dr. (Mrs.) Zainab Ahmed; the Minister of the Environment, Mohammed Abdullahi; the Director-General and CEO of the National Council on Climate Change, Salisu Dahiru; and other members of the Energy Transition Implementation Working Group (ETWG) were present at the lecture. The Special Representative of the UN Secretary-General for Sustainable Energy for All (SEforALL), Ms. Damilola Ogunbiyi, the Nigerian Ambassador to the United States of America, Dr. Uzoma Emenike, the Managing Director of Niger Delta Power Holding Company Limited, Chiedu Ugbo, and other senior government officials.

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