Economy

Climate finance can turn Kenya’s policy dreams into reality

climate-pic

A commercial tree farm in Rongai, Nakuru County. FILE PHOTO | NMG

Summary

  • The 26th UN Conference on Climate (COP26) seeks to galvanise action for reducing carbon emission to global net zero.
  • Current projections suggest we will do well to limit global warming to 2.7 degrees by the end of this century.
  • This article sets out a pathway for how Kenya could turn its ambitions for the commercial forestry sector to be a driver of climate-compatible economic growth into a reality.

The world has congregated in Glasgow, Scotland, for what is arguably the most consequential global summit in human history. The 26th UN Conference on Climate (COP26) seeks to galvanise action for reducing carbon emission to global net zero.

This means achieving a balance between the greenhouse gases put into the atmosphere and those taken out, with the objective of limiting global warming to no more than 1.5 degrees above pre-industrial averages.

In August this year, the Intergovernmental Panel on Climate Change (IPCC) issued its sixth report which described climate change as ‘widespread, rapid, intensifying and irreversible, while the World Economic Forum’s Global Risks report 2021 ranks extreme weather and climate action failure as the top two global risks.

Current projections suggest we will do well to limit global warming to 2.7 degrees by the end of this century. With humanity hanging from the edge of this environmental cliff, the need for action could not be more acute.

The three broad areas of focus at the summit for reaching net-zero carbon will be the phase-out of coal usage, increasing investments in renewable sources of energy and curtailing deforestation. To realise action, climate finance will need to be secured at scale.

Climate finance refers to public, private or multilateral financing that is directed towards climate change mitigation and adaptation. Recognising that previous targets have been missed, the G7 states have committed to mobilise $100 million in the next five years.

Kenya goes to COP26 in a strong position based on its policy commitment and its ambitious emission reduction target of 32 percent (from a base of 1990) by 2030. This makes it one of only a handful of countries with policy commitments that are aligned with its ‘fair share’ of reductions necessary to limit global warming to 1.5 degrees above pre-industrial averages.

From Kenya’s own estimates, the biggest proportion of this reduction is expected to come from forestry (53 percent), while electricity generation and transportation will contribute 18 percent and 6.9 percent respectively.

Forestry mitigation activities target 46MtCO2 emission reductions through, avoiding deforestation and rehabilitating 120,000 hectares of natural forests, expanding agro-forestry systems across 80,000 hectares, and expanding commercial forestry plantations by 60,000 hectares.

These forestry targets, and specifically the intended expansion of the commercial forestry sector, aligns with a key aim of the Kenya National Forest Policy 2020 to “commercialise forestry activities through the involvement of the private sector to invest in tree growing, wood processing and value addition”

This article sets out a pathway for how Kenya could turn its ambitions for the commercial forestry sector to be a driver of climate-compatible economic growth into a reality. Using climate finance to leverage additional private sector investment, we draw on lessons from how Uganda has done this over the last 20 years.

Commercial forestry in Kenya is stuck in a cycle of low risk, low investment, low return. Furthermore, those that do invest fail to realise the potential returns as a result of low-quality seed and seedlings, selection of unsuitable species for their sites, and poor silviculture.

Twenty years ago, Uganda was in the same position. However, over that time it has increased its commercial quality plantations from 3,000 ha in 2004 to over 90,000 ha today. The vast majority (more than 75 percent) are locally owned by small and medium-sized growers. So how did Uganda realise such transformation?

The initial enabler was policy reforms to allow private forestry investment on public land. However, it was not until this was coupled with technical assistance to growers, alongside financial incentives, that quality planting really accelerated.

Climate finance from development partners was used to establish the Sawlog Production Grant Scheme (SPGS) which changed risk-reward dynamics for growers. SPGS re-imbursed growers 30 percent to 50 percent of the plantation establishment cost, provided certain quality standards were met in the first two years of growth.

To support growers in meeting these standards, field-level technical assistance was provided as well as to service providers like nurseries and forestry contractors. Those that did not meet the standard, did not receive the payments.

SPGS started with a pilot in 2004 with $2 million of funding support. Since then, it has had three additional phases and is about to enter the fourth phase. In total more than $190 million of climate-orientated development finance was brought into the sector, leveraging at least four times that ($750 million) in local private investment.

Kenya can learn from this experience in Uganda. Indeed, it could improve on it by not only focusing on developing the production side of commercial tree growing, but also integrating the timber processing and utilisation sectors into the scheme in order to improve quality and thereby drive greater value addition through the value chain.

Host country governments and climate finance partners will need to identify attractive opportunities for funding climate mitigation and adaptation activities following the COP26 summit. Funding a programme similar to SPGS in Kenya could be one such opportunity. Providing similar performance-based grants towards the 60,000 ha of additional commercial forestry the Kenyan government is targeting would cost approximately $25 million.

These performance-based grants could be awarded to private growers of a range of sizes in a similar way they were in Uganda, provided they meet the necessary criteria. However, this could leverage many times this amount in private finance. Moreover, it would result in sequestration of at least an additional 13 million tonnes of CO2e purely in the standing timber.

Steege is the Director of the Kenya Commercial Forestry Program (KCFP) at Gatsby Africa. Munyi is the Research Manager at Gatsby Africa.