The E3F Coalition and Implications for Sub-Saharan Africa

The massive amount of resources committed to fighting global warming makes it assume the defacto number one pressing problem for the world. And because of this, decarbonization has become the major thrust of energy policies being implemented in the west and other parts of the world. Even though the science of climate change hasn’t fully established that the increase in global surface temperature recorded within the last century and half is majorly anthropogenic, new energy paradigm, led by the west, has assumed the need for emissions reduction so as not to push the world to an irreversible tipping point. Antonio Guterres, the UN Secretary General, called climate change a crisis multiplier that has profound implication for international peace and stability.

Even though the United States is known to have massively cut carbon emissions (thanks to the shale gas boom that substituted gas for coal), climate change has nonetheless cost U.S. tax payers more than $350 billion over the past decade and is expected to cost $35 billion per year in 2050. One can rest assured that with the new energy roadmap of President Biden aimed at achieving a clean power sector and economy and building resilient infrastructure, the United States is poised for another round of drastic carbon emissions reductions laden with huge cost implications.

It is quite obvious that emerging economies like China and India aren’t deposed to net zero by the end of 2050. And that’s understandable because for these countries, the urgency of lifting more of their people out of extreme poverty supersedes the Intergovernmental Panel on Climate Change (IPCC) goal of reducing global temperature rise to 1.5 degree Celsius. Although China pledged to peak greenhouse gas emissions by 2030 and become carbon neutral by year 2060, the reality on ground states otherwise as there continues to be more advocacy for new coal power plants construction despite the overcapacity recorded in the sector. Out of the 350 coal-fired plants under construction in 2020, China and India account for 52% and 14% respectively.

Due to the simple fact that the budget of the European Union (EU) together with its policy cohesiveness for nearly three decades has supported transition to low-carbon energy system, the EU being the largest single market bloc, has cut carbon emissions massively. Both  its adopted Multiannual Financial Framework, which lays out spending plans for the period of 2021-2027 and the Next Generation EU recovery instrument package cumulatively valued at €1.8 trillion, would among other things, further ensure that EU Climate objectives and energy transitions are met. It is therefore not surprising to learn that in April 2021, seven countries in Europe (The United Kingdom, Germany, The Netherlands, Spain, Sweden, France, and Denmark) launched the Export Finance for Future (E3F) coalition.

The goals of the E3F coalition can be summarized broadly into two. The first is to speed up the phasing out of fossil fuel related projects and the second is to increase support for exporters’ projects that are sustainable and agreeable to Paris climate Agreement. These goals would be pursued through the instrument of Finance. Without mincing words, this sound like a zero sum game because the monumental loss of credit support for carbon-intensive projects is the colossal gain for ecologically and climate friendly projects. The coalition at its official launch, beckoned on other countries to join it so as to realize a sustainable global economy. One of President Biden’s executive order has committed the US government to end international financing of carbon –intensive fossil fuel projects. Therefore it is axiomatic to say that the E3F coalition will be a welcome development by the Biden Administration.

Will this new coalition have impact on sub-Sahara Africa? Yes. The United Kingdom and The Netherlands which are part of the seven countries providing about $14.9 billion in loans for the $20 billion gas project in Mozambique are members of the coalition. A pull-out from the project by these two countries will create a void for financing. Certainly, the European Investment Bank which is the EU’s financing department would not step in as it has resolved to stop funding oil, gas and coal projects. The United States, through its Export-Import Bank that should provide the biggest debt finance of $5 billion for the project may also decide to pull out. Therefore, it may appear that the Mozambique government goal of using the gas project to raise the country to middle income status by the mid-2030s has been stonewalled.

One viable way that sub-Sahara Africa can overcome its economic challenges is to harness cheap means to create energy prosperity. Fossil fuels currently present that means. It can help the region to industrialize at a competitive rate. Because industrialization increases disposable income, households can spend more to acquire modern energy systems like air conditioners that can help to reduce disproportionately the high share of global malaria burden prevalent in Africa. Low energy price boosts optimal use of modern energy devices. That is why the E3F coalition goals will economically and socially hurt sub-Sahara Africa.

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