To build the state capacities needed to achieve net-zero emissions by 2050, developing and emerging countries must work with development partners on devising innovative financing mechanisms. Egypt’s new climate-finance initiative provides a useful model for pursuing economic development while accelerating climate action.
CAIRO – The gap between the resources needed to achieve net-zero greenhouse-gas emissions by 2050 and the resources that are available currently amounts to trillions of dollars – and is still growing. As many developing and emerging economies lose ground in the wake of the pandemic, public and private capital must be mobilized to accelerate mitigation and adaptation efforts. But this requires governments to produce credible plans for achieving global sustainability goals, to design and implement these policies themselves, and to ensure that their strategies’ costs and benefits are fairly distributed.
Last November’s United Nations Climate Change Conference in Egypt (COP27), dubbed the “implementation COP,” laid the groundwork for a fairer, more robust climate-finance system. The conference’s “guidebook” called on the international community to advance a transformative agenda that accounts for developing countries’ national priorities and ensures equitable access to financial and technical resources. It included in its definition of climate justice “equitable access to quality and quantity climate financing” that considers “historical responsibility for climate change” and “supports resilient development pathways, leaving no one behind.”
With this in mind, Egypt launched its Nexus of Water, Food, and Energy investment program during COP27, providing a practical and replicable model for ensuring a just net-zero transition through the NWFE’s concept of “country platforms.” These platforms are meant to help countries build state capacities, and emphasize the importance of developing countries’ agency (or “ownership,” in aid parlance).
NWFE (pronounced “nuafiy,” which is Arabic for “fulfilling pledges”) builds on Egypt’s commitments under the 2015 Paris climate agreement and aims to attract financial support for the country’s development agenda while accelerating climate action. The stakeholders include multilateral development banks (MDBs) such as the European Bank for Reconstruction and Development, the African Development Bank, the European Investment Bank, and the Asian Infrastructure Investment Bank.
The NWFE platform integrates several high-priority water, food, and energy projects – all selected by the Egyptian government – worth a total of $14.7 billion. The projects seek to replace existing inefficient thermal power plants with renewable energy; enhance small farmers’ adaptation to climate risks; modernize farming practices to increase irrigation efficiency and boost crop yields; strengthen the resilience of vulnerable regions; create water desalination capacity; and establish early-warning systems.
By using innovative financing mechanisms to mobilize public funds, technical assistance, and private investment, Egypt seeks to leverage its partnerships with the MDBs and other development stakeholders to accelerate its climate agenda. This would support the country’s green transition and show that climate action and economic development can go hand in hand. Egypt can also rely on these partnerships to help it phase out “brown” oil, gas, and mineral assets. For example, partial concessional financial support from the United States will enable the country to retrain (or retire) fossil-fuel workers.
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Yet, the most innovative instrument may be debt-for-climate swaps, whereby Egypt receives partial debt relief from, say, Germany, in exchange for commitments to reduce greenhouse-gas emissions. These types of performance-linked financial instruments could provide many developing and emerging countries with an opportunity to lower their debt burden or obtain low-cost funds. By tying development assistance to progress on a common global target, such swaps could also prove to be significant in mitigating the worst effects of climate change.
As a 2018 report by the G20 Eminent Persons Group on Global Financial Governance notes, collective action through country platforms has the power to unlock public and private investment to achieve climate-resilient and sustainable development. Such investment platforms can take different forms. For example, Just Energy Transition Partnerships (JETPs) – first introduced during COP26 in Scotland in 2021 – aim to direct private capital toward decarbonization targets in the energy sector. Since launching in South Africa, JETPs have also been established in Indonesia, India, Vietnam, and Senegal.
Egypt’s NWFE initiative provides a useful model for how developing and emerging countries can expedite the implementation of their national climate agendas in line with global priorities. By encouraging coordination among domestic and external stakeholders, such programs could help bridge the information gap, establish shared standards, and increase the number of bankable projects.
But the platform’s success hinges on domestic agency, transparency, and accountability in managing these partnerships. Most importantly, the green transition must be perceived as just in order to be sustainable. Predictability is particularly important for the poor, and fairness is essential to winning long-term public support for climate measures. To achieve these goals, governments must lead on climate finance. The net-zero transition depends on it.
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CAIRO – The gap between the resources needed to achieve net-zero greenhouse-gas emissions by 2050 and the resources that are available currently amounts to trillions of dollars – and is still growing. As many developing and emerging economies lose ground in the wake of the pandemic, public and private capital must be mobilized to accelerate mitigation and adaptation efforts. But this requires governments to produce credible plans for achieving global sustainability goals, to design and implement these policies themselves, and to ensure that their strategies’ costs and benefits are fairly distributed.
Last November’s United Nations Climate Change Conference in Egypt (COP27), dubbed the “implementation COP,” laid the groundwork for a fairer, more robust climate-finance system. The conference’s “guidebook” called on the international community to advance a transformative agenda that accounts for developing countries’ national priorities and ensures equitable access to financial and technical resources. It included in its definition of climate justice “equitable access to quality and quantity climate financing” that considers “historical responsibility for climate change” and “supports resilient development pathways, leaving no one behind.”
With this in mind, Egypt launched its Nexus of Water, Food, and Energy investment program during COP27, providing a practical and replicable model for ensuring a just net-zero transition through the NWFE’s concept of “country platforms.” These platforms are meant to help countries build state capacities, and emphasize the importance of developing countries’ agency (or “ownership,” in aid parlance).
NWFE (pronounced “nuafiy,” which is Arabic for “fulfilling pledges”) builds on Egypt’s commitments under the 2015 Paris climate agreement and aims to attract financial support for the country’s development agenda while accelerating climate action. The stakeholders include multilateral development banks (MDBs) such as the European Bank for Reconstruction and Development, the African Development Bank, the European Investment Bank, and the Asian Infrastructure Investment Bank.
The NWFE platform integrates several high-priority water, food, and energy projects – all selected by the Egyptian government – worth a total of $14.7 billion. The projects seek to replace existing inefficient thermal power plants with renewable energy; enhance small farmers’ adaptation to climate risks; modernize farming practices to increase irrigation efficiency and boost crop yields; strengthen the resilience of vulnerable regions; create water desalination capacity; and establish early-warning systems.
By using innovative financing mechanisms to mobilize public funds, technical assistance, and private investment, Egypt seeks to leverage its partnerships with the MDBs and other development stakeholders to accelerate its climate agenda. This would support the country’s green transition and show that climate action and economic development can go hand in hand. Egypt can also rely on these partnerships to help it phase out “brown” oil, gas, and mineral assets. For example, partial concessional financial support from the United States will enable the country to retrain (or retire) fossil-fuel workers.
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Access every new PS commentary, our entire On Point suite of subscriber-exclusive content – including Longer Reads, Insider Interviews, Big Picture/Big Question, and Say More – and the full PS archive.
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Yet, the most innovative instrument may be debt-for-climate swaps, whereby Egypt receives partial debt relief from, say, Germany, in exchange for commitments to reduce greenhouse-gas emissions. These types of performance-linked financial instruments could provide many developing and emerging countries with an opportunity to lower their debt burden or obtain low-cost funds. By tying development assistance to progress on a common global target, such swaps could also prove to be significant in mitigating the worst effects of climate change.
As a 2018 report by the G20 Eminent Persons Group on Global Financial Governance notes, collective action through country platforms has the power to unlock public and private investment to achieve climate-resilient and sustainable development. Such investment platforms can take different forms. For example, Just Energy Transition Partnerships (JETPs) – first introduced during COP26 in Scotland in 2021 – aim to direct private capital toward decarbonization targets in the energy sector. Since launching in South Africa, JETPs have also been established in Indonesia, India, Vietnam, and Senegal.
Egypt’s NWFE initiative provides a useful model for how developing and emerging countries can expedite the implementation of their national climate agendas in line with global priorities. By encouraging coordination among domestic and external stakeholders, such programs could help bridge the information gap, establish shared standards, and increase the number of bankable projects.
But the platform’s success hinges on domestic agency, transparency, and accountability in managing these partnerships. Most importantly, the green transition must be perceived as just in order to be sustainable. Predictability is particularly important for the poor, and fairness is essential to winning long-term public support for climate measures. To achieve these goals, governments must lead on climate finance. The net-zero transition depends on it.