Study of climate finance flows in Kenya

A new study of climate finance flows in Kenya reveals a need for significant increase in funding for critical sectors.

A report from the National Treasury of Kenya and Climate Policy Initiative (CPI) and supported by International Climate Initiative (IKI) shows that climate-related investment in Kenya is disproportionally targeting certain sectors and activities that will only partially address climate issues.

Kenya is highly vulnerable to the impacts of climate change and is already feeling the effects with a notable increase in climate-related disasters, such as droughts and floods. These events are estimated to create an economic liability of 2-2.8 percent of its gross domestic product every year.

The analysis shows that significant efforts will be needed to align all sectors relevant to achieving Kenya’s Nationally Determined Contribution (NDC) to make the country climate-resilient and reduce its greenhouse gas (GHG) emissions by 32 percent by 2030 relative to the business-as-usual scenario.

The Landscape applies CPI’s framework for mapping climate finance flows to the Kenyan context and was conducted within the context of the Global NDC Implementation partners (GNIplus) program, supported by IKI.

Key findings include:

• Almost 80 percent of climate finance in Kenya was directed to the implementation of climate mitigation measures which is in stark contrast to the need given that Kenya has a focus on financing the adaptation to the impacts of climate change.
• Only 11.7 percent of climate finance in Kenya was directed to adaptation, while a further 8.5 percent of investment had relevance for both adaptation and mitigation outcomes. The largest financing gap for meeting Kenya’s climate targets is in the water and blue economy sector. There is also an urgent need to increase finance for the forestry and disaster-risk management sectors, as both will build Kenya’s resilience against drought and flooding.
• The Kenyan government disbursed KES 76 billion (USD 752.4 million) in climate-related development expenditures in the fiscal year 2017/18, with 55 percent being external resources from international development partners channeled into the national budget.
• Less than 60 percent of the tracked finance came from international public and private sources. Implementing Kenya’s climate policy requires that international partners will sustain at least 87 percent of the costs by 2030, a level not met in 2018. Development partners in particular provided less than one third of all finance tracked.
• 79 percent of international public climate finance was delivered through debt and was mostly channeled towards mitigation activities (55 percent).

The report highlights key recommendations for how climate-related investments can be scaled in Kenya:

• There is an urgent need to increase finance for adapting to the impacts of climate change in Kenya, particularly in the water, disaster risk management, and forestry sectors.
• Subsidies and incentives for private sector investment in key climate sectors should be increased. The private sector has a key role closing Kenya’s investment gap. Implementation of incentives and subsidies to create a more attractive enabling environment for private investment in the transport, forestry, water, land use, and waste sectors are therefore of critical importance.
• There is a need for international public finance to focus on more challenging climate sectors which are not receiving private finance at scale. For example, using innovative financing to mobilize investment into key underfunded sectors, such as forestry, transport, and water.
• Climate finance should be used more effectively to increase its impact. This will require improved coordination and reporting between Kenyan actors at all levels: Ministries, agencies, county-level government entities, international donor partners, and private sector stakeholders.
• There is a need for regular reporting from Ministries to the National Treasury on climate-related expenditure to better understand whether finance is meeting Kenya’s climate needs and how to scale-up investment.