By William Oman

July 2019 was the hottest month ever recorded on earth, with countries across the world experiencing record-breaking temperatures. A prolonged drought is affecting millions of people in East Africa, and in August 2019 Greenland lost 12.5 billion tons of ice in one day.

A review of the literature by IMF staff aims to spur discussion of what policies to mitigate climate change could or should include. The review suggests that, while fiscal tools are first in line, they need to be complemented by financial policy tools such as financial regulation, financial governance, and policies to enhance financial infrastructure and markets, and by monetary policy.

The stakes are high. There is a broad scientific consensus that achieving sufficient mitigation requires an unprecedented transition to a low-carbon economy. Limiting global warming to well below 2 degrees Celsius requires reductions of 45 percent in CO2 emissions by 2030, and reaching net zero by 2050. Despite the 2015 Paris Agreement, greenhouse gas emissions are high and rising, fossil fuels continue to dominate the global energy mix, and the price of carbon remains defiantly low, reinforcing the need for complementary policies.

The case for policy action beyond carbon pricing

Our review of academic and policy studies suggests that, currently, there are insufficient incentives to encourage investment in green private productive capacity, infrastructure, and R&D. At the same time, investments continue to pour into carbon-intensive activities. These undesirable economic outcomes prevent the needed decarbonisation of the global economy. Decarbonisation requires a transformation in the underlying structure of financial assets—a transformation that, studies suggest, is hindered by several deficiencies in the way markets function.

First, financial risks may not reflect climate risks or the long-term benefits of mitigation, given many investors’ shorter-term perspectives. Moreover, financial risks are often assessed in ways that do not capture climate risks, which are complex, opaque, and have no historical precedents.

Second, there is a wide gap between the private profitability and the social value of low-carbon investments. High uncertainty around their ability to reduce emissions, as well as the future value of avoided emissions, makes low-carbon investments unattractive to investors, at least in the short run.

Third, corporate governance that favors short-term financial performance may amplify financial “short-termism,” while constraints in capital markets can lead to credit rationing for low-carbon projects.

The above review of previous literature suggests that, because they directly influence the behavior of financial institutions and the financial system, financial and monetary policies can play a key role in addressing these issues.

Possible policy tools suggested by studies

The table below summarizes financial and monetary policy options for climate change mitigation, based on the above review of previous studies.

Policies that have been proposed in the literature can be divided into two categories: climate risk-focused and climate finance-promoting.

Climate risk-focused tools aim to correct the lack of accounting for climate risks for individual financial institutions and support mitigation by changing the demand for green and carbon-intensive investments, as well as their relative prices.

On the monetary policy side, examples include developing central banks’ own climate risk assessments, and ensuring that climate risks are appropriately reflected in central banks’ collateral frameworks and asset portfolios. On the financial policy side, tools include reserve, liquidity and capital requirements, loan-to-value ratios, caps on credit growth, climate-related stress tests, disclosure requirements and financial data dissemination to enhance climate risk assessments, corporate governance reforms, and better categorization of green assets by developing a standardized taxonomy.

Climate finance-promoting policies seek to account for externalities and co-benefits of mitigation at the level of society—that is, to account for how economic activity harms the environment but could instead, in addition to mitigating climate change, generate social value through, for example, reduced air pollution or more rapid technological progress. These policies could help shift relative prices and increase investments. However, the fact that they add new goals to existing policies makes them more controversial.

Monetary instruments to promote climate finance include better access to central bank funding schemes for banks that invest in low-carbon projects, central bank purchases of low-carbon bonds issued by development banks, credit allocation operations, and adapting monetary policy frameworks.

Financial policy instruments to actively promote climate finance revolve around “green supporting” and “brown penalizing” factors in banks’ capital requirements, and international requirements of a minimum amount of green assets on banks’ balance sheets.

What’s the bottom line?

More work is needed. The literature remains limited on the desirable package of measures to address climate mitigation. Nonetheless, financial and monetary policy tools can complement fiscal policies and help with mitigation efforts. All hands are needed on deck, for, as Mark Carney of the Bank of England has warned, “the task is large, the window of opportunity is short, and the stakes are existential.”

Stories Continues after ad

By Yoram Banyenzaki

Following the public uproar, the Minister for Tourism, Hon. Ephraim Kamuntu, informed Ugandans that cabinet had agreed to stop the planned dam at Murchison Falls as it would affect the scenery, beauty and the falls. This was in August 2019.

However, in November 2019, cabinet approved a feasibility study to be undertaken for development of a dam at the Uhuru Falls, which are located near Murchison Falls. A dam at Uhuru Falls would affect Murchison Falls.

After the cabinet approval, on Tuesday December 3, 2019, the Minister for Energy, Hon. Irene Muloni, informed Ugandans during a media briefing in Kampala that a memorandum of understanding had been signed with Bonang.

The minister said that Bonang, a South African company, would undertake a detailed feasibility study to establish whether a hydropower dam at Uhuru Falls in Murchison Falls National Park and tourism can co-exist.

OUR REQUEST

In view of the above, we hereby write to you in accordance with Article 41 of the 1995 Uganda Constitution to:

• Request ERA to avail us with a profile indicating Bonang’s technical and financial expertise to conduct the feasibility study and;
• Request you to inform us how ERA and government selected Bonang to undertake the feasibility study for a dam at Uhuru Falls.

Our requests are made in light of the fact that our investigations on Bonang Power and Energy (Pty) Ltd led us to believe that the company lacks the technical and financial track record needed to undertake a feasibility study and develop a dam in an environmental and human rights-compatible manner.

We cannot let a company whose track record on construction of hydropower dams is unclear to touch the iconic Murchison Falls, which are visited by over 30% of the 100,000 tourists that visit Murchison Falls National Park.

Who is Bonang?

Our investigations showed the following about Bonang Power and Energy (Pty) Ltd:

• The company was founded on January 16, 2014 with a registration number of 2014/008439/07.
• The company’s director is Mr. Ernest Moloi.
• The company was deregistered on April 11, 2016 due to failure to file annual returns.
• The company was thereafter re-registered on December 5, 2017.
• It filed annual returns on June 26, 2019.

A search of the company’s physical location reveals little to nothing. Before the company’s website was pulled down from the web (See https://www.bonangpower.co.za/our-partners), the company’s listed physical address on its website was 195 Jan Smuts Avenue, Randburg, 2196 in South Africa. A search for this address led one to The Business Exchange, Rosebank – a commercial property that also offers co-working and virtual office space.

Surely, a company that seems to have no office of its own, lacks a web presence, lacks clear information on what hydropower projects it has undertaken cannot be trusted with one of Uganda’s most prized tourist attractions, the Murchison and Uhuru Falls.

An investigation of the hydropower works that Bonang Power and Energy Ltd has undertaken reveals unconvincing results. On its website before it was pulled down, the company listed hydropower projects that were ongoing in Africa.

However, the company’s linkage to those hydropower works was unclear as the company was not mentioned among the dams’ developers.

Do due diligence on Bonang

The signatories to this letter suspect that Bonang is a front for corrupt Ugandan officials and unless ERA, which is Uganda’s only mandated energy sector regulator, undertakes due diligence and informs Ugandans about Bonang’s technical and financial capacity, the Murchison and Uhuru falls will be destroyed.

This will hurt tourism, which is one of Uganda’s biggest foreign exchange earners. The sector earned the country $1.6 billion in the 2018/2019.

The signatories to this letter also wish to remind you that failure to exercise due diligence by government has previously cost taxpayers huge amounts of money. For instance, Uganda lost over Shs. 24 billion to Eutaw Construction Company Inc., a fictitious branch of a US firm, in the infamous Mukono-Katosi road scandal.

Among others, influence peddling by the former Minister for Works and Transport, Abraham Byandala, resulted in the loss.

It is also common knowledge that the country lost about Shs. 4.7 billion in the bicycle scam when a sham company, Amman Industrial Tool and Equipment (AITE), was procured to deliver 70,000 bicycles for local council one (L.C.1) chairpersons. To date, no bicycles have been delivered yet taxpayers’ money was paid for them.

Avoid risks

To avoid risks of Ugandans losing their much-needed money to briefcase companies that work with government officials to defraud the state, we request that you investigate and profile Bonang’s technical and financial capacity.

We request you to avail the above information on the company with us. In addition, we reiterate our call to government, through you, to avoid conducting a feasibility study and developing a dam at the Murchison or Uhuru Falls.

We thank you in advance for your co-operation.

Yours faithfully,

Yoram Banyenzaki,

Chairperson, Guild Presidents’ Forum on Governance (GPFOG)

SIGNATORIES:

1. Guild Presidents’ Forum on Governance (GPFOG);
2. Citizens Concern Africa (CICOA);
3. Action Coalition on Climate Change (ACCC);
4. South Western Institute for Policy and Advocacy (SOWIPA);
5. World Voices Uganda (WVU);
6. Oil Refinery Residents Association (ORRA);
7. Africa Institute for Energy Governance (AFIEGO)
8. Great Lakes Institute for Strategic Studies (GLISS)
9. Centre for Constitutional Governance (CCG)
10. Twimukye Womens Organisation
11. Graffen Organisation –Butimba
12. Youth Action for Environment -Kiryandongo
13. Center for Energy Governance
14. African Initiative on Food security and Environment
15. Water and Electricity Consumers’ Association

CC:

• The President, Republic of Uganda
• The Speaker of parliament
• The Minister of Energy and Mineral Development
• The Chairperson, Natural Resources Committee of Parliament
• The Chairperson, Parliamentary Public Accounts Committee
• The Inspector General of Government (IGG)
• The Executive Director, The Public Procurement and Disposal of Assets Authority (PPDA)
• State House Anti-Corruption Unit
• The Executive Director, Uganda Wildlife Authority

Stories Continues after ad