Ethiopia: Can it adapt to climate change and build a green economy?

Despite the challenges, Ethiopia hopes to capitalise on its current economic growth by becoming more resilient to the impacts of climate change while developing its economy in a carbon neutral way.

Nanki Kaur's picture
Insight by 
Nanki Kaur
25 March 2013
A house in Rema gets fitted with solar panels.

A house in Rema, Ethiopia gets fitted with solar panels. The Ethiopian government wants the country to achieve middle-income status by 2025 in a carbon neutral way. Photo: Stiftung Solarengie

Climate change poses a huge challenge to Ethiopia’s government and people. The country is faced with increasingly unpredictable rains, and sometimes the complete failure of seasonal rains – problems which are linked to climate change. Millions of Ethiopians often face severe food shortages as a result.

But it is also a front runner in Africa when it comes to economic growth. The country has achieved a double digit growth rate in recent years (2005-10) and is set to achieve a real gross domestic product growth of more than 8% per annum over the next five years according to forecasts of the International Monetary Fund. This growth is in line with the governments’ ambition to achieve middle income status by 2025, reflected in its Growth and Transformation Plan (GTP) [PDF].

Now the Ethiopian government wants the country to achieve middle-income status by 2025 in a carbon neutral way by transforming development planning, investments and outcomes.

The country’s Climate Resilient Green Economy Strategy (CRGE) [PDF], which was published in 2011, sets out this vision. Initially spearheaded by the late Prime Minister, Meles Zenawi, the CRGE has widespread political support. It’s viewed as an opportunity to transform the country’s development model by leapfrogging to modern energy-efficient development trajectories.

Ethiopia is one of the few countries to have formally merged its aims of developing a green economy and greater resilience to climate change under a single policy framework in support of its national development objectives. While the government is still preparing its climate resilience objective, the Green Economy component of the CRGE has already been developed.

It aims to develop Ethiopia’s green economy by:

  • Improving crop and livestock production practices to improve food security and increase farmer’s incomes while reducing emissions;
  • Protecting and re-establishing forests for their economic and ecosystem services, including as carbon stocks;
  • Expanding electricity generation from renewable energy sources for domestic and regional markets; and
  • Leapfrogging to modern and energy-efficient technologies in transport, industrial sectors, and buildings.

Having articulated its policy objectives around a climate resilient green economy, the country is now getting ready to implement it. There is a flurry of activity around the design of policy and financial instruments, institutional arrangements and projects aimed at implementing the CRGE policy objectives. Among a host of initiatives there are a few interesting instruments to watch out for.

Institutional arrangements being put in place by the Government of Ethiopia represent a balance between political leadership, planning and implementation capacity. The CRGE is co-ordinated and overseen by the CRGE Ministerial Steering Committee (an initiative under the Prime Minister’s Office), the Environmental Protection Agency and the Ministry of Finance and Economic Development. CRGE units have been established in key implementing line ministries and regions to translate the CRGE strategy into sectoral programmes and investment plans. Federal (line ministries) and regional entities have been identified as national implementing entities that will be responsible for implementing programmes and investment plans in partnership with non-state actors where required. We will be looking to see if the government can effectively co-ordinate these activities.

Financial instruments: The government of Ethiopia has established a funding mechanism to mobilise and disburse climate finance, known as the CRGE Facility. This facility will provide programmatic funding to disburse funds for building climate resilience and a green economy. The government aims to mobilise an estimated (US) $200 billion from national and international public and private sources to implement the CRGE over the next 20 years.

As there is only one single fund, it’s easier for the government to drive and manage the funds in a coordinated manner. Many other developing countries have also adopted similar finance mechanisms, such as Rwanda.

Management arrangements for the Facility have been designed to support strong country ownership with the government in the driving seat. The Facility is guided by the strategic directions set by the Environmental Council and the CRGE Ministerial Steering Committee. The Ministry of Finance and Economic Development is responsible for the overall management of the Facility with the Ethiopian Environmental Environmental Protection Authority responsible for technical coordination.

There will be two kinds of work that the funds will support:

  • strategic work to support line ministries and regional governments in the implementation of strategically planned programmes and projects. Potentially, 75% of the Facility’s funds will be disbursed in this way as pooled and non-earmarked finding. This means that donors will be contributing to a fund that will implement the government’s priorities set out in the CRGE.
  • demand-driven activities identified by non-state actors, such as NGOs and researchers, in collaboration with federal and regional entities. This funding could potentially be earmarked by donors.

The Facility is likely to disburse funds as grants to fund adaptation projects, for example, or as guarantees and results-based payments, which are instruments better suited to funding investments, such as renewable energy projects.

Policy instruments: Unlike many developing countries, the government is currently working to move beyond the CRGE policy document to make sure that the vision it sets out becomes a reality by developing legal instruments and mechanisms. For example, the government is tabling a Proclamation on feed-in tariffs that will provide a legal mandate to invest in green economy objectives.

The government is also designing the Sector Reduction Mechanism, which aims to set green economy, climate change resilience targets and indicators for key sectors. These will be used as a guide to prioritise and prepare climate resilient green economy plans and projects, which will be submitted to the CRGE facility to access climate funds. This means that in a few years government departments will need to meet climate resilience and green economy targets to access climate finance. 

Projects: Alongside investments in planning processes and instruments, the government is also designing and implementing projects as a ‘fast track’ approach to piloting and implementing initiatives that will support CRGE objectives. For instance, the Ministry of Water and Energy is responsible for implementing a programme to scale up the use of renewable energy.  

Having developed its green economy climate resilient policy objectives, and having started to design instruments to implement and further shape these objectives, Ethiopia is getting set to address the challenges and opportunities provided by climate change.

Of course, it remains to be seen how quickly or effectively the country will be able to take the vision set out on paper and make it a reality. Along with partners in Ethiopia, IIED looks forward to seeing how things develop and drawing out lessons from the process over the next year.