Financing Sources Climate

The Interface Between Mozambique and the Climate Management Fund

Climate finance in Mozambique

Mobilize Resources for a Future Resilient

Mozambique faces increasing impacts of climate change, from extreme cyclones to prolonged droughts. To meet these challenges and ensure sustainable development, the country has been mobilising different sources of climate finance, both internal and external. This page presents the mechanisms in use, the funds available and the ways to access this strategic support.

+1,3 B USD

Mobilized between 2012 and 2024

+35 Projects

Funded by Multilateral Funds

8 Sources

International Climate Funding

Disaster Management Funding

Moçambique é um país vulnerável aos desastres climáticos. Factores como a sua localização junto da costa do continente africano tornam o país susceptível à ocorrência de eventos como ciclones e tempestades tropicais.

 

Como forma de lidar com as perdas e danos resultantes desses eventos, o país criou, através do Decree No 53/2017 of 18 October 2017, Calamity Management Fund (FGC), para garantir a timely and predictable availability of resources para o reforço da capacidade nacional de prevenção, prontidão, operação e resposta a desastres naturais.

 

Em cumprimento do Decreto n.º 62/2022, de 25 de Novembro, the Government allocates anualmente dotações mínimas correspondentes a 0,142% das receitas fiscais do Estado, por forma a garantir a estabilidade do fundo.

 

A Lei de Gestão e Redução do Risco de Desastres — Lei n.º 10/2020, de 24 de Agosto enfatiza, para além da gestão das calamidades, a gestão e a redução do risco de desastres, a construção da resiliência e a adaptação às mudanças climáticas.

About financial and fiscal management of disasters, the Law explicitly mentions three types of sources of resources:

  • Seguros contra desastres — transferência do risco;
  • support from partners;
  • Calamity Management Fund (FGC).

No quadro da operacionalização do Plano de Protecção Financeira contra Desastres — PPFD 2022-2027, o Governo assinou, nos finais de 2022, com duas seguradoras nacionais, um seguro paramétrico de transferência do risco de ciclones, baseado no índice de vento, com uma ponderação de 80%, e no índice de precipitação, com uma ponderação de 20%. O valor da apólice foi de USD 4 milhões. O contrato de seguro tornou-se efectivo a 1 de Dezembro de 2022 e vigorou até 30 de Novembro de 2023. Posteriormente, foi renovado, entrando novamente em vigor a 15 de Dezembro de 2024, para a época 2024-2025.

 

Com a ratificação, pela Assembleia da República, em Maio de 2023, do Acordo para o estabelecimento da Capacidade Africana de Risco — ARC, uma agência especializada da União Africana que disponibiliza seguros e resseguros contra eventos climáticos extremos e calamidades naturais, o país reforçou os seus mecanismos operacionais de gestão do risco de desastres.

Neste contexto, o Governo celebrou com a ARC, em Novembro de 2023, um contrato de seguro contra a seca para a campanha agrícola 2023-2024, no valor de USD 2 milhões, baseado em quatro zonas agroecológicas. O seguro resultou num payout em duas zonas, no valor global de USD 5,5 milhões, decorrente da escassez de precipitação associada ao fenómeno El Niño.

 

Para a campanha agrícola 2024-2025, o contrato de seguro com a ARC foi renovado, mantendo-se o mesmo nível de prémio, e resultou num payout de USD 1,88 milhões. Encontram-se igualmente activos, para o período 2025-2026, o seguro soberano contra a seca, no valor de USD 2 milhões, e o seguro soberano contra ciclones tropicais, no valor de USD 2,5 milhões.

 

Internally, the access to disaster management funds may be conditioned by limited technical capacity do país para a contabilização de perdas e danos, incluindo danos económicos e financeiros, como perdas de rendimentos, receitas e produção, decorrentes dos desastres naturais.

Integration of Climate Change in Planning and Public Budgeting
Challenges in Integrated Climate Funding Management

Despite advances in mobilizing climate finance, Mozambique faces significant limitations in the integration of these resources the national public administration system.

Some of the main challenges include:

  • the absence of a standardised climate budgetary tracking system;
  • institutional fragmentation between ministries and cooperation partners;
  • Lack of national indicators to monitor climate investment impacts;
  • Technical and human capacities still limited at central and provincial level.

These obstacles reduce the efficiency of allocation of funds, hinder the evaluation of results and create dependence on non-predictable external funding.

To overcome the challenges identified, national experts and institutions propose various measures to strengthen the integration of climate finance:
  • Development of a national climate finance strategy, linking internal and external resources.
  • Implementation of a climate tracking system in the public budget (climate budgeting tag).
  • Continuing institutional training in sectoral ministries and decentralized levels.
  • Establishment of harmonised reporting mechanisms with development partners and international climate funds.
Effective integration will allow allocate resources based on national priorities, increase transparency and ensure efficient use of funds mobilised.
Insurance
The Financial Disaster Protection Plan (PPFD) 2022-2027

It is an instrument that describes the financing mechanisms for disaster management, aiming to strengthen the state’s financial response capacity to disasters, to improve post-disaster interventions, to relieve the pressure of the State Budget and to consolidate the construction of resilience as an integral part of management and reduction of disaster risk.

The PFPD adopts risk transfer instruments whose disaster management is structured according to the frequency and severity of the multiple relevant threats in the country, which allows the optimization of the portfolio of financial instruments, providing agility and flexibility for the allocation of resources according to the needs identified after each event. For low-risk events (high frequency and low severity), risk retention, with the use of quota credits and budgetary instruments, in particular through the FGC, annual sector budgets and budget revisions.

For high-risk events (low frequency and high severity), such as large floods or cyclones, transfer of risk to the private sector, through instruments such as sovereign insurance, is a viable alternative.

Article 51 of Law No 10/2020 determines that it is for the government to approve instruments for parametric disaster insurance.

In 2022, the Government concluded a contract with two national insurers for a parametric risk insurance based on wind (80%) and precipitation (20%) indices, with a 4 million USD. The insurance was active from 1 December 2022 ed 30 November 2023 and has been renewed to apply from 15 December 2024 (age 2024/2025).

Mozambique has been exploring innovative climate finance mechanisms, such as carbon markets, climate debt exchanges and sustainable obligations.

 

Carbon markets

Carbon markets are a specific type of carbon pricing mechanism through which carbon credits are being generated and marketed (other price fixing mechanisms are carbon taxes, including European Union Carbon Border Adjustment Mechanism).

Carbon markets are emerging as another important instrument to finance low carbon transitions and to contribute to the implementation of the countries' Nationally Determined Contributions (NDCs) to the Paris Agreement.

Carbon credits can be generated in two ways:

  • In a system of Cap-and-trade
  • Under a basic reference and credit mechanism

The carbon credits generated by projects in Mozambique are all based on reference and credit-based mechanisms. Historically, carbon credit generation in Mozambique has been low, mainly due to lack of institutional resources and lack of specific projects. However, since 2022 there has been a significant increase, with a total of 2.4 million carbon credits generated in the last two years by 41 projects and initiatives.

Although Mozambique has great advances, the potential for carbon credits production is much greater. According to initial estimates of McKinsey, Mozambique has a technical potential to generate between 85-90 million carbon credits per year, with greater potential in the forestry and renewable energy sectors.

Reduction of Emissions by Deforestation and Forest Degradation (REDD+)

A specific type of carbon credits is related to the Reduction of Emissions by Deforestation and Forest Degradation (REDD+). In the last 15 years, Mozambique has invested significant resources in creating systems needed to generate carbon credits from REDD+. This included:

  • Development and validation of a national Forest Reference Level;
  • Creation of a specific Monitoring and Verification Unit (MRV); and
  • Adoption of a dedicated REDD+ Decree (Decree 23/2018) regulating the generation and approval of carbon credits of REDD+ projects in Mozambique.

As a result of these efforts, Mozambique was the first country to receive payments from the World Bank’s Forest Carbon Partnership Fund (FCPF) in 2021 for reducing emissions of approximately 1.28 MtCO2and a REDD+ project in the province of Zambézia.

There are currently more than 36 proposals for REDD+ projects in the portfolio of projects of which 33 are in the feasibility studies phase and 3 in the evaluation phase for approval and authorisation.

Challenges for the exploration of carbon markets in Mozambique

A recent assessment by USAID (2023) identified that the main challenges for the operation of carbon markets in Mozambique include:

  • Development of a regulatory framework for carbon markets, with clear guidelines for the sectors of GHG (Agriculture, forests and land use, Energy, Waste and Industry), aimed at creating a favourable environment for carbon investments.
  • Limited institutional capacity within the main government bodies at all operational and decision-making levels on carbon processes, emission reduction, data collection and management.
  • Limited capacity of measurement, recording and verification systems (MRV) GHG emissions and project monitoring data for all sectors (AFOLU, energy, waste, direct industrial processes).

It allows a country to redirect debt payments to finance climate projects. It can occur via bilateral agreements or with intervention by international organizations, combining debt relief with environmental investment.

Financial instruments intended to finance projects with environmental benefits. They include green obligations (environment and climate) and blue obligations (sea resources). In Mozambique, legal regimes for issuing this type of instrument are under preparation.

Mozambique has benefited from International climate funds, supporting projects for mitigation, adaptation and institutional strengthening.

Key operational mechanisms include:

From 2010 to 2024, Mozambique mobilised over USD 1 billion for climate projects. Of this amount, around 245 million USD came directly from international funds, with the rest being provided as co-financing.

Projects include from coastal adaptation, food resilience and green infrastructureuntil institutional training and energy transition.
Despite the positive impact, application and access procedures vary between funds and still present technical and coordination challenges at national level.

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