EASTERN AND SOUTHERN AFRICA KENYA Executive Summary World Bank Group 2023 © 2023 The World Bank Group 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org This work is a product of the staff of the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA), collectively known as The World Bank, with external contributors. The World Bank does not guarantee the accuracy, reliability or completeness of the content included in this work, or the conclusions or judgments described herein, and accepts no responsibility or liability for any omissions or errors (including, without limitation, typographical errors and technical errors) in the content whatsoever or for reliance thereon. 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Executive Summary COUNTRY CLIMATE AND DEVELOPMENT REPORT Table of Contents Abbreviations and Acronyms iii Executive Summary 1 Key Action Area 1: Improve integration and coordination of climate action in policy, planning, and investment decision-making across the economy 3 Key Action Area 2: Managing water, land, and forest for climate-resilient agriculture and rural economies3 Key Action Area 3: Delivering people-centered resilience with climate-informed basic services and urbanization 5 Key Action Area 4: Strengthening Kenya’s competitiveness in international markets through shifts in energy, transport, and digital systems 7 Key Action Area 5: Implement policy measures for mobilizing climate financing from private and public sector 9 Climate action financing options that will contribute to productive and inclusive growth 9 List of Table Table ES.1: Estimated economic costs for select investment areas ($, millions) 9 List of Figures Figure ES.1: Deviation in real GDP from baseline due to climate change impacts by damage channel, (2050)  1 Figure ES.2: Key action areas for inclusive, climate-resilient, quality growth 2 Figure ES.3: Three-year average rainfed crop production shock under different climate scenarios (2020–50)  4 Figure ES.4: Cumulative upfront investment and fuel costs, discounted (2022–50)  7 ii  |  Country Climate and Development Report: Kenya - Executive Summary Abbreviations and Acronyms BAU business-as-usual CBAM Carbon Border Adjustment Mechanism EU European Union EV electric vehicle GDP gross domestic product GHG greenhouse gas M&E monitoring and evaluation MSME micro, small and medium-sized enterprise NBT nature-based tourism NDC nationally determined contributions WASH water supply, sanitation, and hygiene Country Climate and Development Report: Kenya - Executive Summary  |  iii Executive Summary © Dominick de Waal Executive Summary Climate action is urgent if Kenya is to meet its aspiration of becoming an upper-middle-income country in the next decade. The country’s prospects for inclusive growth and poverty reduction are vulnerable to changes in precipitation and temperature, partly because of the current structure of the economy. In 2022, agriculture represented approximately 21.2 percent of gross domestic product (GDP), 25 percent of exports, and 30 percent of formal wage employment. At the same time, maintaining a low-carbon-intensity growth profile puts the country in a good position to be part of global efforts to decarbonize supply chains and, in the case of the power sector, can be achieved at a nominal additional cost. Private sector investment in climate action will be vital to sustain inclusive and climate-resilient growth. This includes micro, small, and medium- scale enterprises (MSMEs), 91 percent of which are informal. Absence of climate action could setback projected decreases in poverty and exacerbate potential increases in inequality. Under a no-climate-change-impact baseline and business-as-usual (BAU) growth scenario, the international poverty rate is expected to decline from 36.1 percent in 2021 to 4.2 percent in 2050. Under a dry/hot climate future, the gains in poverty reduction are setback, pushing 1.1 million more people into poverty by 2050 compared to the baseline. The lack of climate action will be more consequential in rural areas, and most significant in the arid and semi-arid counties. Figure ES.1: Deviation in real GDP from baseline due to climate change impacts by damage channel, (2050) a. BAU scenario b. Aspirational scenario 0 0 -1 -1 Deviation from baseline (%) Deviation from baseline (%) -2 -2 -3 -3 -4 -4 -5 -5 -6 -6 -7 -7 -8 -8 Dry/hot mean Wet/warm mean Dry/hot mean Wet/warm mean Crops, rainfed and erosion Livestock Heat on labour, all sectors Health on productivity Roads and bridges Inland flooding Source: World Bank staff calculations using CC-MFMod. Investing in adaptation and resilience to climate change is paramount. Under differentiated climate models (dry/hot and wet/warm) the impact of climate on rainfed crops, erosion, livestock, labor, and physical capital are notable (figure ES.1). By 2050, inaction against climate change could result in a decline in real GDP of 3.61–7.25 percent relative to the BAU baseline scenario. The impact of climate change on the economy could be partly buffered by a higher annual growth rate and structural transformation. Under an aspirational scenario, with an annual growth rate of 7.5 percent through 2050, which is in line Kenya’s Bottom-up Economic Transformation Agenda, the impact of climate change on real GDP in 2050 is reduced to 2.78–5.3 percent compared to the baseline. To further reduce the impact of climate change, climate resilience-oriented water, land and forest management, resilient cities, energy, transport and digital systems, basic services (health, education, WASH), and adaptive social protection systems will all require further investment. Country Climate and Development Report: Kenya - Executive Summary  |  1 Kenya can be a key player in the global climate solutions arena. Kenya stands out among African and lower-middle-income countries due to its well-diversified and low-carbon energy mix, with about 90 percent of electricity generation coming from renewable resources. Many countries’ efforts to lower greenhouse gas (GHG) emissions and meet their nationally determined contribution (NDC) commitments are resulting in the reconfiguration of global supply chains and expanding “green” markets. Global efforts to lower GHG emissions are also creating a growing appetite for internationally transferable carbon credits that can be used to meet NDC commitments or other compliance requirements. Kenya could meet its growth aspirations in an inclusive and climate-resilient manner by implementing three key multisectoral and two crosscutting action areas. The multisectoral areas include: (i) managing water, land and forests for climate-resilient agriculture and rural economies; (ii) delivering people- centered resilience with climate-informed basic services and urbanization; and (iii) strengthening Kenya’s competitiveness in international markets through shifts in energy, transport, and digital systems. The two crosscutting areas include: (i) improving integration and coordination of climate action in policy, planning, and investment decision-making across the economy; and (ii) policy measures for mobilizing climate finance from private and public sector (figure ES.2). Implementation of the action areas should reflect regional differences to climate risk exposure. Figure ES.2: Key action areas for inclusive, climate-resilient, quality growth Improve integration and coordination of climate action in policy, planning, and investment decision-making across the economy Manage water, land, and forests for climate-resilient agriculture and rural economies Strengthen Kenya’s competitiveness in Deliver people-centered resilience with international markets through shifts in energy, climate-informed basic services and urbanization transport, and digital systems Implement policy measures for mobilizing climate financing from private and public sector Fully aligning the implementation of Kenya’s development agenda with the country’s updated NDC could result in resilient, low-carbon growth. The agenda proposes detailed actions in five core areas—agricultural transformation and inclusive growth; transforming the MSME economy; housing and settlement; health care; and the digital superhighway and creative economy—while Kenya’s updated NDC (2020) outlines adaptation and mitigation actions across 13 sectors. These are disaster risk reduction; agriculture (crops, livestock, and fisheries); environment; energy; roads; water and sanitation; health; population, urbanization, and housing; tourism; gender; youth, and other vulnerable groups; private sector; devolution; and an adaptation monitoring and evaluation (M&E) system. Currently, a quarter of the NDC adaptation actions align with those in Kenya’s development agenda. If Kenya maintains a low-carbon growth path, it could seize opportunities created by the global decarbonization trend and create green jobs. Climate-positive investments and policies can contribute to growth, reduce operating costs, and increase revenue for the private sector. Maintaining a low-carbon growth path would also reduce exposure to fuel price shocks and supply chain disruptions and help improve Kenya’s trade balance and foreign exchange stability. The Kenya Country Climate and Development Report presents actions the government can prioritize for climate-positive development and to leverage the public and private sector. 2  |  Country Climate and Development Report: Kenya - Executive Summary Key Action Area 1: Improve integration and coordination of climate action in policy, planning, and investment decision-making across the economy Kenya has the climate policies it needs to achieve resilient, low-carbon growth; it is time to focus on implementing them. Kenya has a strong climate policy framework, including the National Climate Change Response Strategy (2010), National Climate Change Action Plan (2013–18), National Climate Change Act (2016), National Drought Management Authority Act (2016), Green Economy Strategy and Implementation Plan (2016–30), National Adaptation Plan (2017), and National Climate Change Action Plan (2018–22). Implementing the climate policy framework should now be the priority. Kenya’s NDC stipulates that 87 percent of the actions it outlines require international support. Mobilizing this level of support, aligning it with national priorities, and deploying the resources effectively will require a whole-of-government effort. Three key interventions would enable the government to put climate policies into practice: • Operationalizing the climate policy planning and implementation framework, which includes incorporating Kenya’s NDC targets into its Medium-Term Plan, sectoral plans, and urban plans; providing guidance in budget circulars for aligning proposed programs and projects with NDC targets; and streamlining and strengthening climate target M&E. • Operationalizing a coordination body on climate change and climate change units at sectoral level to enable the coordination and governance needed to implement a whole-of-government approach to planning, financing, implementing, and reporting on climate actions, and capitalizing the National and County Climate Change Funds. • Institutionalizing green public investment management to bolster the government’s readiness to upscale concessional climate finance, and building adequate capacity in the government’s Climate Finance Unit to support sectors to identify, design and appraise bankable projects that could be eligible for diverse sources of climate finance. Key Action Area 2: Manage water, land, and forest for climate-resilient agriculture and rural economies One of the most pronounced impacts of climate change on Kenya’s economy is annual variability in precipitation on agriculture (including livestock). In a climate future of drier and hotter climate extremes, the contribution of agriculture to Kenya’s GDP could fall by nearly 14 percent compared to the baseline in 2050. In a climate future of wetter and warmer climate extremes, it could fall by 6 percent. But these average values disguise the impact of erratic annual and intra-annual rainfall on farmers, underscoring the need support to smooth out the consequences of such variability. The three-year moving average of rainfed crop production shock reflects the variability of precipitation and temperature (figure ES.3). Climate-smart technology, innovation, and management practices can increase resilience to climate- related productivity shocks in rain-fed agriculture and help improve food security. Promoting public and private sector involvement in adopting sustainable seed systems, expanding irrigation, improving water storage, and improving animal nutrition and herd health through enhanced fodder production, vaccine programs, and shifting to feedlot-based beef production1 can help farmers cope with shocks. Fully integrating these climate-smart technologies in the Agricultural Sector Transformation and Growth Strategy and prioritizing highly vulnerable regions and small-scale farmers would further build resilience and help reduce methane emissions from livestock. Alongside this, facilitating the leasing of public land to increase land availability and security and motivate long-term investment and planning could improve food security. 1 Shifting from extensive pasture to intensive production systems with the goal of growing and or fattening. Country Climate and Development Report: Kenya - Executive Summary  |  3 Figure ES.3: Three-year average rainfed crop production shock under different climate scenarios (2020–50) 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% 2044 2022 2023 2025 2026 2028 2029 2030 2032 2033 2034 2035 2036 2038 2039 2040 2042 2043 2045 2046 2048 2049 2050 2021 2024 2027 2031 2037 2047 2041 Individual GCMs SSP1-1.9 mean SSP3-7.0 mean Dry/hot mean Wet/warm mean As Kenya diversifies its agricultural exports and increases private sector investments in capital infrastructure, agro processing, and value-addition activities, it should consider the global push to decarbonize supply chains. Value-addition efforts that maintain a low-carbon footprint will be central for remaining competitive in key export markets, such as the European Union (EU) and United States. Beyond investing in green fertilizers, renewable energy, and greening logistics, there are opportunities for public- private investment to improve productivity in key exports. This could include, for example, the tea sector—a primary export for Kenya—through innovations in breeding new tea varieties, water storage and expanded irrigation, precision application of inputs, and associated carbon sequestration projects. Addressing economic water scarcity—the barriers to using available water resources—would help Kenya sustain climate resilience and boost productivity of both agriculture and cities. While the country’s long-term average annual rainfall is over 365km3, only 21km3 of this runs off into rivers and aquifers as renewable water resources. While this is enough to sustainably expand irrigation and meet demand in cities, the country’s water infrastructure only provides 3km3 for irrigation and 2km3 for domestic purposes, industry, and livestock. Kenya’s binding constraint to managing climate variability is not an absolute water constraint; rather, it is the failure to harness water resources for productive uses. Addressing this economic water scarcity will require further investments in water storage, conveyance, irrigation, and water supply infrastructure as set out in the proposed National Irrigation Sector Investment Plan and the National Water Sector Investment Plan, respectively. Climate-informed investments in water storage and conveyance infrastructure will help provide for a growing population and developing economy. Kenya’s population is set to grow from 55 to 93 million people by 2050. As urban areas grow between three to five times under the BAU and aspirational scenarios, respectively, up to one-third of renewable water resources will need to be channeled to cities. To supply growing urban and agriculture demand for water and manage rainfall variability, Kenya will need to expand its dam storage capacity by four times to around 16km3 and complement this with improved natural (green) storage through landscape restoration of the water towers to regulate long-term water flows. Even with this extra capacity, water will become a binding constraint to development in the Athi and Rift Valley River Basins, making these areas climate vulnerable. However, in Lake Victoria North and South, there is scope to 4  |  Country Climate and Development Report: Kenya - Executive Summary further develop water resources for irrigation, urban expansion, and to reduce vulnerability to dry shocks. In the Ewaso Ng’iro North Basin—an area that is highly vulnerable—there are opportunities to further develop decentralized water harvesting structures, groundwater sources, and spate irrigation, to help mitigate the impacts of climate variability and incremental climate change. National and county governments will need support to manage fluctuations in water availability and balance demands across agriculture, domestic supply, industry, hydropower, and environmental services. If restored and well managed, Kenya’s natural water towers could increase the country’s resilience to highly variable rains while contributing to development. The five major water towers—Mount Kenya, Aberdares, Mau Forest Complex, Mount Elgon, and Cherangany Hills—can capture and regulate the majority of the country’s renewable surface water. While Kenya plans to increase its dam storage, strategic measures to restore and reverse deforestation and forest degradation in these water towers—such as curbing illegal forest encroachment and conversion for agricultural expansion, unsustainable timber and fuelwood extraction (including for domestic consumption), uncontrolled livestock grazing, forest fires, infrastructure extensions, and mining—are cost-effective, no-regret actions.2 Enforcing the Forest Conservation and Management Act to ensure robust forest resource monitoring and improve forest management, and operationalizing the Community Land Act to help secure forest and tree tenure, reduce excision of gazetted lands, and resolve land conflicts between communities and private conservancies, will also help. Finally, with 67 percent of households using unsustainably harvested fuelwood for cooking, and 44 percent also using charcoal, accelerating the transition to modern energy cooking systems and sustainable charcoal production is key. Large-scale forest restoration in the water towers and other key landscapes can contribute to other climate-relevant ecosystem services and growth. Forest restoration can generate opportunities to monetize carbon storage and create jobs resulting from improved habitats for nature-based tourism (NBT). Restoring and expanding areas under forest and tree cover, including by implementing Kenya’s goal to extend tree cover to 10.58 million hectares, could result in a significant amount of carbon storage. If well targeted, this restoration of the water towers would also improve regulatory water flows from these natural storage systems and attenuate the severity of flash floods that are expected to increase in future. Targeted restoration could also augment overall habitat quality by 14 percent compared to BAU. Improved habitat is estimated to nearly double the per-hectare value of NBT in areas with natural land cover compared to NBT in agricultural lands, quadrupling the value in regions with prominent wildlife tourism. NBT is an important source of jobs in rural areas, where economic opportunities are limited. Key Action Area 3: Deliver people-centered resilience with climate-informed basic services and urbanization Tackling regional inequities in access to basic services and building workers’ resilience to climate change will help households prosper and grow the broader economy. Kenya loses about 1 percent of GDP each year due to inadequate sanitation3 and there are huge disparities in access to water supply, sanitation, and hygiene (WASH) services between rural and urban areas and high- and low-income households. Increased flooding and drought compound the impact of unequal access to WASH services. A two-pronged approach can help reduce the vulnerability of households, informal workers, and MSMEs to climate change, reducing the consequences of climate change on human health and education, while helping people transition to new opportunities. Improving access to WASH services is vital for reducing the population’s exposure to the health consequences of extreme climate events and increased disease incidence. To provide universal access 2 Indufor. 2023. “Kenya – Roadmap for Sustainable Land Management.” Draft report submitted to World Bank. 3 World Bank Water and Sanitation Program. 2011. Economic Impacts of Poor Sanitation in Africa. Country Climate and Development Report: Kenya - Executive Summary  |  5 to safe and affordable WASH services by 2030, Kenya can adopt sector reforms—of service standards, tariffs, operational and capital efficiency, and commercial financing models—that would bring down additional financing needs to just $675 million above existing BAU levels of public funding. This would give 100 percent of households access to improved WASH services. Providing universal health coverage by 2030 while adapting and strengthening the health system would improve people’s ability to cope with expected changes in disease incidence. Minimizing disruptions in education during extreme climate events by adapting and deploying robust remote learning tools and designing suitable school infrastructure will also build long-term resilience. Considering climate change in programs for job creation, social protection, and technical and vocational higher education will enable Kenya’s youth to thrive in a climate-compatible economy. Kenya’s job programs largely address challenges in the formal sector and are predominantly used by wealthier individuals in urban areas. To be effective and ensure equitable access, job support programs should reach the many informal workers in urban areas. Improved and expanded targeting and integration of climate considerations into these programs can help with job transitions caused by climate change and to climate- compatible, higher-productivity jobs. Consolidating programs and making them more efficient can help improve their reach and effectiveness. The 700,000+ charcoal production industry workers would urgently need such support, due to the transition to cleaner cooking fuels.4 Harmonizing targeting methodologies and establishing an enhanced single registry would help provide a unified dataset of poor and vulnerable households across the country and are a good complement to job support and higher education programs, facilitating quick and transparent identification of populations that are vulnerable to climate disasters and slow-onset climate change. A resilient and low-carbon system of cities, within which different types of cities can play different roles in Kenya’s development, can facilitate structural transformation without compromising low-carbon growth. Major urban agglomerations, such as Nairobi, Kisumu, Mombasa, Kiambu, Machakos, and Nakuru, account for nearly 48 percent of Kenya’s GDP.5 And while only 28.5 percent of the population were living in urban centers in 2021, this is projected to rise to 46 percent by 2050 under a BAU scenario and 70 percent under an aspirational scenario. Establishing a system of cities calls for an institutional framework for the sustainable management of the Nairobi Metropolitan Region, and the development of climate-resilient plans for emerging metropolitan areas. Climate-informed planning can help ensure urban areas facilitate productive engagement of its residents, are not vulnerable to climate events, such as flooding and heat island effects, and do not suffer from increased congestion and expanding informal settlements. It will also help direct efforts to reduce Kenya’s deficit of affordable housing (expected to grow to 3 million units by 2025) by using low-carbon materials and appropriately locating settlements. Developing and capitalizing a sustainable urban infrastructure financing mechanism could promote the implementation of climate-resilient infrastructure in the main urban centers and reduce the ad hoc nature of infrastructure development. By adopting an Avoid-Shift-Improve and Resilience approach, new and expanding cities could maintain a low-carbon footprint in the transport system. To reduce GHG emissions from urban transport systems and improve travel times, city planners should prioritize developing an integrated multimodal public transport network, improving public transport, sidewalks, and cycle lanes, and shifting from a car-centric to a people-centric approach. Adopting electric vehicles (EVs) while also developing mass rapid transit would improve air quality in growing cities. The economic case for EV motorcycles is clear, but is less evident for cars and buses, due to the high capital costs for vehicles and charging facilities. The economic viability of electric buses hinges on increasing annual vehicle kilometers from 43,000 to 62,000. Such a transition could reduce emissions by 5.13 million tonnes of carbon dioxide equivalent, local pollutants 4 Government of Kenya, Ministry of Environment, Water and Natural Resources. 2013. Analysis of the Charcoal Value Chain in Kenya, as cited in the country’s draft Long-Term Strategy (LTS). 5 Kenya National Bureau of Statistics. 2021. Gross County Product. 6  |  Country Climate and Development Report: Kenya - Executive Summary (nitrogen oxides, sulfur oxides, and particles with a diameter of 10 micrometers or less) by 27,000 tonnes, and gasoline and diesel consumption by 161 and 37 million liters, respectively, by 2030. Developing policies and strategies for e-mobility and enhancing capacity in both the public and private sectors, are urgent tasks to advance this endeavor. Key Action Area 4: Strengthen Kenya’s competitiveness in international markets through shifts in energy, transport, and digital systems Kenya has a unique opportunity to stay on a low-carbon growth path while meeting its power needs entirely from green energy sources. This would require a multifaceted approach to expand renewable energy, green transport, and logistics operations (freight transportation and supply chains), and to leverage the country’s comparative advantage in the digital arena. In Kenya, 90 percent of all power demand is met with clean power sources, enhancing energy security, and significantly reducing the weather-induced supply shortages that are typical in systems with a large share of hydropower. The country’s Least Cost Power Development Plan for 2022–40 expands the generation mix to include geothermal, wind, solar, battery storage, and hydropower, including through regional imports, but continues diesel generation and gas oil turbines until 2035. Geothermal could support Kenya’s mitigation of exposure to climate risks as it provides low-cost, reliable renewable generation. Kenya can achieve a fully decarbonized power system by 2030. Investment requirements increase moderately as renewable energy is the cheapest source of new power generation in Kenya and can be offset by substantially reduced fuel import bills. Achieving a green grid by 2030 comes with cumulative upfront investment costs of $0.3–2.7 billion, which are almost fully offset by lower fossil fuel costs, as variable renewable energy sources and batteries dominate the capacity and generation mix (figure ES.4). The total cost remains the same since there is a shift from capital to operational expenditure. To secure investment for the 100 percent green grid, a robust, climate-resilient transmission and distribution network that provides affordable electricity to consumers will be key for ensuring financial viability and operational efficiency of energy sector utilities. Figure ES.4: Cumulative upfront investment and fuel costs, discounted (2022–50) 8 7 6 5 $, billions 4 3 2 1 0 BAU (with emissions) BAU (100% green by 2030) Aspirational (with emissions) Aspirational (100% green by 2030) CAPEX Fuel costs Note: CAPEX = capital expenditure. If aligned with requirements for being competitive in a decarbonizing world, maintaining a low- carbon development path can accelerate growth. As the EU and United States strengthen existing and Country Climate and Development Report: Kenya - Executive Summary  |  7 new measures to lower carbon emissions,6 there will be consequences for countries that export to these countries. Few of Kenya’s exports are subject to the EU Carbon Border Adjustment Mechanism (CBAM),7 but if the CBAM is expanded to include all products in the EU Emissions Trading System, a low-carbon growth path with robust traceability systems would enable Kenya to benefit from shifts in international markets associated with these regulations. Lowering the carbon footprint of its transport and logistics operations could be beneficial for Kenya’s trade imbalance. With trucks and motor vehicles making up over 80 percent of traffic and transporting 76 percent of freight, Kenya’s heavy dependence on road transport and fossil fuel-powered vehicles for freight movement has negative environmental consequences. Addressing energy demand and reducing fossil fuel consumption in the transport sector will help Kenya tackle its trade deficit and environmental concerns. Petroleum products—major imports for transportation, industry, and residential energy—contribute to the trade imbalance, with Kenya spending $3 billion to import 6.4 million tonnes of petroleum fuels in 2021 alone. The fiscal cost of fuel subsidies rose to the equivalent of 0.5 percent of GDP in 2021/22. The transport sector, especially road transport, thus presents opportunities to reduce imported fuel consumption through energy efficiency measures and fuel substitution. Shifting from one mode of transport to another—for example, from trucks to rail—would also help reduce emissions.8 Modal shifts are in line with government initiatives to decarbonize freight transportation. Kenya’s National Climate Change Action Plan (2018–22) outlines various low-carbon measures and actions, including improving the efficiency of heavy-duty vehicles, shifting containerized freight from road to rail, electrifying the Mombasa-Nairobi Standard Gauge Railway, which could reduce rail emissions by approximately half, and adopting low-carbon aviation and maritime technologies. Developing and de-risking pricing and access terms for rail infrastructure, standards for fuel efficiency and vehicles, and investments in and maintenance of resilient infrastructure all play a crucial role in driving changes in the transport sector. De-risking would encourage private sector investment in rail infrastructure, including the standard and meter gauge railways, and could be complemented by increasing the efficiency of rail operations. To address Kenya’s road transport emissions, measures targeting engine energy efficiency and other factors can have a significant impact, particularly in freight transport. Although Kenya relies on imported used vehicles, establishing national standards to limit fuel consumption in new heavy-duty vehicles with diesel and gasoline engines and investing in road maintenance could reduce fuel consumption by 2–5 percent. Various initiatives being implemented to improve energy efficiency in terminals and logistics,9 and mandating measures for logistics service providers—such as optimizing tire superstructures, improving road conditions, and promoting eco-driving practices—could help enhance efficiency in the sector. Expanding Kenya’s digital infrastructure would provide additional opportunities for climate-resilient and low-carbon growth. Digital logistics platforms have gained significant recognition, particularly in road transport and freight forwarding, aimed at increasing load factor by consolidating and reducing empty trips. Smart metering and digital technologies can also improve the reliability and efficiency of electricity transmission, while digital technologies are central to early warning systems and precision agriculture, helping reduce wasteful use of inputs (including water and fertilizer) and crop and commodity losses. Conducting a climate hazard risk analysis that considers current and future risks of climate change and extreme events is essential to identify locations for nodal infrastructures that require minimal risk and sites that require mitigation measures. 6 The Fit for 55 package, which aims for more ambitious EU-wide climate mitigation, and EU CBAM are part of this trend. 7 At the time of drafting this report, the EU CBAM covered cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. 8 Emissions, measured in tonnes per kilometer, differ by a factor greater than 500, from air freight to large containerized maritime shipping. 9 See, for example, the action plan for reducing CO2 emissions in the aviation sector https://www.icao.int/environmental-protection/Documents/ ActionPlan/22.09.2022_Final%20Aviation%20Environmental%20Action%20Plan%202022-2028_signed.pdf. 8  |  Country Climate and Development Report: Kenya - Executive Summary Key Action Area 5: Implement policy measures for mobilizing climate financing from private and public sector Kenya’s NDC estimates that the pathway to net zero will cost approximately $62 billion by 2030 and just under $170 billion by 2050. The country has committed to finance $8.12 billion of this from public resources, and by 2018, $2.4 billion of public and private capital had been mobilized for climate-related activities, with the bulk going to mitigation. Kenya spends around $1.53 billion of public funds on climate and nature investments, alongside private finance expenditure of around $0.97 billion. But public and concessional finance directed toward climate in the development budget disproportionally targets the renewable energy sector, while agriculture, forestry and land use, transport, water management, and other key sectors are significantly underfunded. For Kenya to meet the financing needs outlined in its NDC, climate finance inflows need to triple, with a larger share going toward adaptation and climate resilience. To achieve this target, Kenya will have to make innovative use of public resources and mobilize private financing from a wide range of sources. When considering the key investments needed for resilience that also help move Kenya toward a more resilient and green future under BAU (table ES.1), large sums are required, however, the additional investment needed to make BAU a more resilient and green future is relatively modest. Prioritizing available financing to regions that are highly vulnerable to climate impacts is advisable to prevent these regions lagging significantly behind if interventions are delayed. Table ES.1: Estimated economic costs for select investment areas ($, millions) BAU Low-carbon and resilient climate actions (with BAU growth scenario) 2022–30 2031–50 2022–30 2031–50 Manage water, land, and forest for climate-resilient agriculture and rural economies Restoring forest landscapes 122.67 (213.78) 2,838.46 (4057.23) Boosting agricultural productivity and resilience NA NA 1,363.40 (11,301.22) Promoting clean cooking (reducing use of fuelwood + charcoal) 20,638.26 29,032.08 (22,374.39) (109,429.27) Deliver people-centered resilience with climate-informed basic services and urbanization Facilitating e-mobility 113,646.33 268,368.93 110,963.96 238,432.32 Strengthen Kenya’s competitiveness in international markets through shifts in energy, transport, and digital systems Decarbonizing the power sector 4,079.14 7,830.00 4,465.85 8,238.27 Notes: Estimates are based on data available on investment needs, economic costs and benefits; NA = not applicable; figures in parentheses are net benefits. Kenya has a strong institutional and policy framework in place to manage the financing of its climate and nature ambitions. Prioritizing interventions for the short and medium term and ensuring efficiency in the use of limited public financing for climate change will be important. Climate action financing options that will contribute to productive and inclusive growth Kenya can mobilize a significant portion of its mitigation investment needs from the private sector. For example, growing awareness of green building benefits could drive private sector innovations and Country Climate and Development Report: Kenya - Executive Summary  |  9 investment in sustainable solutions for green buildings and cities. But to grow this market, Kenya will have to address the limited access to suitable capital given traditional lending patterns, titling issues, high land costs in (semi)urban areas, slow adoption of alternative building materials, and other barriers. Weak inclusion of the construction and housing sector in the national climate policy and legal framework, including in tracking the sector’s mitigation goals in the NDCs, is to a missed opportunity. E-mobility is another area with potential for greater private sector engagement. There are opportunities to scale investment in e-motorcycles and e-buses, and in EV manufacturing and assembly. A public-private partnership could help promote the installation of charging stations—the absence of which is a key barrier to adopting EV adoption. Developing a more effective tax environment for importing EV batteries and for EV assemblers, and preventing internal combustion engine vehicle dumping, will allow Kenya to fully seize the opportunities for private investment. There are private financing opportunities in the domestic, regional, and international markets. The government should evaluate the relatively large pools of domestic finance available—including pension funds worth $14 billion—to determine how it could leverage these resources directly and indirectly for climate finance. Corporate and investment project-based financing can also offer opportunities for climate resource mobilization to diversify from relying on government-issued bonds. East African Community investors consider Kenya a domestic investment, presenting opportunities to channel resources from regional investors. Ensuring access to and transparency of information and projects, and providing retail platforms for sustainable investments, could mobilize Kenya’s $19 billion of retail capital, with a 11.5 percent growth potential, to support Kenya’s climate finance goal.10 An example of this is the Vuka platform for Acorn Real Estate Investment Trust’s green student housing program.11 Kenya can further tap into carbon markets. The economic rationale for investments that will contribute to greater resilience, such as landscape restoration, is their carbon dioxide emission reduction benefits. Financing such investments hinges on internalizing and monetizing the resultant ecosystem services—for example, through carbon markets. To capitalize on these markets, the government will need to finalize a robust carbon market framework and operationalize the legislation. It is important for this framework to align with the country’s NDC targets, clearly present the potential for carbon markets, outline the processes to be followed, the necessary inter-ministerial coordination, and linkages between compliance and voluntary markets. Alongside this framework, Kenya should also set out its strategy on selling or buying internationally traded mitigation outcomes to meet its NDC commitment on GHG emissions (that is, for implementing Article 6 of the United Nations Framework Convention on Climate Change). To maximize the potential of carbon markets, establishing a measurement, reporting, and verification system is imperative as it ensures high environmental integrity of carbon credits so they meet international standards. Carbon markets can cover mitigation financing in multiple sectors, such as energy, housing, and e-mobility. Kenya is one of the countries expected to benefit from the new Africa Carbon Markets Initiative, which works with major carbon credit buyers and financiers. Given its need for insurance against climate-induced disasters, Kenya can explore risk transfer instruments that cover high-impact, low-probability events. Reviewing the implementation of its Disaster Risk Finance Strategy could help ensure shock-responsive social protection, agricultural insurance, and other climate insurance programs have the budget they need to protect against shocks. Using the findings of this review, the government could develop and adopt a second phase of its Disaster Risk Finance Strategy to inform climate adaptation-orientated budget allocations. The updated strategy could support the government’s efforts to mobilize global sources of concessional finance for risk financing. Kenya can also explore issuing parametric catastrophe bonds or insurance, which transfer catastrophe risk from an insurer 10 https://av.sc.com/corp-en/content/docs/Sustainable-Banking-Report-22.pdf. 11 https://acornholdingsafrica.com/vuka/. 10  |  Country Climate and Development Report: Kenya - Executive Summary (also called sponsor) to bond investors.12 The risk coverage period is typically two to five years, and this type of bond can provide quick payouts when designed with parametric or modeled loss triggers. Kenya can deploy concessional financing to de-risk investments and maximize their benefits and use blended structures to crowd in private sector funds for resilience. Public-private partnerships will be key for large-scale infrastructure investments, agriculture, forests, and conservation, which can involve collaborative management partnerships. Accelerating efforts to integrate climate considerations into investment prioritization and selection will be instrumental for mobilizing private sector interests and leveraging dedicated climate grants. Over the medium to longer term, Kenya can deploy policy, debt, and non-debt instruments to finance climate investments. Priority instruments to consider include maximizing grants and opportunities for blended financing by leveraging concessional lending and philanthropic resources; issuing green/blue bonds and outcome-linked bonds; and piloting and scaling the use of innovative financing instruments tied to carbon markets, payment for ecosystem services, and other emerging markets. Operationalizing the actions areas identified in this CCDR would benefit from a programmatic approach that facilitates coordinated climate action that is sustained and at scale. The approach can provide an integrative framework for implementation. It will require strong coordination, and engagement of diverse stakeholders. Enabling policies and institutional measures would aim to support investment programs focused on the action areas. The programs could also serve as platforms for bringing together public, private, concessional, and dedicated climate financing. 12 Catastrophe bonds are like insurance, with sponsors receiving a payout when a disaster event meets predefined criteria. They are fully funded transactions and investors stand to lose some or all of the original investment. Country Climate and Development Report: Kenya - Executive Summary  |  11 World Bank Kenya Delta Center Menengai Road, Upper Hill P.O. Box 30577-00100 Nairobi, Kenya Read more on how Tel : +254-20-293-6000 climate change impacts Kenyainfo@worldbank.org Kenya’s economy.