Unlocking Climate Finance for Sanitation Through Partnership and Collaboration

Session panelists (left to right) Priscilla Oluoch of Malindi Water and Sewerage Company Limited, Barbara Kazimbaya-Senkwe of WASH-FIN 2, Stella Warue of the Kenya Water Sector Trust Fund, Nancy Ngao of Sanergy, and Jairus Thomas of WASH-FIN 2 following the session. Photo credit: Jairus Thomas, USAID/WASH-FIN 2

Summary

Expanding access to safe, affordable sanitation services to unserved communities is difficult enough, and recently, emerging research from USAID and others has established that the sector is responsible for sizable greenhouse gas (GHG) emissions. Around 1.8 percent of global GHG emissions come from sanitation, placing it on a comparable level with emissions from air travel. Instead of seeing this news as yet another challenge, USAID’s Water, Sanitation, and Hygiene Finance 2 (WASH-FIN 2) and other sector actors have come to see this as a significant opportunity to help the WASH sector unlock climate finance resources.

USAID is working to accelerate change in non-sewered sanitation to develop sustainable, climate-resilient sanitation services and new financing tools through WASH-FIN 2. By bringing together governments, development partners, service providers, and financiers, WASH-FIN 2 proposes a collaborative effort to drive sustainable change. At the recent IWA Water and Development Congress held in Kigali, Rwanda in December 2023, USAID’s WASH-FIN 2 activity co-convened a session on “Unlocking Climate Finance for Sanitation: The Role of Partnerships,” with the Kenya Water Sector Trust Fund. In the session some of USAID’s key partners highlighted collaborative efforts to strengthen investment in traditionally overlooked and underfunded sanitation services. These efforts, in turn, can reduce GHG emissions, creating the opportunity to mobilize climate finance.

Climate Finance Strategies for Citywide Desludging

Global Finance Specialist, Jairus Thomas kicked off the IWA session describing how WASH-FIN 2’s climate finance-supported citywide desludging approach could help address the funding challenges of non-sewered sanitation. “WASH-FIN 2 has been closely following the emerging research to better understand the nature of emissions along the sanitation service chain. This knowledge informs our sanitation climate finance mobilization strategy, increasing the likelihood of supporting partners to successfully capture climate finance and/or carbon credits for large scale citywide desludging initiatives, or other investments along the service chain,” he said.

“…Mobilizing climate finance for sanitation hinges on ‘partnership success factors’ which encompass collaboration throughout the entire sanitation service chain including efforts to standardize the verification of climate change impacts and ensure compliance and regulation in fecal sludge management.” – Jairus Thomas

Regular desludging and climate-friendly treatment could significantly curb emissions, enabling the potential sale of emissions reduction credits in voluntary markets. These credits could help reduce the financial viability gap for sanitation services. Some of the challenges of leveraging climate finance for sanitation can’t be ignored however, such as verification costs, baseline data accuracy, and the continued need for public funding despite carbon credit revenues.

More Effective and Efficient Pooling of Resources

Representatives from government, utilities, and NGO partners then joined WASH-FIN 2 technical specialists to discuss how their coordination efforts can lead to more effective and efficient pooling of resources, resulting in more impactful projects, and what role development partners can play in facilitating that coordination.

Panelist Priscillah Oluoch of the Malindi Water and Sewerage Company described her company’s work with WASH-FIN 2 to design a program to facilitate access to climate finance and support the rollout of a citywide inclusive sanitation initiative. Malindi Water aims to leverage climate finance to support their scheduled desludging services, encompassing the entire sanitation service chain from household containment to treatment.

Given the complexities of accessing climate finance—e.g. costly and lengthy registration processes, the specialized knowledge required, and uncertainty in carbon pricing—another panelist, Nancy Ngao of Sanergy, described how the public sector and development partners can support private sector service providers like hers. She explained the necessity of facilitating policy alignment; building capacity on climate finance and proposal development; providing low-interest loans or grants to companies working on innovative and sustainable sanitation solutions; and encouraging transparent information sharing.

Stella Warue from the Kenya Water Sector Trust Fund highlighted the pivotal role played by government funding and de-risking mechanisms in stimulating increased private sector investment in the sanitation subsector. Collaborating with development partners, the fund takes a leading role in delivering customized funding solutions to water service providers (WSPs) in Kenya. Historically, results-based financing that offers subsidies to WSPs that achieve predefined WASH goals has not only positively impacted key developmental objectives but has also eased the financial repayment burdens on WSPs. Warue suggested that similar blended finance partnership approaches could be employed to effectively expand access to safe sanitation services.

Participants were divided into four groups—private sector, public sector financiers, public sector service providers, and development partners—to answer the question, “What can the sector do to create and leverage partnerships to mobilize climate finance?” Roundtable participants expressed a widespread lack of awareness regarding the link between carbon emissions and sanitation. Remi Kaupp, Executive Director of the Container Based Sanitation Alliance (CBSA), highlighted that key limitations include the lack of official acknowledgment of the latest sanitation emission factors and methodology, onerous eligibility requirements, and exorbitant carbon credit registration fees. CBSA published a paper last year outlining these challenges and is currently working on standardized methodologies to reduce the inherent complexities and increase potential climate finance revenues.

Linking carbon emissions and sanitation

Mobilizing climate finance for sanitation has transformative potential to improve public health and the environment while contributing significantly to global emissions reduction targets. As the sector works toward solutions, consensus building is required on foundational factors such as universally accepted methodologies and emissions factors and the requisite enabling environment. USAID and WASH-FIN 2 look forward to meaningfully contributing to the evolving conversation within the sector. We know that the key to addressing the many challenges lies in collaborative efforts, innovative financing structures that address the many challenges, and a shared commitment to creating sustainable and equitable sanitation solutions globally.