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Cancel developing country debt in exchange for action on climate change | Guardian of sustainable business

ByTina R. Wimmer

Mar 11, 2021

One of the main objectives of the climate summit in New York this week was to mobilize funding to fight climate change. Slow progress in increased funding has been a major bottleneck in the negotiation of a global climate treaty.

The World Bank believes that adapting to a global warming could cost between 70 and 100 billion dollars a year by 2050, assuming warming is maintained at the 2C target. However, the real costs could be much higher, as recent analysis shows that the world is currently on track to 4C warming, an unprecedented level for humanity. Current levels of CO2 in the atmosphere have not been so high for about 3 million years.

The new climate economy Reportreleased last week, concluded that the economic cost of inaction outweighs the cost of action, and that investing in emissions reductions has economic benefits, including health benefits.

However, many countries have not made new pledges of public funding to tackle climate change. Could debt relief be a way to generate finance for climate change?

Mobilizing funds for the Green Climate Fund

UN Secretary General Ban Ki-moon encouraged countries at the summit to capitalize on the Green Climate Fund. The United Nations fund, created in 2010, is responsible for mobilizing $100 billion in funding annually by 2020 for climate action in developing countries.

Several countries have made pledges to the fund, including the largest, a $1 billion pledge from France. There is now $2.3 billion in the fund, but that is still below the $10 billion that was requested to start it.

The summit was more successful in increasing private finance, with the announcement that a new coalition of governments, investors and financial institutions will mobilize $200 billion by the end of next year to support the climate action. However, commitments on public finances have been more limited.

Debt relief as an alternative

An innovative way to generate finance could be debt for climate trading. National debt owed by developing countries could be canceled in exchange for financing climate change actions.

Many developing countries are highly indebted and also vulnerable to the impacts of climate change. Debt also limits the ability of developing countries to respond, for example by building cyclone shelters.

The idea could build on the Jubilee 2000 campaign, which attempted to get large amounts of debt canceled by the millennium.

Tim Jones, Policy Officer at the Jubilee Debt Campaign, says: “It is the rich world that is indebted to poor countries because of their excessive greenhouse gas emissions. The unjust financial debts of developing countries should be canceled and the rich world should pay reparations to help countries deal with the damage they have caused.

Debt relief could also facilitate increased public finance for climate change at a time when developed countries are implementing austerity measures.

Increase in climate vulnerability and debt

Many developing countries that are highly vulnerable to climate change have already taken out loans to adapt. In Bangladesh, the government used world bank loans build cyclone shelters to cope with the increase in cyclones. However, civil society groups have raised concerns about the ethics of providing “climate loans” that increase the country’s debt burden.

The government of Bangladesh is already in debt. In fact, for every dollar Bangladesh received in climate finance over the 2010-2012 period, it repaid more than $3 in servicing long-term bilateral debt.

Climate impacts are expected to worsen, especially in developing countries that did not create the problem. The victims of climate change, including future generations, risk being left with huge debts.

Redirect financial flows towards climate action

Many private sector leaders have already expressed at the summit that they are willing and ready to act. A group of institutional investors committed to decarbonize $100 billion in institutional investments by December 2015.

In the meantime, the British government is still spend $1.2 billion a year on fossil fuel subsidies, including loan guarantees. However, most of these fossil fuel resources are incombustible if we are to have any chance of limiting global warming. Investing in fossil fuels is basically a waste of money, unless the world is betting on destruction.

Bold leadership is still needed from governments ahead of the Paris Conference next year, including pledges to the Green Climate Fund to support developing countries. Progress in climate action in the private sector will not replace it.

The climate crisis demonstrates the need for urgent action and leadership from the private and public sectors. Otherwise, future generations will face both a climate change crisis and a financial crisis.

Helena Wright is a PhD student at Imperial College London. Adrian Fenton is a Visiting Fellow at the International Center for Climate Change and Development and a PhD Researcher at the University of Leeds

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