Concerning climate financing for Nigeria and other vulnerable countries, climate enthusiasts have had a plethora of demands and debate for leaders at this year’s United Nations Climate Change Conference COP27 in Egypt, but it seems none have been louder than the choice between debts for climate talks or financial pledges.
Over the years, extreme storms, rising sea levels, severe droughts, and powerful wildfires have increased in frequency and intensity thanks to human-induced climate change, giving countries, particularly developing nations, less time to rebuild financially.
For Africa’s biggest economy the story is the same.
Many parts of Nigeria, especially the coastal areas usually experience flooding yearly, but this year’s floods have been described as the worst in more than a decade as authorities race to provide relief to hundreds of thousands of people who have been displaced.
Governments whose countries are on the front lines of the climate crisis want solutions, most importantly solutions on the funding mechanism that can provide ongoing support in recovering from climate related-crises.
Case for financial pledge
Twelve years ago, at a United Nations climate summit in Copenhagen, rich nations made a significant pledge. They promised to channel $100 billion a year to less wealthy nations by 2020, to help them adapt to climate change and mitigate further rises in temperature.
That promise was broken.
“The commitment of $100 billion made in 2009 by developed countries, was not only miniscule given the scale of needs, but has also not been achieved yet,” India’s delegation said on behalf of the like-minded developing countries (LMDC) group on Wednesday evening at COP27 event in Egypt.
According to data from the Organization for Economic Co-operation and Development (OECD), an intergovernmental body consisting of wealthy nations, developed countries mobilised $52.4 billion in 2013.
After dropping to $44.6 billion in 2015, the finance flow has steadily increased. In 2020, the developed countries raised $83.3 billion, a jump from $80.4 billion in 2019, according to a factsheet published by the Centre for Science and Environment.
Despite the above development, a 2022 report by United Kingdom-based Oxfam showed many rich countries are using dishonest and misleading accounting to inflate their climate finance contributions to developing countries – in 2020 by as much as 225 percent.
Oxfam estimates between just $21-24.5 billion as the “true value” of climate finance provided in 2020, against a reported figure of $68.3 billion in public finance that rich countries said was provided (alongside mobilized private finance bringing the total to $83.3 billion). The global climate finance target is supposed to be $100 billion a year.
“Rich country contributions not only continue to fall miserably below their promised goal but are also very misleading in often counting the wrong things in the wrong way. They’re overstating their own generosity by painting a rosy picture that obscures how much is really going to poor countries,” said Nafkote Dabi, Oxfam International Climate Policy Lead.
“Our global climate finance is a broken train: drastically flawed and putting us at risk of reaching a catastrophic destination. There are too many loans indebting poor countries that are already struggling to cope with climatic shocks. There is too much dishonest and shady reporting. The result is the most vulnerable countries remaining ill-prepared to face the wrath of the climate crisis,” says Dabi.
Oxfam research found that instruments such as loans are being reported at face value, ignoring repayments and other factors.
“Too often funded projects have less climate focus than reported, making the net value of support specifically aiming at climate action significantly lower than actual reported climate finance figures,” Oxfam report said.
Dataphyte’s finding showed Least Developed Countries’ external debt repayments reached $31bn in 2020.
For example, Senegal, which sits in the bottom third of the world’s most vulnerable countries to climate change, received 85percnet of its climate finance in form of debt (29% being non-concessional loans), despite being at moderate risk of falling into debt distress and with its debt amounting to 62.4percent of its Gross National Income.
“A keyway to prevent a full-scale climate catastrophe is for developed nations to fulfil their $100 billion commitments and genuinely address the current climate financing accounting holes. Manipulating the system will only mean poor nations, least responsible for the climate crisis, footing the climate bill,” said Dabi.
“A climate finance system that is primarily based on loans is only worsening the problem. Rich nations, especially the heaviest-polluting ones, have a moral responsibility to provide alternative forms of climate financing, above all grants, to help impacted countries cope and develop in a low-carbon way,” said Dabi.
“At the upcoming COP27 climate talks this November, rich countries must urgently commit to scaling up grant-based support to vulnerable countries and to fixing their flawed reporting practices.”
Case for Debt relief
Even if $100bn is delivered, some experts have argued it is insufficient, particularly when most climate-vulnerable countries are already mired in debt and still grappling with the economic fallout from Covid-19.
“Developing countries have to balance between urgent climate needs and paying back debts,” Jessica Omukuti, research fellow at the University of Oxford’s Inclusive Net Zero initiative said at a live broadcast on CNN.
More than half of the world’s poorest countries are either in debt distress or at high risk of it, according to the World Bank. Poorer countries bear the brunt of environmental degradation and are simultaneously unable to meet the cost of low-carbon and climate-resilient development.
A research by the campaigning group Debt Justice found these countries spend five times more on debt payments than on dealing with climate change, resulting in a vicious circle of climate catastrophe, borrowing, and spiralling debt burdens.
Kevin P. Gallagher, Director of Boston University Global Development Policy Centre, noted that these countries’ quest for financing climate adaptation is jeopardized by increasing debt profiles, rising inflation, and natural disasters. Thus, they need debt relief to finance climate adaptation.
He noted that, though the cost of capital has grown from $12 trillion in 1980 to $105 trillion currently, capital growth formation is declining.
“This is because of the increasing debt profile and inflation in climate-vulnerable countries,” Gallagher explained.
As debt relief seems a tall task, Gallagher recommended that loans to climate-vulnerable countries should have a disaster clause. Thus, during disasters, countries can build resistance.
Also, he highlighted to need for a climate finance mechanism that will act as a payoff for debt.
Nigeria’s position
Two months ago, Nigeria’s vice president Yemi Osinbajo proposed a Debt-For-Climate (DFC) Swap deal in order to ensure a just energy transition for African countries.
“Debt for climate swaps is a type of debt swap where bilateral or multilateral debt is forgiven by creditors in exchange for a commitment by the debtor to use the outstanding debt service payments for national climate action programmes,” Osinbajo explained at the Center for Global Development in Washington D.C, U.S. on Sept 3.