There is no climate justice without debt justice
Although it might not seem obvious, the global debt system and climate change are inextricably linked, creating a vicious cycle of financial and ecological crises across the global south.
Climate change-related disasters take a heavy financial toll on low and middle income countries, often forcing them to take on more debt to rebuild. Over time, high debt repayments force governments to cut important public services and prevent them from investing in important climate adaptation measures. Many countries also seek to increase potentially climate-damaging commodity exports, or accept loans for fossil fuel projects, to improve their financial situation – but these can exacerbate their debt situation and the climate crisis further. This cycle makes global south governments more vulnerable to extreme weather events (as well as “slow onset” climate processes such as ocean acidification, loss of biodiversity, and desertification), and to defaulting on their debt, which would leave them at the risk of being sued by rich governments and corporations.
The practical case for how debt cancellation can alleviate the burden of climate change on frontline communities, and support efforts to tackle climate change, is clear. Breaking the climate-debt cycle through widespread debt cancellation should be central to all programmes for climate justice.
However, there are also important political, anticolonial reasons to support debt cancellation for the global south. The responsibility of rich, former colonial powers in the global north for driving climate change is recognised by the UN under the concept of “Common But Differentiated Responsibilities” for climate change. Instead of demanding debt repayments from the global south, rich countries and corporations should cancel what is “owed” to them to account for the ecological debt that they owe the rest of the world. Alongside vastly increased levels of grant-based climate finance and reparations for colonialism, debt cancellation should be seen as a crucial step in providing climate justice to the global south.
Whose climate debt is it anyway?
In 2009, we argued (drawing on the work of social movements from the global south) that the real “climate debt” was that owed by rich countries, who created and accelerated climate change through high historical carbon emissions, to the global south who now suffer its worst effects despite having done the least to cause it. Large financial transfers from the global north to the global south would be one way of accounting for this: at the time, we argued that the UK owed more than $1 trillion in climate debt reparations to the rest of the world, with payments of roughly $30 billion a year (or 1% of national income).
The total debt amounts to 40% of UK national income with annual debt service payments of 1%. A small amount to pay to ensure, in a just way, the survival of a habitable world for hundreds of millions of people.
More recently, however, sociologist Max Ajl (author of A People’s Green New Deal) has argued that rich countries should in fact pay around 6% of national income, and that only responses to climate change which include climate debt reparations at their heart will truly transform the economic system that has created climate chaos in the first place.
This turns the question of who owes who in the global economy on its head. The systemic, entrenched poverty of the global south and the accelerating climate emergency are both direct results of the actions of rich, colonial powers in the past four centuries. Climate activists in these countries should be demanding justice and reparations for these actions, and a good place to start (that would have an immediate positive effect on the finances of governments struggling to cope with climate impacts) would be widespread debt cancellation.
But this is not just an historic problem, nor can it be confined to one simple solution, because the debt situation of many countries continues to be exacerbated by climate events and the (in)actions of northern governments in the present day.
Debt crisis follows climate crisis
Both short term, climate-related disasters and longer, slower processes created by climate change can have a substantial economic impact on the global south, particularly on the Least Developed Countries (LDCs), Small Island Developing States (SIDS) and countries vulnerable to hurricanes and cyclones. Research suggests that these costs can be staggeringly high, for example:
“Antigua and Barbuda estimates that “between 1995 and 2010, six hurricanes resulted in economic losses and damages on the twin island state totaling US $335 million”, Moldova notes that “the total damage and losses produced by [the] 2010 floods were estimated at approximately US$42 million”, and Colombia claims to have suffered from damages and losses as a result of the “La Niña” phenomenon amounting to USD 6 billion.”
In the longer term, in Zambia (the first African country to default on its debt during the Covid-19 pandemic), climate change will cost “$4.3 billion over a 10-year period” and, without action “rainfall variability alone could lead to losses of 0.9% of the GDP growth over the next decade”.
These economic losses can exacerbate debt problems, by making it difficult for governments to pay back their existing repayments and by forcing them to turn to lenders for further loans. The World Bank has found that “the experience of several economies in [Latin America and the Caribbean], in particular, shows that debt crises can be triggered by extreme climatic events and environmental hazards”.
In 2019, Mozambique took on a $118 million loan from the International Monetary Fund to deal with the consequences of Cyclone Kenneth and Cyclone Idai. It is highly unjust that Mozambique’s external debt was substantially increased due to climate change which they have done next to nothing to cause. Although the loan was interest free, offering support in the form of loans instead of grants still increases the burden of debt, possibly leading to public spending cuts or a fall in credit rating in future. High debt repayments will also prevent countries from investing in climate adaptation to protect themselves from future disasters.
Some policymakers have proposed the idea of “debt for climate swaps” in which a degree of debt relief or cancellation would be offered to governments on the condition that the funds were reinvested in climate action. Some global south leaders have shown support for this idea, but broadly debt cancellation must be unconditional to be just. Too often, debt has been used as a tool to direct the spending policy of southern countries through structural adjustment loans. There is always the risk that climate-debt swaps could be used as another way for the global north to direct countries to support projects which benefit them, prioritising emissions reductions over adaptation for example.
This is why we need both no-strings-attached debt cancellation and a vast increase in grant-based climate finance to support frontline communities. The progress of rich countries in providing this finance, however, has so far been shameful.
The climate finance scandal
At the COP16 in Cancun, rich governments agreed to a target of providing $100 billion a year in climate finance to the global south by 2020. By their own standards this target was missed – the OECD estimates that $78.9 billion was provided in 2018. However, the quality and composition of this is highly contested; Oxfam argues that the amount that the global south has actually received (and not had to pay back) is probably closer to $20 billion a year.
One of the biggest problems with this finance is that 74% was in the form of loans, further exacerbating the debt burden of climate vulnerable countries. Another is that, while there was supposed to be a 50:50 split between climate mitigation and adaptation, rich countries have prioritised the former over the latter, meaning that the global south remains highly vulnerable to climate disasters. LDCs and SIDS were also meant to be prioritised, but receive a very small amount of funding at present.
Debt cancellation could clearly have a huge impact in this case. The Least Developed Countries Fund, which channels finance from rich countries to support adaptation in LDCs, had raised only $1.6 billion in total by November 2020. By comparison, World Bank data suggests that LDCs will collectively spend $30-40 billion a year on debt repayments in the year to come.
Rich countries must re-examine their approach to providing climate finance in addition to offering debt cancellation. It is too late to simply find ways to meet the $100 billion target; rich countries should use COP26 to agree a new climate finance target for the decades ahead. Estimates of the amount needed vary; global south leaders have called for the UK alone to provide $46 billion a year (about 1.5% of national income) while one study says that rich countries will need to collectively provide $400 billion to $2 trillion a year by 2050.
One important factor of this increased finance must be agreeing new mechanisms for compensating countries for the loss and damage caused by climate change. At present there are no mechanisms for establishing this finance in the COP processes, but numerous proposals exist for forcing major polluters and fossil fuel corporations to pay via taxation (based on the “polluter pays” principle). Establishing mechanism such as these, which would compensate climate vulnerable countries rather than forcing them into further debt, are also essential to climate justice.
Cancel debt for climate justice
Until widespread and unconditional debt cancellation is offered to governments in the global south, there will be no climate justice. These measures would have a tangible and immediate impact on the ability of LDCs and SIDS to invest in climate adaptation and mitigation, meaning that more frontline communities can stay in their homes and that climate chaos will not displace as many millions as it might do otherwise. Cancelling debt will also help global south governments to rebuild public services and buy Covid-19 vaccines in response to the pandemic.
But beyond the rational economic and social arguments for debt cancellation, it is also a matter of postcolonial climate justice.
Debt cancellation would only begin the process of atoning for the climate and ecological debt owed by the global north to the global south. Substantially increased levels of climate finance and reparations for colonialism also have an important role to play.
This is why we are calling for:
- Rich governments to offer debt cancellation to all countries that need it (in recognition of the climate debt they owe the global south) and compel private banks to do the same;
- The suspension of debt repayments after extreme weather events and natural disasters;
- Governments agreeing a new deal at COP26 to provide $400 billion a year in grant-based climate finance to the global south;
- Immediate additional finance compensating for loss and damage due to climate change.
Photo: Activists call for climate debt reparations in Bangkok, Thailand. Credit: Mongkhonsawat Luengvorapant/Oxfam.