As we look forward to COP28 and the expected deals on funding for loss and damage, there is a chance the solutions we are seeking are tied to another big issue—the public debt crisis. By tackling it from this angle, we might just bring a touch of fairness to the climate negotiations.

Conversations about climate change have historically centered around two concepts: mitigation and adaptation. These terms refer to actions that can be taken to reduce emissions and improve carbon sinks on one hand, and to lessen the impacts through adaptive measures. However, lately, these terms have become insufficient. The inevitable consequences of this global crisis are causing immense loss and damage, giving rise to a new buzz term in the arena of climate change negotiations.

After the 2022 Pakistan floods, it became clear that mitigation and adaptation measures are not progressing at the necessary pace. 1600 people died, and more than 33 million were affected , with economic estimations suggesting that Pakistan will need $16.3 billion to recover from the floods. COP 27 took place a few weeks after the floods receded. The Pakistani delegation arrived in Egypt in November 2022 as leaders of the Group of 77 and China and worthy representatives of the Global South. They had a clear mission and were best positioned to push for concrete and immediate actions.

Attendees at the COP could not deny the obvious: climate change is causing unprecedented loss and damage, and there is an urgent need to allocate funding to address both current and future disasters. A historic decision was made to provide “funding arrangements for responding to loss and damage associated with the adverse effects of climate change, including a focus on addressing loss and damage.”

However, this decision raised a series of questions left lingering once the news hype subsided. How much money is required to address loss and damage? Who should receive funding? And most importantly, who should bear the costs associated with climate change-related losses and damages? A transitional committee was tasked with operationalizing this decision and is expected to present a proposal at the upcoming COP 28, just two days from the time of writing this article.

Hopefully, the committee has acknowledged and considered a series of facts. Firstly, the undeniable evidence demonstrating that the global north bears a major responsibility for the climate crisis. This is not a recent finding, and calculations proving this have circulated since the early 2010s. Regardless of the approach, conclusions consistently point in the same direction. In an attempt to determine the accumulated historical causes of the climate crisis, economic anthropologist Jason Hickel established a method based on fair shares assigned to each country, relying on a global safe carbon budget. The study concluded that by 2015, the United States was responsible for 40% of the total excessive national CO2 emissions, and when adding the EU to this figure, the percentage rises to 69%. It also notes that the group of countries forming the G8 is responsible for 85% of excess emissions. From this historical perspective, using the concepts of the Global North (USA, Canada, Europe, Israel, Australia, New Zealand, and Japan) and the Global South (Latin America, Africa, the Middle East, and Asia), the former is responsible for 92% of the excess CO2 emissions, while the latter is responsible for only 8%. The author refers to these results as "atmospheric colonization." 

A recent estimation by Fanning and Hickel went a step further in attempting to quantify this responsibility, using the fair share proportion of emissions assigned to each country based on the 1.5/2°C limit and the emissions each has contributed to surpass it or not. They concluded that "almost 70% of the variability between countries in cumulative per capita GDP can be explained solely by differences in accumulated emissions relative to fair shares [...]. These findings support the view that countries exceeding their fair shares have tended to enrich themselves by appropriating more than what is fair." On the other hand, 59.6% of people affected by natural disasters in 2022 lived in Africa. The contrast between those responsible for causing the climate crisis and those who endure its consequences is glaringly evident.

From this perspective of climate justice and equality, another concept surrounding the climate crisis is not as widely known, yet rapidly gaining traction: the existence of a vicious cycle between public debt and climate change. According to the United Nations' report 'A World of Debt', public debt reached a new record of US$92 trillion in 2022, quintupling the amount from the year 2000, while the GDP only tripled. The report expresses concern about the reproduction of inequalities in debt, specifying that African countries incur debt at rates on average four times higher than the United States and eight times higher than Germany.

An IMF working paper published in 2020 suggested that vulnerability to climate change has a significant impact on borrowing costs, meaning countries facing higher climate vulnerability pay a higher interest rate when taking on debt. The same study points out that resilience to climate change has a significant cushioning effect on government loan costs. Therefore, more resilient countries obtain debt with lower interest rates compared to countries with higher vulnerability to climate change-related risks. In other words, wealthier countries have cheaper debt, while poorer countries face higher costs. The study concludes that the magnitude and statistical significance of these effects are greater in developing countries with weaker adaptive and mitigation capacities. This may partly explain the differences in interest rates between Africa, the United States, and Europe.

This "vicious cycle" between the climate crisis and the debt crisis can be explained as follows. High levels of public debt usually translate to limited fiscal space for social investment and climate adaptation. Simultaneously, it usually means intensive use of natural resources under low social and environmental standards in an attempt to earn foreign currency at a faster rate through commodities exports, leading to the destruction of natural ecosystems. Ecosystem services are lost, such as mangroves, which act as natural barriers for sea level rise, while carbon sinks are destroyed, compromising climate change mitigation. As a result, countries become less resilient and more vulnerable to climate change, and when a climate event occurs, there are significant consequences. In fact, more than 50% of the increase in debt in climate-vulnerable countries has been associated with financing for recovery and reconstruction after natural disasters. This comes as no surprise considering that borrowing costs are higher for climate-vulnerable countries.

But the paradox doesn't stop there. Several nations with unsustainable levels of public debt also intensify fossil fuel exploitation. In the case of Ecuador, for instance, the national government entered into loan agreements backed by future oil revenues. A similar situation is observed in Mozambique, where loans were secured against future revenues from gas exploration. 

Despite this, 72% of climate financing between 2016 and 2020 came in the form of loans, with only 26% being grants. The Transitional Committee has a unique opportunity to kill two birds with one stone. For example, and most importantly, climate funds for loss and damage should not be delivered as loans, as this will only perpetuate the debt crisis and therefore, the climate crisis. Additionally, the Committee should propose condoning public debt as a funding mechanism, as this will allow vulnerable countries to invest in adaptation and prepare them to confront future consequences of climate change. 

Decision-makers at COP 28 have a historic opportunity to forge international cooperation mechanisms that robustly address losses and damages, grounded in a climate justice approach. Breaking the vicious cycle between debt and the climate crisis is not just a step; it's a critical leap towards the Global North taking responsibility, and the Global South receiving due compensation for the adverse effects of climate change.

Note: This reflection is based on the final master's thesis that María Vallejo Salgado and Sebastian Silva Sepúlveda conducted within the Master's in Public and Social Policies from BSM-UPF (2021-2023). In this link, you will find the complete thesis. This thesis also won the 3rd prize for the Best Master thesis in the Social Responsibility, Ethics and Planetary Wellbeing category. Author contacts: [email protected] and [email protected].

[Disclaimer: The views and opinions expressed in this blog are solely those of the individual collaborators and do not necessarily reflect the official policy or position of our University or any organization we may be affiliated with]