IPCC report: what does it say about debt and climate finance?

Climate justice requires debt justice. Communities and activists have been saying this for years. Decision-makers in the global North have refused to listen. 

Now, the latest report of the Intergovernmental Panel on Climate Change – over 3,000 pages, authored by 270 leading climate scientists appointed by 67 countries, referencing over 34,000 reports – has recognised that addressing unsustainable debt is central to responding to the climate crisis. 

The report recognises that debt undermines countries’ ability to invest in climate change adaptation. This creates a vicious circle, where lower-income countries’ inability to invest in adaptation exposes them to ever greater harm from climate disasters (often referred to as “loss and damage”), driving them deeper into debt to pay for reconstruction. 

As the report points out, The total external debt servicing payments combined for 44 African countries in 15 2019 were USD 75 billion (World Bank, 2018), far exceeding discussed levels of near-term climate finance”. 

A threat to life on earth  

In the sober language of scientists, the report paints an alarming picture of the impacts of human-induced climate change for the future of life across every corner of our planet. In the words of UN Secretary-General Antonio Guterres, it is “an atlas of human suffering and a damning indictment of failed climate leadership.”  

The impacts of the climate crisis are already more severe than was previously understood, including flooding, storms and extreme heat. And the inadequacy of our response means that the impacts are already guaranteed to get worse in the short term.  

Unequal impact 

The devastation of the climate crisis will be felt most intensely in lower-income countries that have done least to cause it. Around 3.3 to 3.6 billion people live in areas that are highly vulnerable to climate change. The report estimates that climate change will drive 35-132 million more people into extreme poverty in the next 10 years. 

The IPCC report recognises that vulnerability is exacerbated by inequality and marginalisation based on “gender, ethnicity, low income… especially for many Indigenous Peoples and local communities.” It also recognises that climate vulnerability caused by this inequality can be traced back to “historical and ongoing patterns of inequity such as colonialism”. 

Disputes on language 

While a consensus was reached among authors on the impacts of the climate crisis, there was a tussle over what language should be used to refer to this. While “loss and damage” is commonly used to refer to the harmful impacts of the climate crisis, Western governments have worked hard to avoid this term as it means acknowledging that some impacts are now unavoidable, and they do not want to become liable and have to compensate for them. Eventually, the authors settled on using the term “losses and damages”, but this was not without a strong fight from the US who opposed the whole concept. 

The failures of climate finance 

The report demonstrates that one of the biggest hurdles to adaptation is insufficient access to climate finance – that rich countries are simply not providing enough climate finance to help lower-income countries adapt to a rapidly changing climate. Indeed, the majority of climate finance goes to mitigation, where it is easier to generate profit. Most climate finance comes as loans, exacerbating the debt crisis. The IPCC scientists note that “African countries expect grants rather than debt because loans add to already high debt levels that exacerbate fiscal challenges, especially given the debt crisis emerging out of COVID-19″. 

Climate vulnerability and debt  

This unequal impact of the climate crisis leads directly to the unequal impact of debt. Without adequate climate finance, countries must borrow, and increasing indebtedness makes it harder for them to respond to the intensifying impacts of the climate crisis. They are punished for their climate vulnerability by higher interest rates when they borrow – the report observes that “Rising climate vulnerability has also been shown to increase the cost of debt”.  

The IPCC highlights that small island states, in the firing line of increasingly devastating hurricanes and other climate-related extreme events, are acutely exposed to this climate-debt trap. As small island states plunge ever more resources into adaptation and reconstruction, they can “face mounting costs of climate change with eroding capacities and resources to address loss and damage”. 

The need for debt relief  

The IPCC report recognises the urgent need for debt relief, and the shortcomings of the G20 Common Framework and Debt Suspension Initiative, which have not required the participation of private creditors, nor been open to many of the most climate vulnerable countries. Indeed, the IPCC sets out how these schemes could be improved by being tailored to address the climate crisis based on nationally-led ownership.  

The role of private creditors – a loss of nerve? 

It is when the report comes to the role of private finance that the limitations and contradictions of rich countries’ intergovernmental consensus become apparent. The IPCC scientists recognise the harm of private lending deepening the debt trap facing climate vulnerable countries. For example, in the case of cities taking on municipal debt in the form of green bonds, the IPCC accepts that this can “intensify the financial and environmental risks borne primarily by the poor, the working class, or people discriminate[d] against because of race, sexual orientation, or ability”. 

Yet the report returns to the orthodoxy that private sector debt issuance could provide finance to address the climate crisis. The same companies that have to a large degree caused the climate crisis are encouraged to continue profiting from it by lending at interest to the countries that are suffering the effects.  

Having amassed a powerful case for the countries responsible to compensate lower-income countries for the harm they are experiencing, the report retreats to advocating more of the same: exploitative lending that will deepen the poverty and injustice described. 

Nevertheless, it is an important step forward for the IPCC to acknowledge the role of debt and the failure of rich countries to provide climate finance. Governments, banks and multilateral institutions in the global North need to listen up and act – the global South is already experiencing devastating loss and damage from the climate crisis, and piling on more debt will only deepen the harm. There is no alternative to climate and debt justice: we need to cancel unjust debt and pay for the harm we have caused. 

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