Could this bold new plan be the solution to finance a global just transition?
One month on, it seems that COP27 is largely recognised as the summit which saw minimal action on reducing emissions but the first, long awaited, steps towards addressing the loss and damage imposed on many places by the Global North’s thirst for fossil fuels. While this represents tentative progress, the COP process seems to remain disconnected from the reality of accelerating climate impacts which hit every region of the globe this year. Science tells us that these impacts will continue to intensify without urgent action to reduce emissions from the burning of fossil fuels. We cannot wait for intergovernmental processes that are happening on timescales we do not have. So, what will it take to achieve a just and sustainable transition at a global level, and who will pay?
Barbados Prime Minister Mia Mottley, together with her Finance Envoy Avinash Persaud might have an answer. Their proposal is to overhaul global financial institutions to unlock the necessary climate finance to meet a 1.5°C target in a just and equitable way.
The Bridgetown Initiative, named after the Barbados capital, calls for a radical reform of the World Bank and the International Monetary Fund (IMF) to better address the current crisis. A recent report commissioned by the governments of Egypt and the UK shows that at least USD $1 trillion per year in external climate finance by 2030 needs to be mobilized for developing and emerging economies outside China. Meanwhile the standard borrowing costs for Global South countries on international markets can be as high as 12-14% - compared to 1 to 4% in G7 countries - which locks countries into a cycle of debt - accompanied by climate disasters - that is nearly impossible to break. Making the vicious circle even worse, when low income countries are forced to take on high interest rate debt following a climate disaster, it results in less funding being available for spending on public health, education and building resilience.
Global Tracked climate finance flows and the average estimated annual investment needed through 2050
Graph: Climate Policy Initiative
The proposal would defer interest surcharges, suspend all IMF debt payments for the poorest countries, and immediately make $100 billion available to low income countries. It calls for $1 trillion in low interest loans to support climate action and $650 billion in emergency liquidity. The initiative also calls for a tax on global oil and gas firms to help fund the reconstruction of developing countries after climate change events. And, it proposes that loan repayments should be paused after disasters hit.
The proposal is gaining international support, with President Emmanuel Macron and US Special Presidential Envoy for Climate John Kerry adding their voices to the call for reform.
Climate finance is an urgent issue for cities, especially in the Global South, where most urbanisation is expected to happen over the next 30 years. Urban areas face multiple risks, such as flooding, sea level rise, heat waves and air quality, and need funding to invest in adaptation. By taxing the fossil fuel industry, the Bridgetown Initiative would ensure that the polluter pays for the damage caused by rising global temperatures.
The guest editor of the previous newsletter, Francesco Mellino, discussed the inherent conflict between resilience and efficiency. He wrote that in order to be prepared for shocks - economic, social, environmental - there must be some level of excess capacity in the system to absorb them. The Bridgetown Initiative is a pathway to providing a significantly greater level of resilience for the global south, to be prepared for the next inevitable climate event that occurs, while loosening the grip of the debt of previous disasters.
The scale and speed of the climate crisis demands a solution to match. This proposal is one to watch.
What am I reading?
Still enjoying Herman Daly’s Economics for a Full World;
New read for the holidays: “Slow Horses,” the first book in the gripping Slough House series by Mick Herron
Wishing you a relaxed and restful holiday season!
Until next year,