Climate change has become perhaps the most important threat to human development. Climate change has reduced development of vulnerable countries by at least 20%. The World Bank estimates that the effect of climate change could push an additional 100 million people below the poverty line by 2030. Additionally, the impact of extreme weather is resulting in $520 billion annual consumption losses and pushing some 26 million people into poverty each year. Climate change arguably has increased economic inequality between developed and developing nations by 25% since 1960 (Burke et al. 2019, Stanford University News)
Unfortunately, the larger economic impacts of climate change, particularly on post COVID recovery efforts of developing nations, has not featured well in the global economic debate. There is a level of silence and isolation of the subject of climate justice from the post COVID economic recovery efforts that must be dealt with. Particularly so when almost all African countries are struggling to deal with macroeconomic stability, settle their balance of payment deficits, stabilise their currencies and bring inflation within monetary policy levels. One of the pivotal constraints to this recovery efforts is the high debt-to-GDP ratios. The IMF forecasts Ghana’s debt-to-DGP ratio of 84.6% in 2022 with external debt-to-GDP ratio of 40.2%. Total public debt hit some GHC 391 billion as of end of first quarter of 2022
At the same time that Africa countries are saddled with huge public debt and challenging post COVID economic recovery situation, the World is running fast with the ambitions to cut greenhouse gas emissions to deal with climate change and transition to green development particularly in the use of renewable and low-carbon energy.
The question is what are the sustainable ways developing countries impacted by COVID and global economic recession and at the same time continue to be impacted by climate change can deal with their recovery? Increasingly, we see, as the case in Ghana, countries running to IMF for bail outs. Ghana is currently negotiating an IMF bailout Programme when the e-levy, a new domestic revenue interventions to reduce fiscal deficit is performing poorly.
The thrust of this article is to revisit climate justice and economic development debate and to invoke the principle of ‘polluter pays’ to make a case for development financing innovation that swap debt for climate. The fundamental argument is that if Africa is the least polluting continent but most impacted by climate change and that mitigation efforts increases burdens on public finance contributing to high public debts, then we need to see how we can negotiate our debt payments around climate mitigation financing. Therefore, the concept for debt for climate is fundamentally built on the notion of the polluter pay principle, which is the basis of environmental justice.
Before I return to the debt for climate proposal, it’s important to highlight the climate change phenomenon in brief.
According to the International Energy Agency, global carbon dioxide emissions from fuel combustion reached a new record of 36.3 billion tons (36.3 Gt) in 2021. Overall, greenhouse gas emissions fell 9% from 2019 to 2020, largely as a result of COVID-19-related lockdowns, which limited the use of motor vehicles (and in turn greatly reduced the emission of GHGs in vehicle exhaust). However, early data indicate that GHG emissions not only rose in 2021, but reached the highest global level yet recorded. Both coal and renewable power (wind, hydro, solar, etc.) rose to their highest recorded levels of consumption in 2021. China remains the world’s leading emitter followed by USA. Germany, the 6thhighest emitter of GHG globally leads EU’s emissions list.
Although annual emissions fell substantially as a result of COVID-19, global atmospheric concentrations of CO2 reached a record high in 2020, averaging more than 414 parts per million. The increased burning of fossil fuels – as well as deforestation and other human activities – has seen atmospheric CO2 levels increase massively in recent decades. CO2 is the primary GHG contributing to climate change. The other primary greenhouse gases generated by humans aside carbon dioxide (CO2) are methane (CH4), nitrous oxide (N2O), and the “fluorinated gases” such as hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride, and nitrogen trifluoride.
Despite the fact that Africa emits about 4% of GHGs, the continent remains the most vulnerable region: 7 out of the 10 world most climate vulnerable countries are in Africa and to date, Africa receives just 4% of global climate finance. The economic cost of climate change in Africa is very high, estimated as 7% of GDP (Africa Development Bank, 2021). According to UNEP (2016) adaptation costs are estimated to reach USD 140-300 billion by 2030 and 280-500billion by 2050s. In Africa, about USD 30 billion is invested annually on Adaptation by governments, development partners and private sector. Of these investments, only 1.6% (USD 500 million) came from the private sector. In Sub-Saharan Africa, the estimated funding gap for adaptation as at 2019 was about USD15 billion per year (World Bank, 2019) and this funding gap could reach as much as USD40 billion by 2050 (AfDB, 2020). Yet there is increasing evidence that investing in adaptation programmes will eventually yield positive economic outcomes. For example, from the Global Commission on Adaptation, investing $1.8 trillion globally in five areas from 2020-2030 could generate $7.1 trillion in total net benefits. Across five sectors, every $1 invested in adaptation generates a return between $2 and $10.
In spite of this, mitigation financing continue to outweigh adaptation financing even though African countries require more adaptation programmes to build their resilience to climate impacts. For example, the total multi-donor banks (MDB) mitigation finance in 2019 was US$ 46.6 billion (76% of the total commitments), while adaptation finance was US$ 14.9 billion (24% of total commitments). Creditably, the AfDB became the first MDB to allocate over half of its climate finance to adaptation.
Even though adaptation finance continue to grow, yet it is still far below the expected target. African countries need innovation in adaptation climate financing and debt for climate should remain a viable option to explore.
I will use Ghana as an example. Within Africa as the lowest continental contributor to GHG emissions, Ghana is only 11thcontributor of CO2 in Africa. Ghana emits 14,665 million tons of CO2 compared to South Africa and Egypt, the highest continental contributors emitting
451,957 and 213,457 million tons (Statista, 2000). Thus Ghana emits only 3.2% of what South Africa emits.
The provisional stock of public debt outstanding as at end of December 2021 stands at GHC 351,787 million (US$58,640 million) comprising external debt of GHC 170,009.8 million (US$28.339.2 million) and domestic debt of GHC 181,777.2 million (US$30,300.8 million). As a percentage of GDP, the debt-to GDP ratio was 80.1 percent at end of December 2021, up from the 76.1% recorded in 2020 APDR 2022)
For example, according to the 2021 APD Report, Ghana is indebted to Federal Republic of Germany (FRG) to the tune of GHC 1,819.9 million (USD 227.5 million) (refer to S/N 197 to 219, pp68, 2021 APDR). For France, Ghana’s indebtedness is about 1,786.2 million (US$223.3 million) (refer to S/N220-238, pp68, 2021 APDR). So for Germany and France alone as leading economies in the European Union who are also high GHG emitters, Ghana is indebted to the tune of US$450.8 million as of end of December 2021.
Ghana, under the Paris Agreement of the UNFCC, has committed to a Nationally Determined Contributions (NDCs) programme to contribute to the global GHG emission reduction to mitigate against climate change and its devastating effects. Under the NDCs, Ghana would need US$ 9.3 billion to invest in the 47 Nationally Determined Contribution programmes from 2021 to 2030, of which US$ 3.9 billion would be required to implement the 16 unconditional programmes over nine years. The remaining US$ 5.4 billion for the 31 conditional NDC programmes is expected to be mobilised from the public, international, and private sector sources and climate markets. Ghana will need an additional three US$ three million every two years to support coordination and the regular international reporting of the nationally determined contributions. So in effect, Ghana requires at least US 5.7 billion to implement its NDCs, even if our domestic programmes financing is able to cater for the US$ 3.9 billion unconditional programmes. At the same time, Ghana is in the process of developing its energy transition plan with the goal of a reaching at least 10% of renewable energy in its total mix require some 300 billion dollars to implement its plan over the next 50 years. This translates into about 6 billion dollars of annual green energy transition investment. Indeed many climate vulnerable countries, especially those developing, may be in the same situation as Ghana.
The question is, how would these climate vulnerable States, including Ghana, be able to meet their emissions reductions commitments against the backdrop of huge public debts? How would they be able to invest in programmes that will transition them to a more greener and low-carbon economy, implement their climate action programmes and cope with stranded high-carbon resources such as fossil fuel while saddled with over 70% of debt-to-GDP situation?
The specific proposal on the table is to invite bilateral debt-for-climate negotiations with developed countries to write off specific debts and request payments to be used by the indebted climate vulnerable country to finance specific negotiated country-specific climate adaptation projects. So for example, Ghana and Germany could develop a bilateral climate adaptation programme where Germany will write off Ghana’s USD 227 million debt for a specific negotiated adaptation programme to be financed by Ghana. In that sense, Germany can count the debt write-off as part of its global climate financing contribution under the Paris Agreement and the UNFCCC commitments. This innovation will be a practical step
towards climate justice, may accelerate the achievement of the global emission reduction target commitments whiles giving developing countries a breathing space to pursue their climate adaptation and green transition programmes with a significantly reduced debt burdens.
I invite a global debate on the subject matter and implore Governments of African nations and their Parliaments to debate the proposal and pass resolutions to request for the proposal to be tabled in the next COP17 and other international development meetings for debate and possible adoption.
BY DR EMMANUEL MARFO (MP)
[The writer is the Chairman, Committee on Environment, Science and Technology, Parliament of Ghana]
