The Climate Crises and High DebtLevels in the Pacific: Who Will Pay?
Adam Wolfenden is the Deputy Coordinator and lead for the Trade and Debt campaign for the Pacific Network on Globalisation, a Pacific Islands non-government organisation.
As Fiji and neighbouring Pacific Island Countries face the daunting prospect of dealing with unprecedented national debt levels and the effects of climate change, the issue of how climate action will be financed becomes central.
The head of the United Nations climate body, Simon Stiell recently summarised the situation, “it’s hard for any government to invest in renewables or climate resilience when the treasury coffers are bare, debt servicing costs have overtaken health spending, new borrowing is impossible and the wolves of poverty are at the door” however adding that a “quantum leap in climate finance is both essential and entirely achievable”.
Amidst the unfulfilled moral obligation from developed countries to pay for what they have created, the eye-watering amounts forecast to help adapt and mitigate the effects of climate change require genuine financing solutions.
The path forward on climate financing however remains fraught with false ‘new’ marketbased solutions, such as green/blue bonds, being heavily promoted as viable options for generating finance.
WHAT IS THE COST OF CLIMATE MITIGATION AND FINANCING?
Fiji is already experiencing the impacts of climate change, with villages like Vunidogola and Tukuraki just some of those dealing with climate impacts, which are unfortunately going to get worse.
To enhance its capacity to withstand these climate hazards, Fiji conducted a vulnerability assessment in 2017 that led to the identification of 125 interventions, such as preserving key ecosystems, risk-informed land use and climate proofing its infrastructure.
According to the government’s own climate vulnerability assessment, FJ$9.3 billion (almost the entirety of Fiji’s GDP) of investments, plus another FJ$220-500 million of recurring operational and maintenance costs will be required over the next 10 years in order to build up Fiji’s resilience against climate change and natural hazards.
Aside from its adaptation plans, Fiji has also embraced ambitious climate mitigation targets and goals to achieve net zero annual Greenhouse Gas emissions by 2050.
In line with this objective, 100% of national electricity production should be derived from renewable energy sources by 2030, its transport sector de-carbonised, and its natural carbon sinks and reservoirs enhanced.
Concretely, to get to the 2030 mitigation targets alone will cost Fiji US$2.9 billion, according to government estimates.
The Government has stated “this is an exorbitant financial challenge compounded by competing adaptation and disaster risk challenges... all of which are exacerbated by the
COVID-19 economic crisis” and its aftermath on fiscal and debt sustainability.
To get to electric vehicles penetration rate of 70-100% under the “high ambition” and “very high ambition” scenarios will cost Fiji approximately between US$5.2 $7.3 billion.
DEVELOPMENT PRIORITISATION WITHIN A CLIMATE FINANCING STRATEGY
Given the significance of the work that needs to be done and the money required to implement, there is an urgent need for an updated national climate finance strategy to address the central question on how climate actions should be optimally financed, and for developing a framework to prioritise such actions.
Further, it must take on board the economic considerations of these climate actions. It is essential to integrate a “development case” approach to discern which climate actions are financially viable and economically impactful.
Understanding the full economic impact of these actions, including the implications for development, fiscal health, and debt sustainability, is crucial for informed decisionmaking in climate action planning.
Given the profound economic and financial costs of climate action, a centrepiece of the climate finance strategy should be greater advocacy for more non-debt creating grants and highly concessional funding, for Pacific Island Countries like Fiji.
This will ultimately realise international requirements clearly set out by the United Nation on the bases of equity, international cooperation and the realisation of globally agreed Sustainable Development Goals (SDGs).
HIGH EMITTING “DEVELOPED” COUNTRIES NEED TO PAY FOR CLIMATE FINANCING
The data is very clear where the culpability lies in relation to who is historically responsible for the current climate crises, indeed only twenty-three developed countries are responsible for half of all manmade carbon emission on record, including regional partners like Australia and New Zealand.
Given this, there is a moral obligation on these major emitting countries to financially foot the bill for the climate responses in Pacific Island countries.
There have indeed been promises by such countries before, including the 2009 commitment to mobilise US$100 billion a year to help cut emissions and adapt, however very little has actually been delivered.
Oxfam has reported that even the figures that are reported by developed countries are often inflated by overstating climate benefits and taking loans at their face value.
Unless much more non-debt creating finance is made available to climate-vulnerable developing countries, they will be forced to rely on expensive, unsustainable loans to finance their response.
The debt crisis must be resolved to meet the climate challenge, and a larger share of climate finance should be disbursed as grants.
THE FALSE NEW MARKET CLIMATE FINANCING SOLUTIONS
To make matters worse, countries with higher climate risks, particularly for Fiji and other Pacific Island states will pay higher rates of interest to access finance on account of their vulnerability.
This is not helped by the push to get developing countries to issue more green bonds or other climate related bonds.
Such instruments have been touted by International Monetary Fund (IMF) staff as “one of the most important financial breakthroughs in the domain of
sustainable finance during the last 15 years”.
A Government bond is an instrument issued to raise money from investors, leaving the State to pay back an agreed amount across the bond’s lifespan.
Despite the hype of new instruments like ‘green’, ‘blue’, or ‘sustainable’ bonds, there is little evidence that they work.
In coloured bonds there is an expectation that there is a ‘greenium’ - a benefit for governments from borrowing at lower costs because investors are happy to trade off a higher return, because they like what the bond is being used for. Based on the limited research however the evidence for there being a greenium appears to be ambivalent at best.
Several studies, and Fiji’s experience with its Green Bonds, appear to show that the rates aren’t meaningfully lower, especially when compliance and issuance costs are included.
The recent issuance of ‘Blue Bonds’ by Fiji also raises questions about the costs and benefits when they are similarly priced to regular bonds but compliance costs are additional (even though these appear to be covered by the UK in this instance).
THE RIGHT DISCUSSIONS NEED TO HAPPEN IN THE PACIFIC
Moving forward the discussion on climate financing must be grounded in a clear assessment of the impacts of the actions being undertaken, the effects these will have across sectors and the wider development strategy and debt position. Pacific Island countries including Fiji must clearly define the relationship between climate financing and debt, in order to hold to account and make sure the honouring of climate funding promises from developed countries.
This should be coupled with an automatic mechanism for debt payment moratorium and comprehensive restructuring in the wake of external catastrophic shocks, and only borrowing at market rates if the benefits are clearly defined, achievable and, from the outset, measures are in place to ensure that they materialise.
These concerns and more have been outlined in the Debt White Paper produced by the Pacific Network on Globalisation and the Third World Network yet these are long and ongoing conversations that need to continue to happen. Fiji must ensure that its leading role in responding to the challenges of climate change continues by ensuring that the development and debt dimensions are not ignored in the discussions and negotiations on climate financing.