Rich Countries’ Climate Pledges: Climate Credits Often Worsen Debt Crises

Industrialized countries provided 65 percent of climate financing to low-income countries in the period 2021 to 2022 in the form of loans. This is shown by the Shadow Report on Climate Finance, published on Monday by Oxfam and the Care Climate Justice Center.

In climate finance, it concerns legally binding payments that industrialized countries make to low-income countries to cope with the climate crisis. These Global South countries are particularly affected by the climate crisis, even though they contributed little to it.

According to the study, the loans are still rarely granted on concessional terms. “For the rich countries, providing support is also a business model that traps the Global South countries in a debt cycle and generates profits for the donor countries. This exacerbates global inequality further,” says Jan Kowalzig of Oxfam, co-author of the report.

The total debt of the affected countries currently amounts to 3.3 trillion US dollars. In 2022, low-income countries received climate loans totaling 62 billion US dollars, which obligate repayments of 88 billion US dollars.

Concern About Declining Climate Finance

According to the latest publicly released figures, climate finance in 2022 totaled around 95 billion US dollars. The report estimates that the sum will fall to below 80 billion US dollars next year, as industrialized countries worldwide plan to massively cut development aid.

Germany has also cut its development cooperation funds this year by almost one billion euros and plans further cuts. However, Germany usually still provides loans on concessional terms.

In light of the UN Climate Conference in November, Oxfam and Care call on rich countries to raise support until 2035 to an annual 300 billion US dollars as agreed last year and to base it on grants rather than loans. As additional sources of revenue, they propose taxing the super-rich and the fossil fuel industry.