Climate cash must not increase developing countries' debt

Oxfam has today warned that the $100 billion a year pledged by rich nations to help fight climate change could fail the poorest people, if recent moves to deliver climate cash as loans continue.

Oxfam’s report, Climate Finance Post-Copenhagen: The $100 billion questions, comes as UN climate negotiations re-open for the first time since last year’s summit in Copenhagen. Whilst recognizing the need for some limited cut-rate loans to help poor countries develop in a low carbon way, the international agency strongly opposes the use of loans to help communities adapt to climate impacts.

Oxfam’s concerns come at a time when it is becoming clear that a significant proportion of the first installments of climate cash, to be delivered between 2010 and 2012 will be loans not grants.

“At a time of economic emergency, when several poor countries are slashing critical health and education budgets to avoid a debt crisis, rich countries are considering saddling them with climate debt for a situation they did not cause and are worst affected by,” said Oxfam’s Senior Policy Advisor Antonio Hill.

“It’s like crashing your neighbor's car and then offering a loan to cover the damages,” he added.

The report lays out a clear road map for how rich countries can not only meet their $100 billion a year promise, but also double it by 2020 in line with actual needs. It suggests new and innovative sources from which to raise the cash, to ensure that governments do not raid it from existing and future aid budgets. These include:

• $100 billion a year from a global Financial Transactions or ‘Robin Hood’ tax on banks – a small tax of 0.05% that could raise $400 billion a year for health, education and climate change.
• $20-$30 billion a year through the creation of emissions trading programs for international aviation and shipping. This would cap the amount of carbon emissions that could be produced by these industries, then charge them for each unit of carbon used.
• $75 billion a year in fixed contributions from rich countries according to their historic responsibility for carbon emissions and ability to pay. This could be raised through the money from domestic emissions trading (or cap-and-trade) programs or taken from budgets currently used for subsidizing fossil fuels and carbon-heavy industry.
• $16 billion a year by 2012 from the IMF in the form of low-interest loans for low-carbon development. Using $120 billion of rich country Special Drawing rights (SDRs) as capital, ‘green bonds’ could be issued, raising $40 billion per year that can be made available as low-cost loans for clean energy investments in developing countries. Of the $40 billion loaned every year, the net transfer (or savings) benefiting developing countries is $16 billion.

The report also highlights the need for public sources of climate cash, to ensure the world’s poorest are not excluded from investments in their future. Whilst huge sums are needed from big business to create a global green economy, it is unlikely that companies will invest in small-scale projects with little or no financial return, designed to help poor people adapt to climate change, such as planting mangroves and developing irrigation systems. As 80 per cent of food produced in poor countries is grown by women farmers, relying on market forces to deal with climate impacts could pose grave threats to world hunger.

Oxfam is calling on negotiators in Bonn to deliver and report openly on climate cash in 2010. A clear framework for raising and doubling the $100 billion pledge in public money must be agreed by the Mexico summit in December this year.

“Rich nations failed to deliver in Copenhagen. Now they can inject a much-needed dose of trust back into the negotiations,” said Hill.

“Showing they are willing to put their money where their mouth is will go some way to healing the deep rifts forged at last year’s climate summit, as well as helping to alleviate the plight of those living on the front line of climate change,” he added.

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Download the report: Climate Finance Post-Copenhagen: The $100 billion questions