Making money via climate financing

Climate change is a global problem which has no regard for national borders. Much must be done to deal with the causes and consequences of climate-related threats in the global north. Yet, addressing climate challenges is particularly complicated for the global south, due to resource constraints, and other simultaneously pressing needs of achieving economic development, and energy security.

As India and other emerging markets have begun ramping up emissions in recent decades, it has become clear that curbing climate change will require worldwide efforts. Several mechanisms have been created aiming to enable poorer countries make a green energy transition and contend with already unfolding climate related problems. Creating a ‘loss and damage’ fund for severely climate threatened countries like Pakistan at the international climate summit in 2022 is amongst the latest of these examples. Some meager resources have been made available to this fund, which is currently housed within the World Bank.

Aiming to help poorer countries use ‘leapfrog’ technologies to achieve development without further wrecking the environment has a bit of a longer history. At the Paris climate summit in 2015, developed countries took the seemingly impressive step of allocating $100 billion a year for poorer countries to battle climate challenges. However, rich countries seem to be grossly overstating and misrepresenting their climate finance contributions.

Around $353 billion is claimed to have been provided for climate finance from 2015 through 2020, including around $189 billion in payments made directly to poorer countries. However, according to analysis published last year by Reuters, which was undertaken jointly with Stanford University, more than half of this direct bilateral funding comprised of interest-based loans, rather than grants.

Japan, France, Germany and the US were amongst the nations which Reuters identified as reaping enormous economic benefits via efforts meant to allow the so-called ‘developing world’ grapple with climate change. While these wealthy countries provide climate funding to the lowest-income countries mostly via grants, such grants add up to less than half the amount of climate funding given to relatively better-off nations, in the form of interest-based loans.

Many countries still struggling to provide necessities for their citizens are thus being compelled to take on more debt to address climate-induced problems caused mostly by the highly industrialised world. Moreover, a significant proportion of climate finance seems to be flowing back to donor countries via loan and interest payments, and due to conditions being placed on the provided funds, such as the need to source services and products from companies within the donor nations.

It seems obvious that climate finance projects should either reduce emissions or help manage the effects of climate change. However, there is a lack of clear-cut parameters for what climate financing should look like. As a result, Japan, for instance, which was lending Egypt money for a new airport terminal that will enormously increase outbound flight emissions, was able to categorise this loan as a climate finance contribution. Japan was able to make this assertion due to its plans to install solar panels, use high-efficiency air conditioning and LED lighting for the new terminal building. Reuters also pointed out several other similarly ludicrous claims made by the US and European countries.

Thus, even though poorer countries are already facing the brunt of climate-related callousness by highly industrialised countries, these prosperous countries seem to have found other ways to exploit the global south. Foreign aid has long been used as a ‘carrot’ to entice poorer countries to undertake economic and trade-related reforms which benefit richer countries and help service debts. Climate financing, in its current form, has similarly been turned into an opportunity for richer countries to make more money.