Loans, not Grants: The Problem with Climate Aid to the Global South

Behind the disparity in climate aid and the needs of the Global South, there lies a series of summitry, unkept promises, and downright injustice. Global Environmental Governance is extremely complex and hard to navigate, countries have developed many contradicting alliances, and there is an overwhelming list of international organizations and NGOs involved. However, the current system of yearly summits is simply smoke and mirrors concealing a lack of action. The few agreements put in place make it seem that the Global South is receiving a lot of aid, when in reality the situation on the ground is not changing and governments are getting buried in debt.

Imagine this: a small seaside village in Haiti, where the average person emits less than 0.3 metric tons of CO2 (World Bank 2019). Across the Caribbean, in large coastal cities in the United States, the average person emits over 14 metric tons of CO2. Then, a climate disaster hits. The rising carbon emissions from US cities contribute to abnormal weather conditions that destabilize the climate in the Caribbean Sea. The village in Haiti is struck with a drought and all of its crops die. Then, there is an extremely aggressive hurricane which destroys housing, schools and clinics. The people are homeless and starving. After a few weeks, NGO response teams and emergency government funding arrives, and they manage to feed the population and get things up and going once again. However, the aid is not enough to build better infrastructure that would protect the village against catastrophe from future natural disasters. A local businessman wants to establish a factory, but he is unable to do so because that would increase CO2 emissions. 

A few months later, disaster strikes again with the impact of another hurricane. This time the NGOs and the government take longer to arrive. A teen starts packing her bags and she makes plans to move abroad. Her family is left behind to pay taxes, which will not go towards improve their situation, but rather towards paying back a loan to the US for all the work that was done in the first hurricane. Meanwhile in the US, a young executive puts away his copy of a newspaper that reads: Groundbreaking US-China Deal at the COP Summit. “I’m glad things are moving along” the executive thinks to himself.

Loans, not Grants

Roughly 80% of the climate ‘financing’ provided by developed nations comes as something other than a grant (Oxfam International 2020). The highly reported numbers of aid around $80 billion USD may be as low as $22 billion USD in net aid. This is especially disappointing considering that in 2009 the aforementioned ‘global north’ bloc promised $100 billion USD in climate aid to developing countries at the COP15 in Copenhagen (OECD 2022). This promise has never been met.

Putting the $100 billion USD pledge aside, there is reason for concern over the current structure of climate aid, especially for the Least Developed Countries (LDCs), the most vulnerable of the ‘global south’. Development loans tend towards “massive debt accumulation” and rarely help these countries accomplish their goals (Clements, et al. 2004). That money is often used to buy supplies from the lending countries and these countries need to pay it back with interest. From this setup, however, very little new infrastructure is built, and aid recipients rarely lower their carbon emissions or successfully adapt to the effects of climate change.

Mitigation, Adaptation and Loss and Damage

Climate aid is classified into three categories: aid for mitigation, adaptation, and loss and damage. Aid for mitigation is geared to help countries reduce their carbon emissions. Adaptation are funds that help countries adapt to overcome climate catastrophes. Finally, there is loss and damage, which strives to repair the damage after there is a major climate catastrophe. Most aid had been directed towards mitigation, but following COP21 in Paris, there was a shift to adaptation. When the G77 and the LDCs started requesting aid for Loss and Damage, some of it was reclassified from adaptation aid budgets. This caused great uproar among the Global South because, despite the growing losses caused by the emissions of the “Global North”, the net aid remains low.

Loss and Damage has become the issue where the Global North and South disagree the most. Advanced economies have historically emitted almost all carbon emissions, and those emissions are causing the climate disasters in low-emmission developing countries. For reference, developing countries and LDCs only emit 12% of per capita carbon emissions, while Umbrella Group and EU economies emit 43.5% and China alone emits 44.5% (International Energy Agency 2022). Those countries that emit 12% now claim that there should be a legal obligation to compensate them every time there is a climate disaster caused by the other 88% emissions.

The Tax Man and Anarchy

There is no perfect solution. Diplomats from the Umbrella Group can keep trying to pledge support, but domestic pressures in their countries will keep those pledges from being fulfilled. The US is about to hit its debt-ceiling once again and there is consistent pressure to reduce spending (Associated Press 2023). Voters in these high-carbon emitting countries do not feel particularly responsible to come to the rescue with their tax money every time there is a climate disaster in the Global South. Global South countries have almost no way of pressuring the Global North to provide aid, as they have no international legal obligations to do so. Some would argue that the current treaties and frameworks already imply a legal obligation, but in an anarchic system, there is no way to force compliance.

Sources

Associated Press in Washington. 2023. US could face default as soon as June if debt ceiling isn’t lifted, says thinktank. February 22. Accessed March 2023. https://www.theguardian.com/business/2023/feb/22/us-debt-ceiling-default-congress.

Clements, Benedict, Sanjeev Gupta, Alexander Pivovarsky, and Erwin R. Tiongson. 2004. "Foreign Aid: Grants versus Loans." International Monetary Fund. September. Accessed March 2023. https://www.imf.org/external/pubs/ft/fandd/2004/09/pdf/clements.pdf.

International Energy Agency. 2022. CO2 emissions per capita by region, 2000-2021. October 26. Accessed March 2023. https://www.iea.org/data-and-statistics/charts/co2-emissions-per-capita-by-region-2000-2021.

OECD. 2022. Climate Finance and the USD 100 Billion Goal. July. Accessed March 2023. https://www.oecd.org/climate-change/finance-usd-100-billion-goal/.

Oxfam International. 2020. True value of climate finance is just a third of that reported by developed countries. October 19. Accessed March 2023. https://www.oxfam.org/en/press-releases/true-value-climate-finance-just-third-reported-developed-countries.

United Nations Climate Change. n.d. Parties & Observers. Accessed March 2023. https://unfccc.int/parties-observers.

—. n.d. Proposal to amend Annexes I and II to remove the name of Turkey and to amend Annex I to add the name of Kazakhstan. Accessed March 2023. https://unfccc.int/process-and-meetings/the-convention/history-of-the-convention/proposal-to-amend-annexes-i-and-ii-to-remove-the-name-of-turkey-and-to-amend-annex-i-to-add-the-name.

World Bank. 2023. World Development Indicators. Accessed April 2023.

https://databank.worldbank.org/source/world-development-indicators