Debit-Fossil Fuel Trap report shows that Global North-imposed debt is locking the Global South into fossil fuels.
What is the report findings?
Debt-Fossil Fuel Trap report has been released by the anti-debt campaigner’s Debt Justice and partners.
Global South- Global South is a term used for developing, less developing and underdeveloped countries, located in Africa, Latin America, and Asia.
Global south countries are currently spending 5 times more on repaying debt than they are on addressing the impacts of the climate crisis.
Increase debt- The revenue from fossil fuel projects are often overinflated and require huge investments to reach expected returns, leading to further debt Revenues from such projects.
External debt payments- The money borrowed from richer countries, or multilateral creditors like the World Bank and IMF, or private lenders such as banks has risen by 150%.
Cut on public expenditure- Around 54 countries are in a debt crisis, they had to cut public spending during the pandemic to repay loans.
Climate change-Extreme weather events force countries to borrow more money for adaptation and mitigation efforts.
For example Dominica’s debt as a percentage of GDP rose from 68% to 78% after Hurricane Maria hit the island in 2017.
Extract fossil fuel - It is seen as a means to generate revenue and to reduce debt for countries in the global south
Argentina- It supports fracking in Vaca Muerta oil and gas field in Northern Patagonia to ease the debt crisis.
This project is also backed by International Monetary Fund.
Saviour of foreign currency- Through this foreign currency could be saved by supplying oil and gas domestically while additional foreign currency can also be generated.
Environmental catastrophe- Fracking is a drilling method used to extract oil or natural gas from deep in the Earth’s surface.
It leads to greenhouse gas leak like methane, air pollution etc.,
Huge investment- It requires large-scale investment of investment for Argentina.
The country’s strategy to reduce debt may end up adding to debt levels without generating adequate revenue to repay.
External support- Despite many assurances, to stop investing in fossil fuels in global south countries, richer countries have financed fossil fuel projects.
The financing is done through loans, adding to debt burdens and keeping countries locked in fossil fuel production.
Resource backed loan-It is a loan contract in which the repayment is made
Directly in natural resources such as oil and minerals.
Resource-related future income stream.
It is guaranteed by a resource-related income stream.
Collateral natural resource asset.
Example- In Surinam, creditors are entitled to 30% of oil revenue until 2050, incentivizing continued oil exploitation.
What are the key recommendations of the report?
Ambitious debt cancellation- Implement comprehensive debt cancellation for countries in need, across all creditors, free from economic conditions.
Transition to clean energy- Encourage the adoption of clean and renewable energy sources to reduce dependency on fossil fuels.
Government support- Wealthy governments and institutions should play a role in supporting countries to exit the debt-fossil fuel trap.
Sustainable Development- Promote sustainable development strategies that prioritize environmental protection and economic stability.
SDG 7- Ensure access to affordable, reliable, sustainable and modern energy for all.
Curb external support- Bilateral and multilateral finance should be aligned with a 1.5-degree warming scenario and fair shares calculations, and not be used to finance fossil fuels.
Climate finance- There is a need to scale up grant-based, new and additional public climate finance that fosters environment and social sustainability.
