Unlock the publisher's digest free
Roula Khalaf, editor -in -chief of the FT, selects her favorite stories in this weekly newsletter.
The writer is the chief economist of the German bank LBBW and co -chair of a group of independent experts on debt, nature and climate
Last year was once again a record for global temperatures. No matter what the occupant of the White House thinks, the world comes across a climate crisis. While the countries of China and the OECD are always the main greenhouse gas emitters (GHG), the world South quickly catches up. Sub -Saharan Africa and South Asia represent almost 60% of OECD countries emissions and, on current trends, will exceed 100% in the early 2040s. If emerging countries continue on the path of intensive carbon growth, the world climate battle will be lost.
However, it would be naive to expect them alone to significantly alleviate the imminent environmental disaster. Many developing countries are short of money and growing number run a high risk of debt distress. The rich world will have to support them to reduce emissions.
Unfortunately, the budgets are also tight in the world of world. Official Development Assistance (ODA) is retired not only in the United States, but across Europe.
However, waiting is not an option. GHG can linger in the atmosphere for many decades, even centuries. What matters more than any “zero net” date is the long -term GHG stock in the atmosphere. A ton of co₂ emitted today will contribute more to global heating than a ton issued in 2040. The reduction in aggressive loading emissions is petrol.
A coalition of the will should form a financial installation against climate change (F2C2) to mobilize private funds via the capital market. He would follow the successful example of the International Financial Installation for Vaccination (IFFIM). The receipts for the emission of F2C2 bonds would be dedicated to investments which would contribute to reducing the carbon footprint of beneficiary countries. Funds would be under concession to those who will use these resources to support development strategies in cooperation with official lenders. Alternatively, funds could lend without increase to private entrepreneurs in areas such as renewable energies, making attenuation investments more banable.
This is a plan tried and tested. Indeed, the obligations are supported by the commitments of the nations of the wealthy nations of future disbursements to cover the obligations of the debt service of the F2C2 obligations. This allows the necessary frontage of climatic expenditure in developing countries, while eliminating the short -term impact on donor countries' budgets – the burden is extended over many decades. If the F2C2 was to raise 1 TN and the reimbursement is extended over fifty years, the annual cost for donor countries would only be 10% of the amount of ODA granted in 2023. If F2C2 operates with less than 100% subsidies, as is very likely, the burden would be even less.
It is affordable, and it greatly contributes to contribute to The $ 1.3 t that developing countries need Each year to fight against climate change. It would also be economically effective, as the attenuation of emissions is often cheaper in poor countries than in the rich, where most of the low -collection emissions have been harvested.
The rating agencies would deal with the commitments to support F2C2 up to full faith and the credit of the sovereign nation which promises this promise. Consequently, F2C2 links will carry notes in the AA or even AAA range. The exact rating will depend on the size and composition of the commitments of the countries for future financing. We know how the rating agencies will analyze F2C2 because they have evaluated the titles issued by Iffim in this way and, on a much larger scale, also awarded AAA ratings to the European NextGenerationuu obligations. We can expect the F2C2 program to be taken by investors wishing to fill their books with really green and very well rated financial instruments.
It is true that F2C2 will push the financial burden of the fight against climate change in future generations of taxpayers from rich countries. Some may consider this right. The developed countries, since the beginning of the industrial revolution, have issued the share of the Lion of GHGs which still float in the atmosphere.
But whatever our feeling of intergenerational equity, there are few good alternatives. Time is exhausted and we must use all practical solutions. We cannot afford to wait for public finances to improve miraculously in rich and poor countries. Confronting climate change has become a priority to do or rupture requiring decisive and early collective action. F2C2 provides a framework that brings us closer to securing a viable future.
Climate capital
Where climate change meets business, markets and politics. Explore the FT coverage here.
Are you curious to know the commitments of the environmental sustainability of the FT? Learn more about our scientific targets here
