A Debt-For-Climate (DFC) Swap arrangement, proposed by Vice President Yemi Osinbajo, has the potential to considerably advance global net-zero emission ambitions, ease access to energy, and improve the development of African nations.
In a lecture on a just and equitable energy transition for Africa at the Center for Global Development in Washington, D.C., Osinbajo explained DFC, stating that the idea is that creditors will forgive bilateral or multilateral debt in exchange for a promise from the debtor to use the unpaid debt service payments for national climate action programs.
Usually, a creditor nation or organization will agree to forgive a portion of a debt in exchange for the debtor nation paying the saved debt service in local currency into an escrow account or other transparent fund, which must subsequently be used for pre-approved climate projects in the debtor nation.
The Vice President argued that committing to such a debt swap deal would boost the budgetary space for climate-related expenditures and lessen the debt load for taking part emerging countries.
“The swap can be structured to count as a component of the creditor’s nationally determined contributions (NDC),” he said.
The professor underlined important legislative changes required to make it acceptable and sustainable in order to make this efficient. As he looked into financing alternatives for the energy transition, he suggested that African nations participate more actively in the global carbon market.
He claims that in order to effectively work together to achieve shared objectives, it is important to take a comprehensive approach that considers both the market and environmental potential provided by the financing of clean energy assets in expanding energy markets.
“African participation in the global carbon financing market must be expanded in addition to traditional capital flows from public and private sources.
The majority of countries with direct carbon pricing schemes through carbon taxes today are high- and middle-income nations. However, by directing private capital toward climate action, enhancing global energy security, offering diversified incentive structures, particularly in developing countries, and providing an impetus for clean energy markets when the price economics looks less compelling – as is the case today, he continued, carbon markets can play a significant role in catalyzing the deployment of sustainable energy.
Osinbajo urged developed nations to help Africa become a major provider of carbon credits, ranging from bio-diversity to energy-based credits, as this would further the alignment of carbon pricing and related policy toward ensuring an equitable transition.
African and other developing nations have concerns about a just transition, the don said. “The central thinking for most developing countries is that we are confronted with this issue of a just transition with two, not one, existential crises — the climate crisis and extreme poverty,” he said.
The obvious corollary of this reality is that, in order to combat poverty, our plans and commitments to achieve carbon neutrality must also include detailed strategies for energy access. Access to energy for both consumption and production, encompassing electricity, heating, cooking, and other end-use industries, is included in this.
Follow our socials Whatsapp, Facebook, Instagram, Twitter, and Google News.
