Vice President Yemi Osinbajo has proposed a debt-for-climate (DFC) swap deal that could significantly advance global net-zero emissions goals, facilitate access to energy and develop African countries.
Explaining DFC at a conference on Just and Equitable Energy Transition for Africa, at the Center for Global Development in Washington DC, Osinbajo said the concept is one where bilateral or multilateral debt is forgiven by creditors in exchange for a commitment by the debtor to use outstanding debt service payments for national climate action programs.
“Generally, the creditor country or institution agrees to cancel part of a debt, if the debtor country would pay the service of the avoided debt in a local currency into an escrow or other transparent fund, and the funds must then be used for agreed climate projects in the debtor country”.
Justifying the rationale for such a debt swap agreement, the Vice President argued that the commitment in this regard would increase fiscal space for climate-related investments and reduce the debt burden of participating developing countries.
His words: “For the creditor, the swap can be made to count as a component of its Nationally Determined Contributions (NDCs).”
To make this effective, the professor noted the significant political actions needed to make it acceptable and sustainable. He proposed greater participation of African countries in the global carbon market while exploring financing options for the energy transition.
According to him, it is necessary to adopt a holistic approach by working jointly towards common objectives, including the commercial and environmental opportunities presented by the financing of clean energy assets in growing energy markets.
“In addition to conventional capital flows from public and private sources, it is also essential that Africa can participate more fully in the global carbon finance market.
“Currently, direct carbon pricing systems through carbon taxes are largely concentrated in high- and middle-income countries. However, carbon markets can play an important role in catalysing the deployment of sustainable energy by channeling private capital into climate action, improving global energy security, providing diversified incentive structures, especially in developing countries and boosting clean energy markets when price economics seem less favourable. compelling – as it is today,” he added.
Osinbajo encouraged developed countries to help Africa become a global provider of carbon credits, ranging from biodiversity to energy credits, which would be a leap forward in aligning carbon pricing and related policy around of a just transition.
Responding to the concerns of African countries and other developing countries about a just transition, the donation noted: “The central thought for most developing countries is that we are faced with this question of a just transition with two crises existential, not one – the climate crisis. and extreme poverty.
“The clear implication of this reality is that our plans and commitments to carbon neutrality must include clear plans on energy access if we are to tackle poverty. This includes access to energy for both consumptive and productive use and covering electricity, heating, cooking and other end-use sectors.