With her ambitious Bridgetown Agenda to reform the international financial architecture, Barbadian Prime Minister Mia Amor Mottley has become a powerful advocate for climate justice. But she is not the only world leader rising to meet the profound challenges we face today. A new generation of leaders from the Global South are making their voices heard.
Kenyan President William Ruto, for example, is forging a new path towards climate-positive growth in Africa: by taking advantage of its abundant natural resources and realising its green-manufacturing potential, the continent could supply the developed world with goods and services to accelerate the clean-energy transition. In Latin America, Colombian President Gustavo Petro has called for a new Marshall Plan to finance global climate action. And Luiz Inácio Lula da Silva, now in his third non-consecutive term as Brazil’s president, aims to tackle hunger, poverty, and inequality, promote sustainable development, and reform outdated global governance arrangements during his country’s G20 presidency in 2024.
After a decade of protectionism and fragmentation, these initiatives seek to build a global consensus around enacting sorely needed reforms. The post-Covid-19 world is currently experiencing what the G20 has called “cascading crises,” including a dramatic surge in energy and food prices, unmanageable debt burdens in the world’s poorest countries, and a record number of climate disasters. Developing countries need at least $1 trillion annually to make significant progress on the climate transition and to achieve their development goals. But the costs of inaction are even greater.
Our collective future hinges on a dramatic increase in funding, and the place to start is a levy on windfall revenues from fossil fuels. The global oil and gas industry’s revenues were around $4 trillion in 2022, according to Fatih Birol, the Executive Director of the International Energy Agency – an astonishing $2.5 trillion more than the average in recent years.
Where has this money come from? The short answer is consumers. Some of the world’s richest companies are raking in bumper profits from a cost-of-living crisis – largely fuelled by high energy prices – that has disproportionately affected the poor and vulnerable. The largest beneficiaries of this effective tax on the global economy have been petrostates, whose total export revenues, when complemented by the export earnings of countries like Canada, Australia, Iraq, and Iran, totalled almost $1 trillion in 2022.
The biggest of these countries, whose per capita incomes are among the highest in the world, are well able to pay a voluntary levy on their exceptionally high hydrocarbon-export revenues into a global fund for sustainable development.
It is fortuitous that this year’s United Nations Climate Change Conference (COP28) will be held in the UAE. Outlining his plan of action in July, COP28 president-designate Sultan al Jaber named “fixing climate finance” as one of its four pillars, arguing that “all forms of finance must be more available, more accessible, and more affordable.” Similarly, he has called on donor countries with overdue pledges to “show me the money.”
More than half of the contributions could go to the Loss and Damage Fund, which was agreed at COP27 but still has gained little initial funding, with the rest used as capital and grant funding for new facilities for climate mitigation and adaptation.
And the international community must use this levy to kickstart a wider financing programme for the developing world, based on the principle that rich, historically large polluters with the capacity to pay should contribute more to help poorer countries adapt to global warming. Not only should aid budgets be raised, but the International Development Association, the World Bank’s financing facility for the poorest countries, must also receive a generous replenishment next year.
Providing $90 billion in concessional finance for low-income countries is at the heart of the proposals from the economist N K Singh and former US Treasury Secretary Lawrence H Summers in their two volumes of reports to the G20, the first proposed ahead of the recent G20 summit in New Delhi. As they argue, the system of multilateral development banks (MDBs) must increase its overall capacity, which means tripling its annual commitments to $300 billion in non-concessional finance for middle-income countries.
As part of their proposals, which include recapitalisation of the World Bank itself, they favour the wider use of guarantees. High-income countries could and should provide such guarantees that will enable MDBs to borrow from capital markets on attractive terms.
Such initiatives, if properly managed, could mobilise private-sector lending, which is essential to meeting our climate objectives. And it is the combination of the levy and the use of guarantees that, if agreed at COP28, could be the platform for achieving $1 trillion in annual financial flows to developing countries by 2030.
Seventy-five years ago, under the original Marshall Plan, the United States lent $13.3 billion ($169 billion in today’s money) to Europe for its postwar reconstruction. It was a remarkable act of global leadership that helped secure decades of stable economic growth and international cooperation.
While today’s world and the crises it faces are very different, the scale of the response must be equally ambitious. Countries in the Global South are charting a way forward. Now, their rich counterparts in the Global North must step up and provide the necessary funding. The money is there, but we need the political imagination and will to use it, before the next crisis arrives. @Project Syndicate, 2023
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