Call for debt action amid fossil fuel dependency fears

Developed nations have been told they need to cancel the debt owed by southern nations if those countries were to have any chance to achieve net zero.

According to a report published yesterday by 35 organisations including ActionAid International, Friends of the Earth International, Oil Change International, the Asian People’s Movement on Debt and Development and Debt Justice, global south countries are trapped in relying on fossil fuel exploitation to generate revenue to pay debts.

Countries including Argentina, Uganda and Mozambique may find it impossible to phase out fossil fuels and transition to renewable, sustainable energy sources, unless this debt-fossil fuel trap is addressed, according to the authors.

For example, Argentina is committing to fracking in the Vaca Muerta oil and gas field in Northern Patagonia as a way to solve the country’s debt crisis and wider economic problems, backed by the International Monetary Fund (IMF).

The report found evidence of a debt-fossil fuel production trap whereby countries rely on fossil fuel revenues to repay debt, and anticipated revenues from fossil fuels are often overinflated and require huge investments to reach expected returns, leading to further debt, eroding long-term development prospects, and causing devastating environmental and human harms.

“Thus, not only do many fossil fuel developments in global south countries cause human and environmental harm, they also do not make economic sense and leave many countries financially worse off, further indebted and even more reliant on fossil fuel exploitation than they were before,” It added. “Global south governments will not be able to phase out fossil fuel production unless we address harmful debt levels and vulnerabilities and inequalities embedded within the existing debt and financial systems.”

Tess Woolfenden, Senior Policy Officer at Debt Justice explained:  “High debt levels are a major barrier to phasing out fossil fuels for many global south countries. Many countries are trapped exploiting fossil fuels to generate revenue to repay debt, while at the same time, fossil fuel projects often do not generate the revenues expected and can leave countries further indebted than when they started. This toxic trap must end.
“Global north countries must urgently cancel debts for global south countries to prevent further climate turmoil. The UK and US should also introduce legislation to compel private creditors to participate in debt relief so they can no longer delay negotiations for their own profits. There is no time to waste.”

“The climate and debt crises emerged from the same system that is based on the Global North’s relentless extraction of human, economic and environmental resources to feed the drive for profit and greed,” added Mae Buenaventura, debt manager at the Asian People’s Movement on Debt and Development.  “These mutually reinforcing crises are playing out in terms of lives lost and livelihoods eroded, not only for millions of people today, but also for generations yet to come. Surely, debt cancellation especially of fossil fuel debts, is the least that rich countries and lenders can do to repay the Global South, to make reparations and bring about restitution as a matter of justice.”

Arthur Larok, secretary general of ActionAid International concluded:  “Countries on the front lines of the climate crisis urgently need funds to cope with impacts and to scale up green technologies. But climate disasters are pushing vulnerable countries deeper into debt, trapping them in a vicious cycle that perversely drives investment in the fossil fuels that further accelerate the crisis. When it comes to climate solutions, debt cancellation is a low-hanging fruit that can restrain expansion of climate-harming industries, and free up much-needed finance in vulnerable countries.”