By Bassey Udo
Nigeria’s proposal for investments by African countries to tackle climate change to be used as a basis for the cancellation of their debts has been described as fresh thinking by senior American government officials in as Vice President, Yemi Osinbajo, explained the potential benefits for Nigeria and Africa.
Last week, Osinbajo tabled the Debt-For-Climate Swap proposal at different fora in the United States, including an event at the White House, saying the deal offers significant potential relief for African countries’ multi-billion-dollar debt burden from some of their foreign creditors.
Also, the VP made a proposal for a significant addition to conventional capital flows from public and private sources to Africa through greater participation in the global carbon finance market.
During his meetings with some top officials of the U.S. government immediately after the proposal contained in his speech at the Centre for Global Development on Thursday, the VP said the Debt-for-Climate swap, which he previously proposed, was publicly made first at the meeting.
The proposal, he explained, would be a very useful intervention and helpful if adopted for implementation, as it would significantly help reduce Africa’s debt burden, while advancing the international community’s climate change objectives.
Osinbajo described the idea as a Climate Change related financing instrument deserving global consideration, as it offers a win-win potential to both Africa and the international community.
Also, the VP pushed the idea of opening up the carbon market in Africa to allow African countries’ climate change actions to be adequately verified by the international community through the assessment by the appropriate verification institutions.
The VP expressed optimism that the proposal would receive adequate support and international buy-ins, specifically the DFC, to encourage effective participation of African countries in the international carbon market.
The DFC, he said, was expected to help solve many of the debt burdens by Nigeria and other countries in Africa.
In his response, the Administrator of United Stated Agency for International Development (USAID), Samantha Power, described the Vice President’s Debt-for-Climate proposal, as “fresh thinking that is very exciting.”
He said the U.S. government was open for further discussions on such new thinking, although it would require Washington’s full policy review for consideration.
Experts said under the DFC, sovereign debtors and international creditors would consider forgiving all or a portion of the multi-billion dollars external debts in countries like Nigeria in domestic currency in exchange for a firm commitment to invest in specific climate or energy transition projects over a commonly agreed period.
The general expectation has been that Debt-For-Climate swaps would cut down on the level of indebtedness and free up fiscal resources for investments in clean energy projects in Nigeria and other African countries that signed up for the programme once it’s accepted by creditor-nations.
In his speech at the CGD, Osinbajo explained that the “debt-for-climate deal” was a type of debt swap where bilateral or multilateral debts are forgiven by creditors in exchange for a commitment by the debtors to use the outstanding debt service payments for national climate action programmes.
“Typically, the creditor country or institution agrees to forgive part of a debt, if the debtor country would agree to pay the avoided debt service payment in a local currency into an escrow or any other transparent fund and the funds must then be used for agreed climate projects in the debtor country,” Osinbajo explained.
Justifying the rationale behind such a debt swap deal, the Vice President argued that the commitment to its implementation would “increase the fiscal space for climate-related investments and reduce the debt burden for participating developing countries.”
On efforts to boost greater African participation in the global carbon finance market, the VP also proposed a significant addition to conventional capital flows both from public and private sources to Africa.
“Currently, direct carbon pricing systems through carbon taxes have largely been concentrated in high and middle-income countries. However, carbon markets can play a significant role in catalyzing sustainable energy deployment by directing private capital into climate action, improving global energy security, providing diversified incentive structures, especially in developing countries, and providing an impetus for clean energy markets when the price economics looks less compelling, as is the case today,” he said.
He encouraged developed countries to support “Africa to develop into a global supplier of carbon credits, ranging from bio-diversity to energy-based credits,” which would be a leap forward in aligning carbon pricing and related policy around achieving a just transition.
While in Washington D.C., the VP held high level meetings with his American counterpart, VP Kamala Harris at the White House, the US Secretary of the Treasury, Janet Yellen, and the USAID Administrator, Samantha Power.
He also held an interactive session with a group of Nigerian staff members of the World Bank and the International Monetary Fund (IMF) prior to CGD event.