New Global Financial Pact takes small steps towards climate justice

Heads of state and civil society representatives committed on Friday (23 June) to work towards a “fundamental reform” of the international development aid framework, agreeing on several measures to aid the green transition – but fell short of commitments on international carbon taxation.

Leaders gathered at the Summit for a New Global Financing Pact, held in Paris on Thursday and Friday, to discuss financing for Global South development aid and the climate transition.

“No country must be left to choose between poverty reduction and fighting against climate change,” said French President Emmanuel Macron, who co-hosted the summit with Barbadian Prime Minister Mia Mottley.

Participants committed to a roadmap to scale up actions for ‘debt distressed’ countries, by increasing the financing firepower of both public and private institutions for low-income nations and pausing debt repayments in case of climate disasters.

The summit “broke taboos” and achieved a high representation of the countries most vulnerable to climate effects, said William Ruto, president of Kenya.

“For the first time ever, as we leave Paris, we have agreed that we have to rethink [the entire international financial infrastructure],” he added.

While all welcomed the summit as a way to renew international financing, which experts claim is needed at a scale of $4 trillion every year, they failed to unify around the implementation of an international carbon tax and stressed that the reform urgently needed to translate into concrete steps.

Summit for a New Global Financing Pact: What it is and why it matters

Paris will be hosting a one-of-a-kind ‘Summit for a New Global Financing Pact’ on 22-23 June, in an effort to secure financing for Global South development aid and climate transition, and enshrine the need for a review of multilateral institutions.

World Bank announces new ‘crisis preparedness’ toolkit

Following months of technical conversations, World Bank chief Ajay Banga, in post for only three weeks, announced an “expanded toolkit for crisis preparedness” and response.

The kit includes the complete pausing of debt repayments for a minimum of two years and a ‘new rapid response’ option to repurpose lending facilities when a country is hit by a climate-related disaster, alongside new ‘climate resilient debt clauses’ and insurance policies.

This follows an explicit demand by Mottley, who slammed the current system as one that penalised countries most impacted by climate change, which focused their spending towards debt servicing rather than economic development.

Special drawing rights – ambitions on the up

In conjunction with the International Monetary Fund (IMF), world leaders called on richer countries to reallocate 40% of their special drawing rights (SDRs) to poorer counterparts, up from the previous target of 30%.

SDRs are a monetary instrument that act as international liquidity reserves, from which IMF member countries can benefit. However, the amount allocated to each country is determined in part by the size of its economy: the richer the country, the more SDRs it can claim, while poorer countries can only access a small portion of SDRs.

In 2021, leaders committed to reaching $100 billion worth of SDR reallocation, which was achieved on Friday for the first time.

It is time “we lift our ambitions”, IMF director Kristalina Georgieva said at the summit, stating that the ‘future of humanity’ is at stake.

Hesitations on carbon tax and shipping levy

“There is no flying chance that we will meet the 1.5°C target with no international carbon tax,” IMF’s Georgieva said.

However, leaders fell short of concrete announcements on the creation of a carbon tax or shipping levy, agreeing only to launch a “task force to examine possible new financial resources through taxation”, according to the meeting’s summary.

“A discussion about carbon tax is a must-have,” Kenya’s Ruto echoed, calling on all countries to pay an equitable amount. Otherwise, “the conversation over who has not paid [becomes] energy-sapping”, Ruto said.

In conversation with EURACTIV, European Jacques Delors’ Director General Geneviève Pons called for a $100 per tonne of CO2, which could bring up to $200 billion in additional international public resources.

Regarding shipping, a list of 23 countries from across Africa, the Caribbean and Europe supported “the adoption of the principle of a levy on the greenhouse gas emissions of [the maritime] sector”, according to the summary.

Global Financing Pact: Macron's diplomatic tour de force

The Summit for a New Global Financing Pact in Paris on Thursday and Friday (22-23 June) could strengthen France’s “green diplomacy” and position President Emmanuel Macron as a key player when it comes to financing international development aid.

Country-specific advances

Amid international pledges were also some country-specific advances.

Senegal, supported by the ‘International Partners Group’ – including France, Germany, the EU, the UK and Canada – launched a Just Energy Transition Partnership (JETP) to further its renewables capacities to 40% by 2030, with an extra €2.5 billion in financing.

JETPs, first announced at COP 26 in Glasgow, are new financing tools to help emerging economies that are heavily-coal-dependent emerging economies phase out the fossil fuel’s use.

Moreover, the US and China managed to strike a deal to restructure Zambia’s debt, which amounts to $6.3 billion and is mostly owned by Beijing. Macron dubbed the deal “historic”.

Zambia was the first African country to default during the pandemic in 2020 and was receiving treatment under the G20 common framework on debt service suspension, which has been criticised for being too slow and for scaring off private creditors.

Reactions

Climate activists and global south leaders welcomed the outcome of the summit, though they warned agreements must be translated into real, tangible outcomes.

“The summit made some encouraging progress […]. But nothing much more concrete,” said Najat Vallaud-Belkacem, ONE’s Director for France.

“Until the richest and most powerful countries are prepared to act with the necessary scale and speed, we are still a long way from a truly ‘new global financial deal’,” she added.

Many global south leaders also voiced their disappointment and frustration towards the lack of action of Western countries to aid vulnerable countries against climate change.

“I cannot not mention the fact that powerful countries are the origin of climate change which has severe and heavy consequences in particular on African countries,” said Mahamat Idriss Déby Itno, president of Chad, calling for the annulment of debt for countries hit the worst by the climate crisis.

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