To significantly advance the course of global net-zero emissions targets, facilitate energy access and the development of African countries, Vice-President Yemi Osinbajo, has proposed a Debt-For-Climate (DFC) Swap deal.
He explained the DFC concept on Thursday during a lecture on a just and equitable energy transition for Africa at the Center for Global Development in Washington D.C.
According to him, “debt for climate swaps is a type of debt swap where bilateral or multilateral debt is forgiven by creditors in exchange for a commitment by the debtor to use the outstanding debt service payments for national climate action programs.
“Typically, the creditor country or institution agrees to forgive part of a debt, if the debtor country would 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.”
Justifying the rationale behind such a debt swap deal, the Vice-President submitted that the commitment to it would “increase the fiscal space for climate-related investments and reduce the debt burden for participating developing countries.
“For the creditor the swap can be made to count as a component of their Nationally Determined Contributions (NDC).”
He added that to make this efficient “there are of course significant policy actions necessary to make this acceptable and sustainable.”
The Vice-President also proposed the greater participation of African countries in the Global Carbon Market while exploring financing options for energy transition.
He said there is a need to take a comprehensive approach in working jointly towards common goals, including the market and environmental opportunities presented by the financing of clean energy assets in growing energy markets.
His words: “in addition to conventional capital flows both 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 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 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.