VP Osinbajo in U.S proposes debt-for-climate swap deal to facilitate energy access, others

Vice President, Prof. Yemi Osinbajo has proposed a debt-for climate (DFC) swap deal with creditor nations in order to boost global net-zero emissions targets, facilitate energy access and the development of Nigeria and other African countries.

A statement by Laolu Akande, the media aide to the Vice President, Friday, quoted Prof. Osinbajo as making the proposal, Thursday, during a lecture at the Centre for Global Development in Washington DC, United States, themed on a just and equitable energy transition for Africa.

The Vice President is at the head of a Federal Government team in Washington DC, over talks with President of the World Bank, David Malpass, United States Treasury Secretary, Janet Yellen.

Prof Osinbajo also presented a paper at Centre for Global Development CGD).

According to Osinbajo, ‘the concept of a debt for climate (DFC) 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.’

Justifying the rationale behind such a debt swap deal, VP Osinbajo posited that commitment to it would increase the fiscal space for climate-related investments and reduce the debt burden for participating developing countries.

“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.

“For the creditor the swap can be made to count as a component of their Nationally Determined Contributions (NDC).

“There are, of course, significant policy actions necessary to make this acceptable and sustainable,” the VP said.

Osinbajo also proposed the greater participation of African countries in the Global Carbon Market while exploring financing options for energy transition, arguing that 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.

“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 enjoined developed countries to support Africa to develop into a global supplier of carbon credits, ranging from bio-diversity to energy-based credits, adding that this would be a leap forward in aligning carbon pricing and related policy around achieving a just transition.

Noting that most developing countries are confronted on the issue of a just transition with two existential crises of climate crisis and extreme poverty, the vice president said the clear implication of this reality is that plans and commitments to carbon neutrality must include clear plans on energy access if we are to confront poverty.

“This includes access to energy for consumptive and productive use and spanning across electricity, heating, cooking, and other end-use sectors.

“Nearly 90 million people in Asia and Africa who had previously gained access to electricity can no longer afford to pay for their basic energy needs.

“The inflationary pressures caused by the COVID-19 pandemic and other macroeconomic trends have been further exacerbated by the ongoing war in Ukraine.

“Countries worldwide have been hit by record prices on all forms of energy. Power prices are breaking records across the globe, especially in countries or markets where natural gas plays a key role in the energy mix.

“In such a global reality, limiting financing of gas projects for domestic use would pose a severe challenge to the pace of economic development, delivery of electricity access and clean cooking solutions, and the scale-up and integration of renewable energy into the energy mix.”

Speaking on Nigeria’s initiative to combat the unfolding crisis, the VP revealed that the country’s Energy Transition Plan was designed to tackle the dual crises of energy poverty and climate change and deliver SDG-7 by 2030 and net-zero by 2060 while centering on the provision of energy for development, industrialization, and economic growth.

“We anchored the plan on key objectives including lifting 100 million people out of poverty in a decade, driving economic growth, bringing modern energy services to the full population and managing the expected long-term job losses in the oil sector due to global decarbonization.”

He also emphasized the role that natural gas must play in the short-medium term to facilitate the establishment of base load energy capacity and address the nation’s clean cooking deficit in the form of LPG.

The Vice President identified some double standards evident in the response to the current energy crisis by many countries in the global North.