It has long been a central point of contention in climate negotiations: How should global climate action be financed? This week, France’s President Emmanuel Macron invited people to a major summit on this issue. He wants to put the topic of “restructuring to a climate-friendly financial system” at the top of the agenda. At the Bonn conference, it was rumored that Macron wants to hijack Mia Mottley’s Bridgetown agenda – that the Global South should not be forced out of the driver’s seat. Claire Stam now has the details on Macron’s summit.
In times of debt crises, one can ask whether the countries of the Global South are even in the driver’s seat or rather in the ejector seat. Alexandra Endres looked at a new, old concept for converting debt into climate money: Debt-for-Nature swaps. What sounds good, however, also earns a lot of criticism.
And then the International Energy Agency (IEA) and the World Bank subsidiary IFC complain that too little money is going into the energy transition in the Global South. The sums would have to be seven times greater to meet the 1.5-degree target, but that would require reforms. Which brings us back to the Macron summit from the beginning. But if there is little hope for easy solutions on finance, there could be a climate surprise in international shipping. More on this in the News.
We are celebrating our 50th issue of Climate.Table with this briefing, and are proud to continue welcoming new readers. If you enjoy reading this issue, please feel free to forward our briefing. If you have been forwarded this mail: You can try this and other briefings for free here. We are looking forward to an interesting and exciting future with you, dear readers.
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With his “Summit for a New Global Finance Pact” starting today, French President Emmanuel Macron wants to give international climate finance new momentum, a new framework and new donors. The two-day meeting in Paris aims to bring together the diverse debates on climate finance under one roof. It is intended to make private investors more accountable for the capital needs of the global turnaround.
And it is intended to draw general attention to the hitherto often neglected third goal of the Paris Agreement from Article 2 I c: Namely, in addition to limiting temperature and adapting to climate change, to “make financial flows compatible with a pathway towards low emissions of greenhouse gases and climate-resilient development”.
The organizers hope for a “joint diagnosis” of the challenges and a “new political vision” that will lead to “tangible, actionable” results, according to the Élysée Palace. The plan is not a word-for-word negotiated joint declaration, but an “operational” roadmap with practical measures.
Macron announced his summit at the G20 summit in November 2022 after supporting the “Bridgetown Initiative” of Mia Mottley, Prime Minister of Barbados. Mottley will be a prominent guest in Paris. Her agenda calls for a global financial system based on the needs of the most vulnerable countries: It should mobilize a total of 100 billion Dollars in finance, particularly from the private sector, and reduce the cost of capital in developing countries to address the impacts of climate change. This is in addition to the 100 billion Dollars that developed countries promised to the Global South starting 2020, and which they have so far failed to deliver in full.
Shortly before the start of the summit in Paris, heads of state and government supported the call for a climate-proof reform of the financial system and called for a “new global consensus” on this issue, including US President Joe Biden, German Chancellor Olaf Scholz, Brazil’s President Lula da Silva, South Africa’s President Cyril Ramaphosa or the head of the EU Commission Ursula von der Leyen.
In any case, the G20 has called for reform of the Bretton Woods financial architecture, which it says is no longer functional in the face of 21st century challenges. “The climate issue clashes with the agenda of reforming the Bretton Woods institutions“, analyzes Philippe Zaouati, CEO of Mirova, an asset management company specializing in sustainable investments.
The French investor believes that the entire system needs to be “rethought” and “adapted” to the new climatic realities. And that requires greater involvement of the private financial sector. “Official development assistance is good, but it’s not everything”, Zaouati points out. “Currently, pension funds, for example, are still far too reluctant to invest in southern countries. Yet there is a great need for investment there in particular.”
From Paris’ point of view, the debates to date have one problem: They are taking place through numerous channels that do not necessarily agree with each other and are considered “distant”. At the International Monetary Fund (IMF) and World Bank, at UN climate negotiations, at G7 and G20. “These international forums are currently subject to disjointed action on climate finance. This summit aims to create a common framework“, said Laurence Tubiana, chair of the European Climate Foundation and architect of the Paris Agreement. She calls for the Paris Agreement’s financial target.
Paris aims to make the two days at Palais Brongniart the hub of these different negotiating spaces. Macron wants to succeed despite tensions between China and the US, the war in Ukraine and the deep anger of the countries of the South. The geopolitical context is “very complicated”, notes Bertrand Badré, director of the Blue Orange Capital responsible investment fund and former director general for finance at the World Bank. “There is less and less desire to agree.” But, “if we don’t manage to accommodate the developing countries on the issue of financing, they won’t sit at the negotiating table and start extracting coal, oil and gas”, he fears.
Around 50 heads of state and government have announced their attendance. In addition to the charismatic Mia Mottley from Barbados, the President of Brazil, Lula da Silva, has already confirmed his participation. China is also expected to be represented at a high level by its Premier Li Qiang. UN Secretary-General António Guterres will be there, as will the President of the European Commission, Ursula von der Leyen, the German Chancellor, Olaf Scholz, and the Presidents of Ghana, Nana Akufo-Addo, Senegal, Macky Sall, and Kenya, William Ruto. The US is expected to be represented by climate envoy John Kerry, and Treasury Secretary Janet Yellen.
Major international organizations, major foundations, the private sector, academia and civil society will also be present. Among them: the new president of the World Bank, Ajay Banga, who has been in office since June 1 and for whom this summit will be the first major international meeting. Also speaking at the summit will be IMF Managing Director Kristalina Georgieva and Mafalda Duarte, who is preparing to take over as head of the Green Climate Fund. Christine Lagarde, president of the European Central Bank and former IMF chief, will also be present. So will Mark Carney, former governor of the Bank of England, who launched the Gfanz (Glasgow Financial Alliance for Net Zero) initiative.
Six roundtable discussions are planned on the following topics:
It was the largest debt-for-nature swap ever agreed: The “debt-for-nature swap” announced by Ecuador in early May is expected to bring the country several million Dollars a year in the future. The money is to be used for the protection of the Galapagos Islands, the natural paradise that once inspired Charles Darwin’s theory on the origin of species.
Debt-for-nature swaps are not new, they have been around since the late 1980s. But because of its record size, the recent Ecuadorian debt swap is considered a milestone among the financial institutions involved. It is expected to open the door for more big deals.
Recently, such debt swaps have also been increasingly traded as a contribution to climate finance. The German government’s Council for Sustainable Development recently recommended expanding the instrument for sustainable development purposes (Table.Media reported). Debt-for-nature swaps will also be a topic at the Paris climate finance summit hosted by French President Emmanuel Macron.
In Ecuador’s case, the deal went like this, according to Reuters: With the help of the major Swiss bank Credit Suisse, the country bought back government bonds for a nominal value of 1.6 billion Dollars. However, it paid only 664 million Dollars for them, because the price of the securities had fallen sharply due to the ongoing political crisis in the country. As a result of the swap, Ecuador will have to repay around one billion Dollars less to its creditors over the coming years. In return, the government undertakes to invest around 18 million Dollars a year for twenty years in nature conservation on the Galapagos Islands.
The old debt will be replaced by new bonds totaling 656 million Dollars, which will be backed by US financial authorities and the Inter-American Development Bank. Their default risk is lower than that of the old bonds. Ecuador therefore pays lower interest rates for them. The country can thus service its new debt more easily.
Basically, such debt buybacks, often involving conservation organizations such as WWF or Conservation International, are distinguished from partial – bilateral or multilateral – debt relief between states.
According to the BMZ, German development cooperation has been using the intergovernmental instrument since 1993 for climate protection, biodiversity or health projects in partner countries. The principle is that a partner country undertakes to finance certain projects. In return, Germany waives at least the same amount of interest and redemption payments from previous loans from the KfW Development Bank. In the future, according to a spokeswoman, the ministry intends to further increase the annual share of climate-related debt conversions. Currently, the BMZ can waive claims amounting to a maximum of 150 million Euros per year.
Debt-for-nature or debt-for-climate swaps are often described as a good way to tackle the climate and debt crises together. The argument is that countries that suffer particularly from climate change often have to spend a lot of money on debt servicing. Therefore, they lack the money for the necessary investments in climate protection and adaptation. Debt-for-climate swaps could help against this.
Some current use cases for the bond buybacks – besides Ecuador – are the Caribbean state of Belize, which is using 180 million Dollars from a recent debt restructuring to better protect its coastline, coral reefs and mangroves; and Cape Verde, which is to use the funds from debt forgiven by Portugal to fill a nature and climate protection fund. In exchange, Portugal would waive repayment of the full amount Cape Verde still owes the country: about 153 million Dollars, the prime ministers of both countries said shortly before the summit in Paris. The president of Colombia, a country bordering the Amazon, Gustavo Petro, has already called for a debt swap for climate protection several times since he took office in August 2022. According to Reuters, several African countries and island nations from the Caribbean and Indian Ocean are currently negotiating debt-for-nature swaps.
But compared to the global need for climate financing, the swaps have so far only released small sums. They could be a useful tool for individual projects, says Jörg Haas, globalization and transformation officer at the Heinrich Böll Foundation. “But their volume is too small, and the transaction costs are too high, to make a difference in the debt crisis.”
“It always depends on how the swaps are designed”, says Jan Kowalzig, a climate finance expert at Oxfam. And for countries that are not in a position to repay their debts anyway, debt-for-nature swaps do not make sense, because the exchange brings them practically no fiscal relief.
Moreover, the debt-for-nature swaps are “very small-scale”, says Kowalzig. Measured against the global demand for climate money, even the unusually large swap with Ecuador is hardly significant.
The NGO network CAN also criticizes the following:
Instead of swaps, CAN calls for “debt cancellation on a large scale” and “significantly increased, additional and grant-based climate finance“.
In the project “Debt Relief for a Green and Inclusive Recovery” (DRGR), in which the Böll Foundation is also involved, researchers have developed their own proposal for a comprehensive debt restructuring for climate protection and adaptation. Their data show that the debt of emerging and developing countries more than doubled between 2008 and 2021: from 1.4 trillion to 3.6 trillion Dollars.
The DRGR calculations refer to 61 countries classified as highly indebted by the IMF and UNDP.
This is much more complex than a single swap – and much harder to achieve. But “we need a comprehensive debt relief initiative”, says Jörg Haas. “This is the only way we can lay the foundation in the Global South for achieving the climate and sustainability goals.”
Switzerland is to become climate neutral. This was decided by the Swiss people in a referendum last Sunday with a majority of 59 percent of the vote, approving the new climate protection law. The project was made possible because the government has made a change in strategy: instead of making CO2 emissions unattractive by means of higher costs for consumers, as a failed draft had envisaged, it is now relying on tax aid for the switch.
The law stipulates that the country should have net-zero CO2 emissions by 2050. To achieve this, it defines a reduction path in stages. To achieve this goal, it relies on subsidies: 2 billion Swiss francs are to be used to help homeowners replace oil, gas and electric heating systems. Climate-friendly innovations in companies are to be promoted with 1.3 billion Swiss francs.
The right-wing Swiss People’s Party SVP had initiated the referendum against the law. Using the catchphrase “electricity guzzler law”, it argued that the energy turnaround would mean a large increase in electrical energy and that this would cost too much. The SVP was supported by the homeowners’ association and the gastronomy entrepreneurs’ association Gastrosuisse. All other parties – from the Greens and the Social Democrats to the Free Democratic Party (FDP) and the Center Party – were in favor of the law. So were the environmental and business associations.
The Swiss people’s yes to climate policy targets comes after a resounding defeat two years ago. In June 2021, the population rejected the CO2 law planned at the time, which would have meant an expansion of Switzerland’s previous climate policy. It provided for incentive taxes in the form of air ticket levies and higher gasoline prices, as well as a fund for innovations and the replacement of fossil heating systems. This law was also supported by all other parties. Oil importers and heating oil sellers organized the referendum against it, and the Swiss People’s Party also led the campaign against the law at that time.
The then Environment and Energy Minister and Social Democrat Simonetta Sommaruga explained the surprising defeat as follows: “The population wants climate protection, but they don’t want to have the feeling that they are being punished or that everything is now being banned“. Analyses after the vote showed that the population did not understand the principle of incentive taxes.
So Switzerland did a U-turn on climate policy and decided to rely on tax expenditures to reduce the consumption of fossil energy instead of cost truth and the polluter pays principle. The new climate protection law offers less scope for attack because it means that fewer people and groups are asked to pay directly.
The Climate Protection Act was Parliament’s response to the Glacier Initiative, which was supported by a broad coalition and called for a ban on imports of fossil fuels from 2050. The organizers of the initiative had then withdrawn their more far-reaching proposal in favor of the Climate Protection Act in the run-up to the current vote.
The less concrete wording helped the law to find a solid majority at the ballot box, but it also brings disadvantages: The law contains targets, but without sufficient measures to achieve these targets. The discussion will now shift to how climate neutrality can be achieved.
An interesting personnel matter in addition: The main role will be played by the new energy minister Albert Rösti of the SVP, who has been in office since the beginning of the year and who fought against the law before as a member of parliament. He said shortly after the success for the climate protection law in an interview with Swiss radio and television SRF: “I can now bring some things to implementation, but will take into account that more than forty percent of the population fear a shortage of electricity.”
Albert Rösti is focusing on the expansion of electricity generation for the time being. Currently, the expansion of renewable energies is being discussed in parliament. Alpine solar plants are to be built on open spaces, as well as wind plants and additional dams for hydroelectric power, whereby landscape protection is to be weighted less heavily than before in the approval process. In this way, Switzerland wants to remedy the shortage of electricity in winter as well as make the phase-out of nuclear energy and the electrification of transport possible.
Various parties are already calling again for the nuclear phase-out to be abandoned and for the operating lives of nuclear power plants to be extended. Furthermore, the new CO2 Act is currently being discussed in parliament; it is intended to set out further measures on the climate protection targets adopted on Sunday.
To keep up the pressure, the Greens and the Social Democratic Party are collecting signatures for the so-called Climate Fund Initiative. It calls for billions in government investment for climate protection.
In view of climate change, agriculture in Germany is facing a double transformation. On the one hand, it is one of the largest emitters of greenhouse gases, accounting for around eight percent of the total, and must significantly reduce its emissions of climate-damaging CO2, methane and nitrous oxide. On the other hand, it is already confronted with changing climate conditions and their consequences in many regions. In addition to the decline in biodiversity, it is above all weather extremes such as heavy rain, heat and drought that are causing problems for farmers and necessitating adjustments.
“In order to secure future harvests and the livelihoods of farmers, we must adapt our agroecosystems to the changing conditions as far as possible”, says the Federal Ministry of Agriculture. Because the situation varies greatly from region to region and from season to season, different strategies are needed: adapted cultivation systems such as regenerative and organic farming, increasing the water storage capacity of soils by building up humus, breeding climate-adapted plants, and further developing water management so that consumption is reduced, for example through drip irrigation.
A look at the daily drought monitor of the Helmholtz Centre for Environmental Research (ÜFZ) shows that it is currently unusually dry in parts of Lower Saxony, Hesse and the eastern German states. In entire regions of Mecklenburg-Western Pomerania, Saxony-Anhalt, Brandenburg and Saxony, there is even “extreme” or “exceptional” drought down to a depth of about 1.80 meters, the two highest official classifications. As a result, the plants there, as elsewhere in Germany, are under drought stress, in places reaching the so-called wilting point.
According to the Federal Environment Agency (UBA), the year 2023 had initially raised hopes. Although the months of March, April and May were individually and collectively warmer than the long-term average of the climatological reference period 1961 to 1990, the period as a whole brought slightly more precipitation on average. This marked the end of a series of nine dry spring months in succession.
However, due to the drought in May, the soil moisture maps of the German Weather Service (DWD) already indicate drought stress again, explains UBA water expert Jörg Rechenberg. “The further development depends on the precipitation pattern, which cannot be forecast for the rest of 2023”, Rechenbach says.
Bernhard Krüsken, Secretary-General of the German Farmers’ Association (DBV), also thinks it is too early to make an assessment. However, it is becoming apparent “that this year could also be a very dry year in some regions“. Water has basically become a big issue, he told Table.Media. “It is becoming increasingly important to keep water in the landscape, for example through storage reservoirs”, Krüsken said. But to do that, he said, irrigation infrastructure must be improved and expanded.
Krüsken is also paying particular attention to modern technologies such as Crispr/Cas, in which researchers can specifically modify DNA by cutting it with so-called genetic scissors. The process offers great opportunities to “quickly get more heat- and drought-resistant varieties“, but is controversial. According to a 2018 ruling by the European Court of Justice, changes in genetic material created with Crispr/Cas are to be classified as genetic engineering.
According to the Federal Ministry of Agriculture, it is currently funding a total of more than 200 research and development projects for breeding climate-adapted varieties and crops, with funding totaling over 55 million Euros.
Krüsken also refers to a joint model project with the Federation of the Organic Food Industry (BÖLW), which is being scientifically supported by the Thünen Institute in Brunswick. The project, in which 150 organic and conventional farms are participating, focuses on measures to build up humus, i.e. to increase the fertility of the upper soil layers; this is another way of improving climate resilience.
Peter Röhrig, Managing Director of BÖLW, emphasizes to Table.Media that it is important to “practice agriculture in such a way that it contributes to groundwater formation and water protection. In addition to humus buildup, this requires the greatest possible variety of crops grown, fewer erosion-relevant crops such as corn, and an intact soil life and thus a higher infiltration capacity of the soil during rainfall and heavy rains. “For climate adaptation, for example, the expansion of agroforestry systems can also be relevant in order to be less dependent on irrigation water”, says Röhrig.
Both association representatives explain that agriculture and forestry in Germany are only responsible for around two percent of commercial water use. Nevertheless, Röhrig welcomes the introduction or increase in water charges for agriculture currently being discussed in several German states. More water should not be consumed than can be sustainably provided, he said. “The appropriate pricing of water is a relevant control instrument for this”, says the BÖLW board member.
The Farmers’ Association, on the other hand, takes a rather critical view. “With additional fees, food prices would rise even further“, Krüsken said. So far, water charges are only levied in Saarland, Saxony-Anhalt and Lower Saxony.
So far, there is no clear scientific explanation for the unusually early and strong heat wave in the North Atlantic – but a number of theories as to what might be causing it. Since June, instruments have been measuring exceptionally high temperatures at the surface of the Atlantic, 1.1 degrees Celsius above the long-term average – showing twice as much warming as the warmest year to date.
All scientists interviewed assume that this extreme event is related to global warming. Several possible causes are cited as explanations for the current development, which may overlap:
Emerging and developing countries will need to invest 2.8 trillion Dollars annually in clean energy starting in the early 2030s to meet climate goals and cover energy access. That’s according to a new report from the International Energy Agency (IEA) and the private sector arm of the World Bank (IFC). According to the report, this group of countries is currently investing 770 billion Dollars a year in clean energy – three-quarters of it in the three major emerging economies of China, India and Brazil. Financing the energy transition in these countries is “the most important challenge” to achieving climate goals, said IEA Director General Fatih Birol at the presentation of the report.
According to the study, the cost of capital has risen rapidly in many developing and emerging countries. The cost of a solar power plant in many countries is two to three times higher than in the global North or China, according to the IEA and IFC. The rise in interest rates is increasing countries’ debt burdens, they said. Investment in the Global North would become more attractive, leading investors to expect greater returns on renewable projects in the Global South. According to Birol, the Netherlands generates more solar power than sub-Saharan Africa. This illustrates how unevenly investments in the energy transition have flowed so far.
According to the IEA and IFC, public funds would not be sufficient to finance the energy transition, and two-thirds of the investment would have to come from private investors. The two institutions therefore propose the following:
According to the report, one-third of the investment would have to go toward expanding renewables and one-third toward improving energy efficiency. A quarter of the investment would have to go toward expanding the power grids. Currently, more than 90 percent of investments in power grids are made by state-owned companies, which often face serious financing bottlenecks and lack access to capital markets. nib
When Wael Sawan became Shell’s CEO in January 2023, analysts had hopes for an accelerated green transformation. The Lebanese-born Canadian headed the company’s “Integrated Gas and Renewables” division before his rise to the top job. His promotion to CEO is a “clear sign” that Shell wants to revise its “vague renewables strategy”, the Guardian quotes an analyst as saying. But last week Sawan canceled the oil and gas giant’s climate goal of cutting oil production by 20 percent by 2030. He already let the red pen circle in spring, ending some offshore wind, hydrogen and biofuel projects. The yield forecasts for these green projects did not convince the top manager.
Actually, Wael Sawan could be very satisfied. The 48-year-old has already reported record quarterly profits twice in his short tenure. But Sawan is disappointed by Shell’s share price, which lags behind that of its competitors. In times of high energy prices, oil and gas production generates high profits, which Shell does not want to forego. In the future, the billions in profits are to be used even more for share buybacks in order to drive up the price of the company’s own shares.
Sawan says there is a need to develop “profitable business models” to “really impact” the decarbonization of the energy system. He also says, “We will invest in the models that work – those with the highest returns that play to our strengths”. For Shell, however, that means continuing to rely on fossil fuels. Between 2023 and 2025, the oil giant plans to invest 40 billion Dollars in oil and gas production. The leading position in the LNG market is to be defended. This compares with investments of just ten to 15 billion Dollars for the “development of low-carbon energy solutions”, for example in the areas of hydrogen and biofuels, as well as in charging solutions for e-cars and carbon capture technologies.
Sawan’s investment strategy runs counter to the demands and resolutions formulated, for example, at COP26 in Glasgow or by the International Energy Agency IEA: The 1.5 degrees can only be maintained if there is no new investment in fossil infrastructure.
Shell’s about-face on the climate target shows once again that the major oil and gas producers will not voluntarily abandon fossil energies. Sultan al Jaber, COP28 president and CEO of the Abu Dhabi National Oil Company, says that a reduction in fossil energy production is “inevitable”. However, he does not specify a date and often speaks only of “phasing out emissions”. And Shell competitor BP had already softened its emissions reduction targets in February 2023. The competition among the oil multinationals, the short-term focus on shareholders and high profits, makes a phased phase-out of fossil fuels unlikely.
Shell needs to create “long-term value for our shareholders“, Sawan told the Financial Times. “The answer can’t be, ‘I’m going to invest [in clean energy projects] and get bad returns, and that will clear my conscience.’ That is wrong.”
Whether Sawan’s strategy of driving up the share price and continuing to invest in fossil fuels will be successful remains to be seen – because the pressure is mounting. In the summer of 2021, following a lawsuit, a Dutch court ruled that Shell must cut its emissions by 45 percent by 2030 compared to 2019 levels. Shell has appealed. The group’s climate targets are currently still based on the emissions intensity of the energy it produces. So absolute emissions could rise if Shell produces more sustainably but extracts more oil and gas.
Wael Sawan doesn’t seem too distracted by the lawsuit. A graduate of Harvard Business School, he is “not emotional” about business decisions. He must be “kind-hearted but hard-nosed”, the Financial Times reflects him as saying. These statements suggest that Shell will not take effective decarbonization steps until its fossil fuel business models start to erode its share price and profits.
Sawan has spent his entire career with Shell. He grew up in Dubai and has a master’s degree in chemical engineering. He is married and has three sons. Nico Beckert
It has long been a central point of contention in climate negotiations: How should global climate action be financed? This week, France’s President Emmanuel Macron invited people to a major summit on this issue. He wants to put the topic of “restructuring to a climate-friendly financial system” at the top of the agenda. At the Bonn conference, it was rumored that Macron wants to hijack Mia Mottley’s Bridgetown agenda – that the Global South should not be forced out of the driver’s seat. Claire Stam now has the details on Macron’s summit.
In times of debt crises, one can ask whether the countries of the Global South are even in the driver’s seat or rather in the ejector seat. Alexandra Endres looked at a new, old concept for converting debt into climate money: Debt-for-Nature swaps. What sounds good, however, also earns a lot of criticism.
And then the International Energy Agency (IEA) and the World Bank subsidiary IFC complain that too little money is going into the energy transition in the Global South. The sums would have to be seven times greater to meet the 1.5-degree target, but that would require reforms. Which brings us back to the Macron summit from the beginning. But if there is little hope for easy solutions on finance, there could be a climate surprise in international shipping. More on this in the News.
We are celebrating our 50th issue of Climate.Table with this briefing, and are proud to continue welcoming new readers. If you enjoy reading this issue, please feel free to forward our briefing. If you have been forwarded this mail: You can try this and other briefings for free here. We are looking forward to an interesting and exciting future with you, dear readers.
Best regards!
With his “Summit for a New Global Finance Pact” starting today, French President Emmanuel Macron wants to give international climate finance new momentum, a new framework and new donors. The two-day meeting in Paris aims to bring together the diverse debates on climate finance under one roof. It is intended to make private investors more accountable for the capital needs of the global turnaround.
And it is intended to draw general attention to the hitherto often neglected third goal of the Paris Agreement from Article 2 I c: Namely, in addition to limiting temperature and adapting to climate change, to “make financial flows compatible with a pathway towards low emissions of greenhouse gases and climate-resilient development”.
The organizers hope for a “joint diagnosis” of the challenges and a “new political vision” that will lead to “tangible, actionable” results, according to the Élysée Palace. The plan is not a word-for-word negotiated joint declaration, but an “operational” roadmap with practical measures.
Macron announced his summit at the G20 summit in November 2022 after supporting the “Bridgetown Initiative” of Mia Mottley, Prime Minister of Barbados. Mottley will be a prominent guest in Paris. Her agenda calls for a global financial system based on the needs of the most vulnerable countries: It should mobilize a total of 100 billion Dollars in finance, particularly from the private sector, and reduce the cost of capital in developing countries to address the impacts of climate change. This is in addition to the 100 billion Dollars that developed countries promised to the Global South starting 2020, and which they have so far failed to deliver in full.
Shortly before the start of the summit in Paris, heads of state and government supported the call for a climate-proof reform of the financial system and called for a “new global consensus” on this issue, including US President Joe Biden, German Chancellor Olaf Scholz, Brazil’s President Lula da Silva, South Africa’s President Cyril Ramaphosa or the head of the EU Commission Ursula von der Leyen.
In any case, the G20 has called for reform of the Bretton Woods financial architecture, which it says is no longer functional in the face of 21st century challenges. “The climate issue clashes with the agenda of reforming the Bretton Woods institutions“, analyzes Philippe Zaouati, CEO of Mirova, an asset management company specializing in sustainable investments.
The French investor believes that the entire system needs to be “rethought” and “adapted” to the new climatic realities. And that requires greater involvement of the private financial sector. “Official development assistance is good, but it’s not everything”, Zaouati points out. “Currently, pension funds, for example, are still far too reluctant to invest in southern countries. Yet there is a great need for investment there in particular.”
From Paris’ point of view, the debates to date have one problem: They are taking place through numerous channels that do not necessarily agree with each other and are considered “distant”. At the International Monetary Fund (IMF) and World Bank, at UN climate negotiations, at G7 and G20. “These international forums are currently subject to disjointed action on climate finance. This summit aims to create a common framework“, said Laurence Tubiana, chair of the European Climate Foundation and architect of the Paris Agreement. She calls for the Paris Agreement’s financial target.
Paris aims to make the two days at Palais Brongniart the hub of these different negotiating spaces. Macron wants to succeed despite tensions between China and the US, the war in Ukraine and the deep anger of the countries of the South. The geopolitical context is “very complicated”, notes Bertrand Badré, director of the Blue Orange Capital responsible investment fund and former director general for finance at the World Bank. “There is less and less desire to agree.” But, “if we don’t manage to accommodate the developing countries on the issue of financing, they won’t sit at the negotiating table and start extracting coal, oil and gas”, he fears.
Around 50 heads of state and government have announced their attendance. In addition to the charismatic Mia Mottley from Barbados, the President of Brazil, Lula da Silva, has already confirmed his participation. China is also expected to be represented at a high level by its Premier Li Qiang. UN Secretary-General António Guterres will be there, as will the President of the European Commission, Ursula von der Leyen, the German Chancellor, Olaf Scholz, and the Presidents of Ghana, Nana Akufo-Addo, Senegal, Macky Sall, and Kenya, William Ruto. The US is expected to be represented by climate envoy John Kerry, and Treasury Secretary Janet Yellen.
Major international organizations, major foundations, the private sector, academia and civil society will also be present. Among them: the new president of the World Bank, Ajay Banga, who has been in office since June 1 and for whom this summit will be the first major international meeting. Also speaking at the summit will be IMF Managing Director Kristalina Georgieva and Mafalda Duarte, who is preparing to take over as head of the Green Climate Fund. Christine Lagarde, president of the European Central Bank and former IMF chief, will also be present. So will Mark Carney, former governor of the Bank of England, who launched the Gfanz (Glasgow Financial Alliance for Net Zero) initiative.
Six roundtable discussions are planned on the following topics:
It was the largest debt-for-nature swap ever agreed: The “debt-for-nature swap” announced by Ecuador in early May is expected to bring the country several million Dollars a year in the future. The money is to be used for the protection of the Galapagos Islands, the natural paradise that once inspired Charles Darwin’s theory on the origin of species.
Debt-for-nature swaps are not new, they have been around since the late 1980s. But because of its record size, the recent Ecuadorian debt swap is considered a milestone among the financial institutions involved. It is expected to open the door for more big deals.
Recently, such debt swaps have also been increasingly traded as a contribution to climate finance. The German government’s Council for Sustainable Development recently recommended expanding the instrument for sustainable development purposes (Table.Media reported). Debt-for-nature swaps will also be a topic at the Paris climate finance summit hosted by French President Emmanuel Macron.
In Ecuador’s case, the deal went like this, according to Reuters: With the help of the major Swiss bank Credit Suisse, the country bought back government bonds for a nominal value of 1.6 billion Dollars. However, it paid only 664 million Dollars for them, because the price of the securities had fallen sharply due to the ongoing political crisis in the country. As a result of the swap, Ecuador will have to repay around one billion Dollars less to its creditors over the coming years. In return, the government undertakes to invest around 18 million Dollars a year for twenty years in nature conservation on the Galapagos Islands.
The old debt will be replaced by new bonds totaling 656 million Dollars, which will be backed by US financial authorities and the Inter-American Development Bank. Their default risk is lower than that of the old bonds. Ecuador therefore pays lower interest rates for them. The country can thus service its new debt more easily.
Basically, such debt buybacks, often involving conservation organizations such as WWF or Conservation International, are distinguished from partial – bilateral or multilateral – debt relief between states.
According to the BMZ, German development cooperation has been using the intergovernmental instrument since 1993 for climate protection, biodiversity or health projects in partner countries. The principle is that a partner country undertakes to finance certain projects. In return, Germany waives at least the same amount of interest and redemption payments from previous loans from the KfW Development Bank. In the future, according to a spokeswoman, the ministry intends to further increase the annual share of climate-related debt conversions. Currently, the BMZ can waive claims amounting to a maximum of 150 million Euros per year.
Debt-for-nature or debt-for-climate swaps are often described as a good way to tackle the climate and debt crises together. The argument is that countries that suffer particularly from climate change often have to spend a lot of money on debt servicing. Therefore, they lack the money for the necessary investments in climate protection and adaptation. Debt-for-climate swaps could help against this.
Some current use cases for the bond buybacks – besides Ecuador – are the Caribbean state of Belize, which is using 180 million Dollars from a recent debt restructuring to better protect its coastline, coral reefs and mangroves; and Cape Verde, which is to use the funds from debt forgiven by Portugal to fill a nature and climate protection fund. In exchange, Portugal would waive repayment of the full amount Cape Verde still owes the country: about 153 million Dollars, the prime ministers of both countries said shortly before the summit in Paris. The president of Colombia, a country bordering the Amazon, Gustavo Petro, has already called for a debt swap for climate protection several times since he took office in August 2022. According to Reuters, several African countries and island nations from the Caribbean and Indian Ocean are currently negotiating debt-for-nature swaps.
But compared to the global need for climate financing, the swaps have so far only released small sums. They could be a useful tool for individual projects, says Jörg Haas, globalization and transformation officer at the Heinrich Böll Foundation. “But their volume is too small, and the transaction costs are too high, to make a difference in the debt crisis.”
“It always depends on how the swaps are designed”, says Jan Kowalzig, a climate finance expert at Oxfam. And for countries that are not in a position to repay their debts anyway, debt-for-nature swaps do not make sense, because the exchange brings them practically no fiscal relief.
Moreover, the debt-for-nature swaps are “very small-scale”, says Kowalzig. Measured against the global demand for climate money, even the unusually large swap with Ecuador is hardly significant.
The NGO network CAN also criticizes the following:
Instead of swaps, CAN calls for “debt cancellation on a large scale” and “significantly increased, additional and grant-based climate finance“.
In the project “Debt Relief for a Green and Inclusive Recovery” (DRGR), in which the Böll Foundation is also involved, researchers have developed their own proposal for a comprehensive debt restructuring for climate protection and adaptation. Their data show that the debt of emerging and developing countries more than doubled between 2008 and 2021: from 1.4 trillion to 3.6 trillion Dollars.
The DRGR calculations refer to 61 countries classified as highly indebted by the IMF and UNDP.
This is much more complex than a single swap – and much harder to achieve. But “we need a comprehensive debt relief initiative”, says Jörg Haas. “This is the only way we can lay the foundation in the Global South for achieving the climate and sustainability goals.”
Switzerland is to become climate neutral. This was decided by the Swiss people in a referendum last Sunday with a majority of 59 percent of the vote, approving the new climate protection law. The project was made possible because the government has made a change in strategy: instead of making CO2 emissions unattractive by means of higher costs for consumers, as a failed draft had envisaged, it is now relying on tax aid for the switch.
The law stipulates that the country should have net-zero CO2 emissions by 2050. To achieve this, it defines a reduction path in stages. To achieve this goal, it relies on subsidies: 2 billion Swiss francs are to be used to help homeowners replace oil, gas and electric heating systems. Climate-friendly innovations in companies are to be promoted with 1.3 billion Swiss francs.
The right-wing Swiss People’s Party SVP had initiated the referendum against the law. Using the catchphrase “electricity guzzler law”, it argued that the energy turnaround would mean a large increase in electrical energy and that this would cost too much. The SVP was supported by the homeowners’ association and the gastronomy entrepreneurs’ association Gastrosuisse. All other parties – from the Greens and the Social Democrats to the Free Democratic Party (FDP) and the Center Party – were in favor of the law. So were the environmental and business associations.
The Swiss people’s yes to climate policy targets comes after a resounding defeat two years ago. In June 2021, the population rejected the CO2 law planned at the time, which would have meant an expansion of Switzerland’s previous climate policy. It provided for incentive taxes in the form of air ticket levies and higher gasoline prices, as well as a fund for innovations and the replacement of fossil heating systems. This law was also supported by all other parties. Oil importers and heating oil sellers organized the referendum against it, and the Swiss People’s Party also led the campaign against the law at that time.
The then Environment and Energy Minister and Social Democrat Simonetta Sommaruga explained the surprising defeat as follows: “The population wants climate protection, but they don’t want to have the feeling that they are being punished or that everything is now being banned“. Analyses after the vote showed that the population did not understand the principle of incentive taxes.
So Switzerland did a U-turn on climate policy and decided to rely on tax expenditures to reduce the consumption of fossil energy instead of cost truth and the polluter pays principle. The new climate protection law offers less scope for attack because it means that fewer people and groups are asked to pay directly.
The Climate Protection Act was Parliament’s response to the Glacier Initiative, which was supported by a broad coalition and called for a ban on imports of fossil fuels from 2050. The organizers of the initiative had then withdrawn their more far-reaching proposal in favor of the Climate Protection Act in the run-up to the current vote.
The less concrete wording helped the law to find a solid majority at the ballot box, but it also brings disadvantages: The law contains targets, but without sufficient measures to achieve these targets. The discussion will now shift to how climate neutrality can be achieved.
An interesting personnel matter in addition: The main role will be played by the new energy minister Albert Rösti of the SVP, who has been in office since the beginning of the year and who fought against the law before as a member of parliament. He said shortly after the success for the climate protection law in an interview with Swiss radio and television SRF: “I can now bring some things to implementation, but will take into account that more than forty percent of the population fear a shortage of electricity.”
Albert Rösti is focusing on the expansion of electricity generation for the time being. Currently, the expansion of renewable energies is being discussed in parliament. Alpine solar plants are to be built on open spaces, as well as wind plants and additional dams for hydroelectric power, whereby landscape protection is to be weighted less heavily than before in the approval process. In this way, Switzerland wants to remedy the shortage of electricity in winter as well as make the phase-out of nuclear energy and the electrification of transport possible.
Various parties are already calling again for the nuclear phase-out to be abandoned and for the operating lives of nuclear power plants to be extended. Furthermore, the new CO2 Act is currently being discussed in parliament; it is intended to set out further measures on the climate protection targets adopted on Sunday.
To keep up the pressure, the Greens and the Social Democratic Party are collecting signatures for the so-called Climate Fund Initiative. It calls for billions in government investment for climate protection.
In view of climate change, agriculture in Germany is facing a double transformation. On the one hand, it is one of the largest emitters of greenhouse gases, accounting for around eight percent of the total, and must significantly reduce its emissions of climate-damaging CO2, methane and nitrous oxide. On the other hand, it is already confronted with changing climate conditions and their consequences in many regions. In addition to the decline in biodiversity, it is above all weather extremes such as heavy rain, heat and drought that are causing problems for farmers and necessitating adjustments.
“In order to secure future harvests and the livelihoods of farmers, we must adapt our agroecosystems to the changing conditions as far as possible”, says the Federal Ministry of Agriculture. Because the situation varies greatly from region to region and from season to season, different strategies are needed: adapted cultivation systems such as regenerative and organic farming, increasing the water storage capacity of soils by building up humus, breeding climate-adapted plants, and further developing water management so that consumption is reduced, for example through drip irrigation.
A look at the daily drought monitor of the Helmholtz Centre for Environmental Research (ÜFZ) shows that it is currently unusually dry in parts of Lower Saxony, Hesse and the eastern German states. In entire regions of Mecklenburg-Western Pomerania, Saxony-Anhalt, Brandenburg and Saxony, there is even “extreme” or “exceptional” drought down to a depth of about 1.80 meters, the two highest official classifications. As a result, the plants there, as elsewhere in Germany, are under drought stress, in places reaching the so-called wilting point.
According to the Federal Environment Agency (UBA), the year 2023 had initially raised hopes. Although the months of March, April and May were individually and collectively warmer than the long-term average of the climatological reference period 1961 to 1990, the period as a whole brought slightly more precipitation on average. This marked the end of a series of nine dry spring months in succession.
However, due to the drought in May, the soil moisture maps of the German Weather Service (DWD) already indicate drought stress again, explains UBA water expert Jörg Rechenberg. “The further development depends on the precipitation pattern, which cannot be forecast for the rest of 2023”, Rechenbach says.
Bernhard Krüsken, Secretary-General of the German Farmers’ Association (DBV), also thinks it is too early to make an assessment. However, it is becoming apparent “that this year could also be a very dry year in some regions“. Water has basically become a big issue, he told Table.Media. “It is becoming increasingly important to keep water in the landscape, for example through storage reservoirs”, Krüsken said. But to do that, he said, irrigation infrastructure must be improved and expanded.
Krüsken is also paying particular attention to modern technologies such as Crispr/Cas, in which researchers can specifically modify DNA by cutting it with so-called genetic scissors. The process offers great opportunities to “quickly get more heat- and drought-resistant varieties“, but is controversial. According to a 2018 ruling by the European Court of Justice, changes in genetic material created with Crispr/Cas are to be classified as genetic engineering.
According to the Federal Ministry of Agriculture, it is currently funding a total of more than 200 research and development projects for breeding climate-adapted varieties and crops, with funding totaling over 55 million Euros.
Krüsken also refers to a joint model project with the Federation of the Organic Food Industry (BÖLW), which is being scientifically supported by the Thünen Institute in Brunswick. The project, in which 150 organic and conventional farms are participating, focuses on measures to build up humus, i.e. to increase the fertility of the upper soil layers; this is another way of improving climate resilience.
Peter Röhrig, Managing Director of BÖLW, emphasizes to Table.Media that it is important to “practice agriculture in such a way that it contributes to groundwater formation and water protection. In addition to humus buildup, this requires the greatest possible variety of crops grown, fewer erosion-relevant crops such as corn, and an intact soil life and thus a higher infiltration capacity of the soil during rainfall and heavy rains. “For climate adaptation, for example, the expansion of agroforestry systems can also be relevant in order to be less dependent on irrigation water”, says Röhrig.
Both association representatives explain that agriculture and forestry in Germany are only responsible for around two percent of commercial water use. Nevertheless, Röhrig welcomes the introduction or increase in water charges for agriculture currently being discussed in several German states. More water should not be consumed than can be sustainably provided, he said. “The appropriate pricing of water is a relevant control instrument for this”, says the BÖLW board member.
The Farmers’ Association, on the other hand, takes a rather critical view. “With additional fees, food prices would rise even further“, Krüsken said. So far, water charges are only levied in Saarland, Saxony-Anhalt and Lower Saxony.
So far, there is no clear scientific explanation for the unusually early and strong heat wave in the North Atlantic – but a number of theories as to what might be causing it. Since June, instruments have been measuring exceptionally high temperatures at the surface of the Atlantic, 1.1 degrees Celsius above the long-term average – showing twice as much warming as the warmest year to date.
All scientists interviewed assume that this extreme event is related to global warming. Several possible causes are cited as explanations for the current development, which may overlap:
Emerging and developing countries will need to invest 2.8 trillion Dollars annually in clean energy starting in the early 2030s to meet climate goals and cover energy access. That’s according to a new report from the International Energy Agency (IEA) and the private sector arm of the World Bank (IFC). According to the report, this group of countries is currently investing 770 billion Dollars a year in clean energy – three-quarters of it in the three major emerging economies of China, India and Brazil. Financing the energy transition in these countries is “the most important challenge” to achieving climate goals, said IEA Director General Fatih Birol at the presentation of the report.
According to the study, the cost of capital has risen rapidly in many developing and emerging countries. The cost of a solar power plant in many countries is two to three times higher than in the global North or China, according to the IEA and IFC. The rise in interest rates is increasing countries’ debt burdens, they said. Investment in the Global North would become more attractive, leading investors to expect greater returns on renewable projects in the Global South. According to Birol, the Netherlands generates more solar power than sub-Saharan Africa. This illustrates how unevenly investments in the energy transition have flowed so far.
According to the IEA and IFC, public funds would not be sufficient to finance the energy transition, and two-thirds of the investment would have to come from private investors. The two institutions therefore propose the following:
According to the report, one-third of the investment would have to go toward expanding renewables and one-third toward improving energy efficiency. A quarter of the investment would have to go toward expanding the power grids. Currently, more than 90 percent of investments in power grids are made by state-owned companies, which often face serious financing bottlenecks and lack access to capital markets. nib
When Wael Sawan became Shell’s CEO in January 2023, analysts had hopes for an accelerated green transformation. The Lebanese-born Canadian headed the company’s “Integrated Gas and Renewables” division before his rise to the top job. His promotion to CEO is a “clear sign” that Shell wants to revise its “vague renewables strategy”, the Guardian quotes an analyst as saying. But last week Sawan canceled the oil and gas giant’s climate goal of cutting oil production by 20 percent by 2030. He already let the red pen circle in spring, ending some offshore wind, hydrogen and biofuel projects. The yield forecasts for these green projects did not convince the top manager.
Actually, Wael Sawan could be very satisfied. The 48-year-old has already reported record quarterly profits twice in his short tenure. But Sawan is disappointed by Shell’s share price, which lags behind that of its competitors. In times of high energy prices, oil and gas production generates high profits, which Shell does not want to forego. In the future, the billions in profits are to be used even more for share buybacks in order to drive up the price of the company’s own shares.
Sawan says there is a need to develop “profitable business models” to “really impact” the decarbonization of the energy system. He also says, “We will invest in the models that work – those with the highest returns that play to our strengths”. For Shell, however, that means continuing to rely on fossil fuels. Between 2023 and 2025, the oil giant plans to invest 40 billion Dollars in oil and gas production. The leading position in the LNG market is to be defended. This compares with investments of just ten to 15 billion Dollars for the “development of low-carbon energy solutions”, for example in the areas of hydrogen and biofuels, as well as in charging solutions for e-cars and carbon capture technologies.
Sawan’s investment strategy runs counter to the demands and resolutions formulated, for example, at COP26 in Glasgow or by the International Energy Agency IEA: The 1.5 degrees can only be maintained if there is no new investment in fossil infrastructure.
Shell’s about-face on the climate target shows once again that the major oil and gas producers will not voluntarily abandon fossil energies. Sultan al Jaber, COP28 president and CEO of the Abu Dhabi National Oil Company, says that a reduction in fossil energy production is “inevitable”. However, he does not specify a date and often speaks only of “phasing out emissions”. And Shell competitor BP had already softened its emissions reduction targets in February 2023. The competition among the oil multinationals, the short-term focus on shareholders and high profits, makes a phased phase-out of fossil fuels unlikely.
Shell needs to create “long-term value for our shareholders“, Sawan told the Financial Times. “The answer can’t be, ‘I’m going to invest [in clean energy projects] and get bad returns, and that will clear my conscience.’ That is wrong.”
Whether Sawan’s strategy of driving up the share price and continuing to invest in fossil fuels will be successful remains to be seen – because the pressure is mounting. In the summer of 2021, following a lawsuit, a Dutch court ruled that Shell must cut its emissions by 45 percent by 2030 compared to 2019 levels. Shell has appealed. The group’s climate targets are currently still based on the emissions intensity of the energy it produces. So absolute emissions could rise if Shell produces more sustainably but extracts more oil and gas.
Wael Sawan doesn’t seem too distracted by the lawsuit. A graduate of Harvard Business School, he is “not emotional” about business decisions. He must be “kind-hearted but hard-nosed”, the Financial Times reflects him as saying. These statements suggest that Shell will not take effective decarbonization steps until its fossil fuel business models start to erode its share price and profits.
Sawan has spent his entire career with Shell. He grew up in Dubai and has a master’s degree in chemical engineering. He is married and has three sons. Nico Beckert
