G7 climate diplomacy — sweet words, but just debt and delays for the Global South
Geopolitics dominates the rhetoric on climate change in Washington D.C., but the developing world needs renewable energy, not debt and lectures on what a baddie China is.
Southern View is a column that looks at China’s relations with developing countries from developing countries’ point of view.
The last few weeks have made two things clear. First, the heat waves hitting the Global North have hammered home (yet again) that climate change is getting faster and more dangerous by the day. Second, despite calls from U.S. climate czar John Kerry to separate climate issues from U.S.-China geopolitics, the opposite is true: Our collective climate struggle will increasingly be defined by the superpower horse race.
These realities are hitting Global South regions like Africa particularly hard. The continent’s leaders faces a triple challenge of dealing with climate disasters, decarbonizing their economies and leveraging whatever they can to deliver some semblance of development to youthful populations.
The options open to them have similarly become infused with geopolitics. Eager to displace the influence China has built through the Belt and Road Initiative, a U.S.-led coalition has struck Just Energy Transition Partnerships (JETPs) with South Africa, Indonesia, India, Vietnam, and Senegal.
Climate debt traps?
On the one hand, the funding packages that have been announced are significant. But they are also woefully inadequate.
For example: South Africa estimated that a comprehensive Just Energy Transition, which would include implementing and maintaining renewable energy infrastructure, adapting the national grid to incorporate these facilities and developing the skills base to maintain it would cost about $98 billion. The JETP announced with the U.S., the EU, and the U.K. promises funding of only $8.5 billion.
The massive shortfall in funding is only one of the problems. Equally troubling is that the JETPs may actually force debt on Global South countries that sign on.
Take Indonesia, for example. Its JETP with the International Partners Group (made up of the U.S., France, Germany, the UK, the EU, and Canada) totaled a commitment of $20 billion. It’s unclear exactly how this will be spent. However, the Indonesian Ministry of Energy and Mineral Resources announced in June that only $160 million will be paid out as grants. This means that most of what remains will likely be in the form of loans.
Indonesia’s JEPT deal foresees $10 billion in public sector pledges and another $10 billion from private lenders, coordinated by the Glasgow Financial Alliance for Net Zero (GFANZ), which includes Bank of America, Citi, Standard Chartered, and other major banks.
There’s no way around the fact that JETP deals will add massively to Global South countries’ debt burdens.
In the case of South Africa, only 4% of the total financing will be in the form of grants. Pretoria will have to borrow the rest of the money: Concessional loans comprise 63%, with 18% commercial loans and 15% debt guarantees making up the rest. Even the concessional portion of these loans will likely be dollar-denominated, which will expose lenders to interest rate fluctuations and currency depreciation risks they can’t control. It will happen at a moment when around 50% of low-income countries are already in, or approaching, debt distress.
China’s “small or beautiful” strategy
So, in the spirit of the horse race, how does China compare?
The Kenyan economist Anzetse Were recently argued in a piece for The China Project that despite China’s massive domestic emissions, its green track record in Africa is pretty solid. China is the largest investor in African power projects, and the vast majority of that investment is going into renewables.
In comparison, the U.S. government has invested more than $9 billion in oil in gas projects in Africa since signing the Paris Accord in 2015. This is true for Western-led multilateral development banks too. The World Bank pumped about $15 billion directly into fossil fuel projects since Paris.
China’s vast lead in renewable capacity (Chinese investment into solar, wind, electric vehicles, and batteries in 2022 was about four times that of the United States) is increasingly reshaping its engagement with the Global South. In Africa this is connected to its “small or beautiful” strategy, which focuses on sustainable projects with smaller loans and shorter repayment windows.
As Chinese companies pivot in the face of pressure from the Global North, they’re also finding an eager energy demand in Africa. Huawei is heavily leaning into both consumer solar in places like South Africa, and in large-scale energy storage facilities in Ghana and elsewhere.
Small and beautiful is all well and good, but debt is debt. China’s role as a lender to Africa has been complex, with U.S. officials framing it as a unique roadblock to debt restructuring for bankrupt countries like Zambia and Sri Lanka. However, Were and other economists have pointed out that despite criticism, China has actually been relatively flexible in writing off (a limited number of zero-interest) loans and rescheduling many others. Chinese lending to Africa is also far outstripped by the continent’s debt to Western private lenders, whose participation in the same debt restructuring processes have been equally problematic, but much less criticized by the likes of U.S. Treasury Secretary Janet Yellen.
The combination of all these factors mean that the JETP deals may end up having the opposite effect than many Western leaders hoped. This is already being seen in Indonesia. A coalition of Indonesian civil society organizations slammed the JETP as “an exploitative partnership” and “the wrong answer to the climate crisis.”
As the Indonesia climate expert Firdaus Cahyadi recently wrote for The China Global South Project, the “debt trap” language Trump-era officials used to criticize China is now being directed against the Western-led initiative. Western countries’ outsized historical responsibility for the climate crisis, their colonial legacy and their long debt-enabled grip on Global South economies are all convenient talking points for Chinese officials looking to increase their influence in the Global South.
Whether either the Western JETP or cooperation with China will happen fast enough to do any good before large parts of the tropical world become uninhabitable is of course another question that is very uncomfortable to discuss. It’s easier to focus on geopolitics instead.
