Fossil fuel reform can finance our future

Last week, representatives from states and international organisations attended the Summit for a New Global Financial Pact in Paris – a first-of-its-kind conference aimed at examining how the global financial system exacerbates economic challenges for the Global South.

The summit was the outcome of a radical call to restructure the global financial system, led by Barbados Prime Minister Mia Mottley and known as the Bridgetown Initiative. The idea: to address the inequalities that are built into the system – remnants of decades of colonialism, imperialism and exploitation by a handful of dominant countries.

So how does this relate to climate change? Climate justice can only be achieved when the rights of Indigenous peoples; social, economic, and gender justice; and respect for all human rights are integrated in its pursuit.

The summit proved to be only a starting point of essential discussions. To address the most pressing challenges of our time — the climate crisis among them – will require trillions of dollars in financing and reform of some of the world’s biggest financial institutions. Crucially, world leaders must continue discussions on mobilising public finance at the upcoming G20, World Bank and IMF annual meetings.

It is no coincidence that the countries benefitting from the current system are the same states that have been instrumental in the proliferation of the industrial fossil fuel industry responsible for the climate crisis.

The current global economy is a fossil-fuelled one. The communities facing the brunt of climate change are mostly those that are the least responsible for it. More often than not, they are also the ones hit the hardest by the co-effects of climate change — like the rising cost of living, rising inequality and unequal access to essential resources.

The summit represented an unprecedented international inquiry into financial systems change, but like most international meetings of heads of state, there was reluctance among the political elite to fundamentally alter the status quo.

We saw this in the recent G7 Summit, which was hosted by Japan in May. The final communique failed to deliver for the climate, and in fact, pedestalled dangerous distractions like fossil gas and carbon capture. These so-called “short-term solutions”, which represent major impediments to progress, were justified by the ongoing war in Ukraine and the cost of living crisis.

It is the responsibility of G20 governments to stop propping up fossil fuels and make polluters pay their fair share for their damages. Ending fossil fuel handouts in the G20 alone would raise $600bn a year. While low-income households around the world have been pushed further into poverty over the last two years, oil and gas companies made record profits and wealthy countries continued to heavily subsidise them.

One of the most glaring failures of the current financial system is that when developing countries that host affected communities do receive funds for climate adaptation, mitigation, health, aid and development, they are mostly in the form of loans instead of grants. They are also forced to repay loans at a higher interest rate than rich countries, which pushes them further and further into debt, while simultaneously facing climate impacts that are increasing in severity and frequency.

COP28 later this year will represent a pivotal moment in securing the 1.5-degree Celsius (2.7F) threshold: if this is the COP to “course correct”, no outcome will be credible without a centrepiece decision to phase out all fossil fuels – coal, oil, and gas – while simultaneously powering up renewables.

Rich countries must also fulfil obligations to provide $100 bn a year in climate financing to developing countries. This must be in the form of grants and not loans, be new money — that is not siphoned from other promised contributions — and be directly aimed towards climate adaptation and mitigation.

Common people are the ones struggling with the surging cost of living and worsening climate impacts, while fossil fuel corporations are making more money than ever.

Any just transformation of the global financial system must thus include debt cancellation for developing countries, and leaders must commit to taxing fossil fuel corporations’ profits and using this money to invest in a renewable-powered future.

The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial stance.