Unless rich countries offer financial assistance, 54 of the world’s poorest countries are approaching imminent bankruptcy, exacerbated by inflation, the energy crisis, and climate change. Of the countries crippled by debt, 28 rank among the top 50 most climate-vulnerable.

In a speech at COP27, the head of UN Global Development Programme, Achim Steiner, warned of potentially catastrophic consequences on both local and global levels. “The issue of debt has now become such a big problem for so many developing economies that dealing with the debt crisis becomes a precondition for actually accelerating climate action,” Steiner stated.  “We need to inject targeted liquidity into countries to be able to invest in energy transitions, and adaptation [to the impacts of extreme weather].”

Why This Matters

At COP15, the world’s wealthiest countries pledged to provide an annual $100 billion in aid to the most vulnerable countries by the year 2020. That pledge was not honored by its deadline. Now, experts estimate that the cost of stopping climate change could be much higher. Limiting warming to 1.5 degrees Celsius, the threshold scientists warn we cannot cross if we are to avoid the worst of climate change, could cost up to $5.2 trillion per year by 2030, according to the World Resources Institute.

Not all countries, though, are contributing to climate financing equally. The US is the #1 provider of climate financing but is also more responsible for climate change than any other country. Based on its proportion of emissions, some studies show the US should pay $39.9 billion to less developed countries. In 2020, it gave only $8 billion. Now, President Biden has pledged to contribute $11 billion per year by 2024, but this money is contingent on Congressional approval.

Too Little, But Not Too Late

Calls to create an official “loss and damage” fund, which would allow rich, high-emitting countries to compensate the less developed countries facing the consequences, are earning support from activists and government officials alike at COP27. Not every country, though, is ready to agree to climate compensation.

What’s the hold-up? Despite its rapid economic growth, China is still classified as a developing country according to the UN’s current framework. This means that they would not need to contribute to climate financing, despite emitting more annually than all other developed countries combined and refusing to improve its NDC. On Friday, Jennifer Morgan, Special Climate Envoy of Germany, implied that China, too, should help foot the bill. “We would expect that…the rules here and who pays would also adjust to the fact that there is…much more wealth in a number of emerging economies,” Morgan said.

More efficient routes for funding, though, may be available. After oil companies’ record profits this year, some politicians including UN Secretary-General António Gutteres are calling for a windfall tax on the industry, the profits of which could be redistributed to the vulnerable countries facing bankruptcy

Financial lenders provide another route to long-term solution. Though the World Bank has a spotty record on climate change and greenwashing, the major lender stated that they hope to drastically scale up the number of loans and grants they provide to countries in the developing world. Axel van Trotensburg, the bank’s managing director of operations, told Reuters that wealthy member countries will also need to step up their contributions to facilitate the change: "People would like that the international community, including the MDBs (multilateral development banks), are stepping up. We agree. So what my challenge to them is: define the ambition, and how much do you want to put on the table?"