How global COPs force poor nations to pay interest on a crisis created by rich capital

With COP30 fast approaching, it is instructive to look at last year’s summit for lessons that might help us think about what will be discussed in Brazil next month. Because I am worried that we’re in for another dose of homeopathy.

Homeopathy doesn’t work, even in theory. This tenacious pseudoscience is based on the idea that if you have a headache, you cure it by ingesting something that causes headaches. The trick, however, is to shake it a bit first, and then dilute it to insignificance.

It’s patently ridiculous, but somehow it’s supposed to work for climate change.

The COP29 finance targets were met with, shall we say, mixed reviews, falling far short of the $1.3-trillion needed for developing countries to have a shot at reaching net zero by 2050. Now, that’s $1.3-trillion per year. What we’re getting is a pledge of $300-billion a year by 2035.

But hey, here in Africa, people are used to getting shortchanged, so it’s not the numbers that really jumped out at me – it’s the form that they take. At least $300-billion sounds like a useful sum, until you realise that the vast majority of it comes as loans. Loans that will have to be paid back. Usually, with interest.

Because, heaven forbid, someone doesn’t make money from it.

This is what economist Daniela Gabor calls the “Wall Street Consensus”. A lot like the “Washington Consensus” that preceded it, it’s a basic approach to development and policy that evolved in the US and spread its influence across the world. According to the Wall Street Consensus, development should come through private investors who follow the clarion call of profit maximisation. The government’s role in this is to use public funds to entice these private investors through “derisking”, which just means developing countries should shoulder much of the risk of investment so that private international firms can be assured of profit.

Financialisation has spread its influence wide. In her 2022 analysis, Gabor muses: “The overarching policy question at COP27 had thus become ‘how do we scale up derisking to make decarbonisation investable for BlackRock?’”

Poor countries have to socialise the risk, so that investors can privatise the reward, so that poor countries can access money they desperately need, but definitely will have to pay back again, with interest. And it’s always the most vulnerable who foot the bill.

For instance, Gabor writes about a partnership signed with our government at COP27: “… as the Institution of Economic Justice points out, the derisking at the core of the $8.5-billion South African Partnership effectively commits South African fiscal resources to make private renewable projects investable at the expense of fuel subsidies for poor households.”

Dr Thelma Arko from Utrecht University agrees: “Climate finance mechanisms, ostensibly designed to support sustainable development, have instead reinforced neocolonial economic structures and exacerbated the debt crisis in many African countries.”

But it’s just supply and demand, right? We need money, and we can’t expect those who have it to part with it for anything less than an optimal return on investment. That’s just how markets work.

And there’s the problem.

Markets have been glorified until they resemble something between the laws of physics and the word of God. Market outcomes are often assumed to be better, more just and more efficient just by virtue of their origin. The market knows best, and everyone should believe in its wisdom, except, of course, when it contradicts the interests of Capital.

For instance, that $1.3-trillion I mentioned earlier is a market-based price, calculated using the then-current estimated social cost of carbon, about $200 a tonne. Carbon markets today sell a tonne of carbon for anything between $1 and $130. It’s not priced at the true cost, because the people selling it can get away with it.

This is an abject failure, but it’s an easy one to understand, because markets don’t just reflect supply and demand. They also reflect power, which usually gets left out of the discussion, because the people driving the discussion are usually the ones wielding said market power. Individual actors chasing their own maximised gain will not necessarily lead to better outcomes for everyone. That is a fiction that has been disproven for decades. Markets are efficient, yes. But you always have to ask: efficient at what? When it’s set up to maximise shareholder value, then it will do that very efficiently indeed, but at the expense of everyone who may stand in its way.

The big five oil and gas companies, for instance, have been making historic profits, and paying those out to shareholders, while rolling back their environmental programmes for not being profitable enough. To be fair to Shell, they never really intended to be net zero by 2050, unless the market makes it really, really profitable. But renewables, alas, are too cheap for that kind of return on investment.

This is why oil and gas companies make up just 1% of investment in clean energy. Because, while averting global catastrophe can be profitable, it just isn’t profitable enough. If some developing country wants to improve people’s lot, they had better come to the table and cut some social spending to make it more appealing to overseas capitalists. The market has spoken.

We need to acknowledge that maybe marketisation isn’t the solution to a problem caused by markets in the first place. It’s like economic homeopathy: The greedy people who destroyed the environment and spent billions on climate misinformation will fix it for us again, as long as we shake and dilute them a bit with public funds.

As Martin Wolf wrote in the Financial Times in 2020: “Suppose that a transition towards a global zero-emissions economy by 2050 is indeed technically feasible. That does not mean it is likely to happen as a result of purely economic forces.”

He’s right. This isn’t some issue of “pure economics”. All economics is based on political decisions and political philosophies. We are currently leaving these important political questions to market systems designed to support business as usual that ignores the plight of the poor and powerless.

This is not good enough. We can demand that those who profited the most from destroying the environment must help fix it, without needing to appeal to their greed first.

The so-called Gen Z protests of this year have shown us that mass demands can get kings to listen, or at least flee the country. But to enact change, we first have to acknowledge that this current state of affairs isn’t working. The people with the power to change things lack the political will, because the system currently still benefits them. Only once we can stare that uncomfortable truth in the face, we can start changing things.

And change we must, because the patient is in trouble, and the medicine isn’t working. DM