Geneva Reports on the World Economy

Geneva 25: Climate and Debt

• Patrick Bolton Lee Buchheit Mitu Gulati Ugo Panizza Beatrice Weder di Mauro Jeromin Zettelmeyer
3 Oct 2022

Even in a one-country world, the link between climate and debt leads to complicated questions. However, the planet consists of many countries, each with its own interests and resource limitations. This creates an additional challenge related to aligning individual country interests with the global interest of limiting temperature rises.
This report discusses these challenges by focusing attention on how climate mitigation and adaptation is paid for, and who pays for it. This requires thinking about instruments such as sovereign bonds, carbon credits, conditional official grants, and debt relief from both public and private sources.
The report suggests that no single instrument is right for all countries or at all times and puts forward six proposals and policy recommendations that can jointly address climate change and debt sustainability by focusing on financial instruments as a means of incentivising and committing governments to do the right thing and providing fiscal space for climate investment in countries that could not otherwise afford it.