## Settling the Climate Debt

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### Calculating climate debt
- Climate debt represents the sum of emission damages—the cumulative negative effects of carbon dioxide emissions measured using the social cost of carbon.
- Estimated climate debt for 131 countries is based on historical and projected carbon emissions.
- Global estimates:
  - Climate debt over 1959–2018: $59 trillion.
  - Projected additional climate debt during 2019–35: $80 trillion.
- Country composition reflects both the size of the economy and fossil-fuel intensity (including energy mix such as heavy coal use).
- As of 2018, largest contributors by climate debt:
  - United States: $14 trillion.
  - China: $10 trillion.
  - Russia: $5 trillion.
- Distributional observations:
  - Climate debt per capita is highest in the United States—some 6 times higher than in China for 1959–2018 and 25 times as high as in India.
  - For 2019–35, per capita climate debt will remain highest in the United States and will rise in China, exceeding the expected level in the European Union.
- Relative magnitudes:
  - In G20 countries, climate debt is about 81 percent of GDP.
  - Average general government debt in G20 countries in 2020: 88 percent of GDP.
  - Projected net present value of public spending on health and pensions in G20 countries during 2020–35: 25 percent of GDP.

### Scenario analysis and NDCs
- Two scenarios assessed:
  1. Full implementation of countries’ Nationally Determined Contributions (NDCs), with a gradual reduction in emissions to meet the target in 2030.
     - Result: accumulation of climate debt reduced by $9.6 trillion (24 percent).
     - Despite reductions, countries with large emissions declines (China, United States) would still contribute the most to accumulated climate debt: China $12.9 billion and United States $5.4 billion (as stated in the analysis).
     - Conclusion: NDC implementation alone is insufficient for fair burden sharing.
  2. Additional emissions reductions beyond NDCs to achieve the 1.5°C goal.
     - If each G20 country undertook additional reductions beyond its NDC based on its share of total emissions for that year, projected climate debt would fall by an additional $6.4 trillion.
     - Even with such reductions, climate debt per capita in advanced economies (for example, the United States) would still far surpass that of G20 developing economies.
- Policy implication from scenarios:
  - Achieving perceived fairness by 2030 is likely infeasible because advanced economies’ share of global emissions is shrinking even though they have accumulated a large stock of climate debt.
  - Advanced economies may need to reduce emissions over a longer period or provide aggressive compensation to developing economies through climate financing.

### The role of fiscal policy and ethical considerations
- Fiscal tools emphasized:
  - Subsidies for clean energy (used by the US and Europe) to reduce climate debt—limited applicability for many developing economies due to lack of fiscal space.
  - Higher taxation of energy, particularly carbon taxes, to reduce emissions and fund additional spending.
  - Carbon taxation should be accompanied by complementary fiscal policies to offset short-term adverse effects on low-income households.
- Equity and intergenerational considerations:
  - The current generation has consumed energy at prices that did not fully reflect its social cost; damage from emissions is rising over time, so acting sooner is preferable.
  - For developing economies, adjustments could be phased in gradually given their lower ability to bear immediate burdens; assistance and concessional finance are important.

### A pragmatic approach and climate finance
- Main policy recommendation:
  - Advanced economies should ramp up assistance to developing economies to achieve fair burden sharing.
  - Assistance should include climate finance for mitigation and adaptation through grants and concessional loans.
- Institutional note:
  - The IMF’s new Resilience and Sustainability Facility is extending concessional financing for climate transition and pandemic preparedness to developing economies.
- Climate finance shortfall:
  - Current climate finance has not yet reached the goal of $100 billion a year and is inadequate relative to the large climate debt of advanced economies.

### Key takeaways
- Climate debt is very large and unevenly distributed, totaling $59 trillion for 1959–2018 and projected to grow by $80 trillion in 2019–35.
- Full implementation of NDCs would reduce accumulation by $9.6 trillion (24 percent); additional G20 reductions beyond NDCs could cut another $6.4 trillion.
- Climate debt in G20 countries is about 81 percent of GDP, comparable to average government debt of 88 percent of GDP in 2020, and larger than projected net present value public outlays for health and pensions of 25 percent of GDP during 2020–35.
- Fair burden sharing likely requires advanced economies to provide increased climate finance—current flows remain below the $100 billion a year goal.

*Benedict Clements, Sanjeev Gupta, and Jianhong Liu (SEPTEMBER 2023).*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2023/september/clements-gupta-jianhong-liu.pdf_