Settling the Climate Debt by Clements, Gupta and Liu

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Climate debt: the sum of emission damages, defined as the cumulative negative effects of carbon dioxide emissions whose costs are imposed on the globe without compensation.
Study coverage: estimates of climate debt for 131 countries based on both historical and projected carbon emissions.
Policy relevance: estimates inform each country’s fair contribution toward slowing emissions and potential compensation to developing economies.

Total estimated climate debt over 1959–2018: $59 trillion.
Projected additional accumulation during 2019–35: $80 trillion.
Major contributors as of 2018:
- United States: $14 trillion
- China: $10 trillion
- Russia: $5 trillion
Shift in composition: beginning in 2018, developing economies will account for a larger share of climate debt due to relatively higher economic growth.
Per capita comparisons (1959–2018):
- Climate debt per capita is highest in the United States — some 6 times higher than in China and 25 times as high as in India.
Per capita projections for 2019–35:
- Climate debt per capita remains highest in the United States and will rise in China, exceeding the expected level in the European Union.
Relative to fiscal metrics:
- Climate debt in G20 countries: 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: average 25 percent of GDP.

Scenario 1 — Full implementation of countries’ NDCs (assumes gradual annual emissions reductions to meet 2030 targets):
- Reduction in accumulation of climate debt by $9.6 trillion (24 percent).
- Despite reductions, sizable contributors through 2019–35 would still include China and the United States, contributing $12.9 billion and $5.4 billion, respectively.
- Conclusion: NDC implementation alone is insufficient for fair burden sharing.
Scenario 2 — Additional reductions to achieve the 1.5°C goal:
- A proposal: ask countries for additional reductions based on their share of total emissions for that year.
- If each G20 country reduced emissions beyond its NDC, projected climate debt would fall by an additional $6.4 trillion.
- Equity concern: even with these reductions, climate debt per capita in advanced economies would remain much higher than in G20 developing economies.
Feasibility insight:
- Between now and 2030, reducing emissions in a way perceived as fair is likely infeasible given the shrinking share of advanced economies in global emissions.
- Advanced economies may need to either reduce emissions over a longer period or compensate developing economies through more generous climate financing.

Fiscal tools recommended:
- Higher taxation of energy, including carbon taxes, to reduce emissions and fund additional spending.
- Subsidies for clean energy (noted as used in the US and Europe).
- Complementary fiscal policies to offset short-term adverse effects of carbon taxation on low-income households.
Constraints and considerations:
- Pandemic-induced increases in public debt limit fiscal space, especially for developing economies.
- Subsidy approaches are less feasible for developing economies due to limited fiscal space.
- Ethical questions: intergenerational burden sharing; urgency because damage from emissions rises over time; phased adjustments for developing economies as per capita incomes rise.

Principle: countries with high climate debt because of historical and current emissions have a moral claim to compensate countries that caused less damage.
Practical burden-sharing approach:
- Given political and practical limits to equalized emissions cuts by 2030, advanced economies should ramp up assistance to developing economies.
- Climate finance instruments: grants and concessional loans to pay for mitigation and adaptation.
- IMF contribution: the IMF’s new Resilience and Sustainability Facility is extending concessional financing for climate transition and pandemic preparedness to developing economies.
Financing gap:
- 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.

Source: Settling the Climate Debt by Benedict Clements, Sanjeev Gupta, and Jianhong Liu (F&D Magazine).

Settling the Climate Debt
- Settling the Climate Debt (Markdown version)
- Settling the Climate Debt (PDF)