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The real issue with climate finance is debt

von Felix Rauch

International climate finance had been positioned center stage at the 28th Conference of the Parties (COP) of the United Nations Framework Convention on Climate Change (UNFCCC). The official conference website states,

“[…] finance will emerge as a pivotal cross-cutting theme, intricately intertwined with Climate Transition & Adaptation” (UNFCCC, 2023). 

This supposed “emergence” is surprising since many of the previous COPs already had a major focus on finance. COP 27, for example, was forced into overtime as negotiators fought over financial compensation for climate caused Loss & Damage. COP 26 saw – among other financial topics – a renewal of the funding pledge for the Green Climate Fund, which was already established at COP 16 in 2010. Furthermore, six out of the ten original commitments of the framework convention, on which all signatories agreed upon, are concerned with the provisioning of financial resources and transition funding for developing countries. In this regard, Article 11 of the convention framework already explicitly defines a “Financial Mechanism” (the Global Environment Facility) responsible “[…] for the provision of financial resources on a grant or concessional basis […]” (UNFCCC, 1992). 

So how can it be that after 31 years finance will (finally) emerge? As we have seen, it’s apparent absence cannot be due to a lack of attention, interest or calls for it. Evenly, it cannot be due to a shortcoming of dedicated institutions, partnerships or initiatives.  

Maybe financial resources have been so elusive due to the terms of the conversation. Maybe instead of talking about “giving”, “pledging” or “granting” – words that all highlight the benevolent and voluntary character of aid and support –, we should start to address the real issue by calling it what it is: “owing”, “repaying” and “compensating”. This narrative shift might come across as crass to some, but looking at the historical ledger, debt is actually the only way to correctly frame the conversation. This has become clearer and clearer thanks to more and more research on and awareness raising about the illegitimate expropriation and appropriation of the living and what sustains it by industrialized countries. 

To contribute to this vitally important conversation I will presuppose the validity and assume the homogenous conception of “climate debt”, which I define here as the historical and ongoing appropriation of a globally shared atmospheric commons by industrialized countries (Warlenius, 2017). Instead of discussing the amount owed, which is calculated to be in the realm of 60 (Clements et al., 2023) to 200 (Fanning & Hickel, 2023) trillion US-Dollars, I will sketch out two different pathways on how to redeem this climate debt. By doing so I hope to start a conversation and encourage more research into the technical and distributional side of this political discussion.  


But beforehand, I want to address the difficulty of “financializing” environmental or ecological debts, because financialization demands the settlement of non-monetary dues in monetary values and through monetary means (i.e. currencies). Climate debt is not naturally expressed in Dollars or Euros, but in livelihoods, broken social relations and damaged relationships to the natural world. The most “natural” way to frame climate debt in terms that “money understands” would be to denominate it in “ecosystem services lost” or “greenhouse gases emitted”.  

Sadly, all of the above have one thing in common: they are non-recoverable. That which is destroyed is irreplaceable. Therefore, an in-kind settlement of climate debt is simply impossible because livelihoods, relationships and ecosystems are not easily reconstructed nor are they interchangeable. Furthermore, once emitted greenhouse gases can so far not be returned to their original form or even be captured at any meaningful scale. This incommensurability and irretrievability of the “natural” world is juxtaposed to the monetary or financial realm, where each unit equals all others and only exists due to its respective counterpart on the other side of a balance sheet (i.e as an asset and a liabilities). Every amount of monetary wealth equals monetary debt and only together do they form the (im)material social relation that we call money. Money in this sense is a tight, dynamic and constantly moving web of homogenized “I owe yous” – of social relations codified and translated to interchangeable units of account. Therefore, money is only limited by the carrying capacity of this web of social relations.  

I want to highlight that by viewing money as a web of social relation, we can gain a deeper understanding of the difficulties of this debate. This “social relations balance sheet” perspective allows us to recognize that the different ways of accounting for climate debt actually represent different levels of responsibility and accountability taken for historical wrongs – not just morally but systemically. 

Therefore, the first pathway I propose is the most literal interpretation of climate debt, which would have serious effects on (climate) debtor countries and economies. Viewed through the social relations balance sheet lens, this option can be described as the redistribution and bundling of many “I owe yous” (IOUs) from the respective national public to an international (climate) creditor or foreign public. To put it differently, the state would levy taxes on individuals and corporations to redistribute purchasing power and accumulated wealth/debt relationships to creditor countries. The easiest way to achieve this is to transfer the generated tax revenue onto the existing or newly created central bank account of the creditor country.  

This redistribution through taxation would immediately affect all debt relationships and the ability to uphold them because the available money base – universally interchangeable IOUs – would be drastically reduced. This would almost inevitably lead to a deflationary credit crunch as no new debt relationships are entered into and no new money is created. Meanwhile, creditor countries would find themselves equipped with a (foreign) currency in extremely high demand, allowing them to “re-appropriate” many non-monetary values like patents, technologies and businesses, which were developed and grown by using their appropriated atmospheric space. 

The subsequent economic, social and political crisis would very likely lead to the destruction of many livelihoods as well as the structural disintegration of social provisioning systems in debtor countries – thereby testing the carrying capacity of the web of social relations. While this panders to a desire for retributive justice and probably leads to a significant reduction in environmental destruction, greenhouse gas emissions and a shift in international power dynamics, the long-term consequences and backlashes are highly unpredictable.

Therefore, the second pathway I propose is less radical, but also not as “just”. It entails the creation of wholly new wealth/debt relationships. These would be credited to the central bank accounts of creditor countries at the central bank of debtor countries. In terms of the social relations balance sheet lens this second option proposes the creation of new “potential social relations” or IOUs of the highest order (reserve assets). I call them potential because if they were to remain on the central bank accounts, only intersocietal (between states) but no intrasocietal relations (between persons) are formed. 

In technical terms, these newly created relationships (reserves) would be an asset in foreign currency for the creditor country and a liability in domestic currency on the debtor side. This liability could be accounted for on the balance sheet of the central bank itself or as public debt on the governments balance sheet. Creditor countries could use their freshly filled accounts in the same way as described above. But due to the ex-nihilo creation of these social relationships, their spending or rather “actualization and activation” would be inflationary and not deflationary. In the short term, this inflationary effect would likely limit domestic consumption in debtor countries. 

To combat this demand induced inflation, production would have to be increased, interest rates raised or higher taxes levied. As creditor countries could become holders of production facilities on a large scale, they could decide to force a raise in interest rates or taxes by decreasing production to subsistence levels. This would further reduce domestic consumption in debtor countries, while increasing the credit of creditor countries through interest payments on their central bank accounts. The inherent dynamic of inflation, which has an anticipatory element and is usually higher than subsequently raised interest rates, speeds up the spending of climate credit and thereby contributes to a fastened global transformation – under the assumption that green technologies are bought and applied while consumption in debtor countries is reduced significantly. 

Clearly, neither of these pathways is currently politically feasible. Both would face enormous backlash and condemnation. Furthermore, both of the sketched options could go wrong in many different ways. Especially because distributional and social justice criteria within debtor and creditor societies have not even been mentioned (e.g. who should pay/receive how much?).  

Without a doubt, the social, cultural and economic consequences of taking climate debt seriously will be massive, which is why more engagement with the topic is essential – academically but also socially. As Global North citizens and beneficiaries of atmospheric appropriation and environmental destruction we not only have to figure out how to mitigate climate catastrophe but also how we can repay our debts – fast, meaningfully and in full.   



Clements, B., Gupta, S., & Liu, J. (2023). Who’s responsible for climate change? New evidence based on country-level estimates of climate debt. Economics of Energy & Environmental Policy, 12(1). 

Fanning, A. L., & Hickel, J. (2023). Compensation for atmospheric appropriation. Nature Sustainability, 6(9), 1077–1086. 

UNFCCC. (2023). Our Thematic Program - COP28 UAE. Accessed from 

UNFCCC. (1992). United Nations Framework Convention on Climate Change. United Nations. Accessed from 

Warlenius, R. (2017). Decolonizing the atmosphere: The Climate Justice Movement on Climate debt. The Journal of Environment & Development, 27(2), 131–155. 

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