Yahoo Finance Opinion: A climate loss-and-damage fund? What could possibly go wrong?
By Fred Lazar
Among many important things that happened over the past several weeks let me highlight three.
First, with almost 99 per cent of the votes cast, Teodoro Obiang Nguema Mbasogo was re-elected president of Equatorial Guinea, a job he has held since overthrowing his uncle in a coup in 1979. Equatorial Guinea’s GDP per capita, expressed in US$, is $8,462, making it the third richest country in Africa, its wealth derived primarily from oil.
Second, Glencore, one of the largest mining companies in the world, agreed to pay US$180 million to settle corruption claims against it in the Democratic Republic of Congo, one of the poorest countries in the world, with GDP per capita of less than US$600. This was just the latest in a series of corruption cases in which, altogether, Glencore has paid US$1.6 billion in fines in 2022 — which seems likely to damage its ratings for the “S” and “G” components of ESG (environment, sustainability and governance).
Third, at COP27, the latest of the UN’s annual climate conferences, the “parties” agreed in principle to provide “loss and damage” funding for countries hit hard by climate change. The difficult details of setting up a fund and actually raising the money have been left to next year and possibly beyond.
Now, to connect the dots:
Equatorial Guinea is one of the countries in which Glencore engaged in corrupt practices. In its annual rankings, Freedom House rates the country as “Not Free.” Transparency International regards it as one of the most corrupt countries in the world. Six of the eight “Glencore” countries are in Africa. None rates as “Free” and all but one rank in the bottom half of the corruption perception index.
The initial recipients of any funding for “loss and damage” are likely to be the “V20” countries — the 20 most vulnerable to climate change. Of the 20, six are in Africa. Only one of the six is rated as “Free.”
The initial target for this “loss and damage” fund is US$200 million. But that’s just a fraction of the total funding the UN is seeking in order to help developing countries around the world adapt to climate change. At the COP21 meeting in Paris, an agreement supposedly was reached whereby rich nations committed to providing up to US$100 billion per year to help poor countries reduce their carbon footprints and adapt to climate change. As usual, deliveries have fallen far short of commitments. And the annual contributions were expected to be scaled up over time. Some studies project the cost of adaptation alone will be closer to US$400 billion a year — a massive annual redistribution of income.
Many countries in Africa likely would be recipients from this larger fund, possibly even Equatorial Guinea, which presumably will be expected to shut down its oil industry. Of Africa’s 54 countries, 21 have GDP per capita less than US$1,000, 41 rank in the bottom half of the corruption perception index and 24 are “Not Free.”
Before the world rushes into a climate-motivated wealth transfer scheme, several questions need to be answered. Who will manage an annual $US100+ billion fund? Given the UN’s mismanagement of the oil-for-food program for Iraq, should anyone have confidence it could do the job effectively?
What is the ultimate income transfer target? Nicholas Stern, a well-respected climate economist, has estimated the developing world might need as much as US$2.4 trillion per year from 2030 onwards. What will this money be used for?
In light of the high degree of corruption in many of the potential recipient countries, what controls will be put in place to minimize corruption in awarding contracts, to say nothing of outright theft? More fundamentally, will these massive transfers actually help any of the recipient countries replicate the development success of, say, China?
Finally, why should high-income countries be penalized for their success? One could try to argue that large annual transfers of wealth were really a form of reparations owing for colonialism. But in most places the colonizers have been gone for two generations at least. How long should it take for countries to become democratic and uncorrupt and make their way well along the path to development? With so many of them not having launched, will reparations, even on the scale contemplated, actually help?
Fred Lazar is an associate professor of economics at the Shulich School of Business, York University.
