Why In News?

• The Debt-Fossil Fuel Trap report has been published by the anti-debt campaigners Debt Justice and partners in affected countries.

Findings of the Report “The Debt-Fossil Fuel Trap”:

• Fossil fuel extraction is seen as a means to generate revenue and alleviate debt for countries in the global south
  • Example of Suriname: Resource-Based Loans: Creditors are entitled to 30% of oil revenue until 2050, incentivizing continued oil exploitation.
  • Argentina supports fracking in Vaca Muerta (Northern Patagonia) to ease the debt crisis.
• Revenues from fossil fuel projects often fall short of expectations, leading to further debt.
• External debt payments for global south countries have risen by 150% between 2011 and 2023, reaching a 25-year high
• 54 countries in a debt crisis, cutting public spending during the pandemic to repay loans
• Extreme weather events force countries to borrow more money for adaptation and mitigation efforts.
  • For instance, Dominica’s debt as a percentage of GDP rose from 68% to 78% after Hurricane Maria hit the island in 2017.

Fossil Fuel Reliance as a Solution

Extracting Fossil Fuels to Address Debt

• In their bid to address escalating debts, these countries have turned to fossil fuel extraction as a source of revenue.
• A case in point is Argentina, which has supported fracking projects in the Vaca Muerta oil and gas field.
• However, concerns are raised about the environmental consequences of fracking and the feasibility of anticipated benefits.

Risk of Debt Escalation

• Experts caution that such a strategy could inadvertently contribute to higher debt levels without generating adequate revenue for repayment.
• This scenario might force countries like Argentina to further expand their fossil fuel projects, exacerbating their predicament—an aspect referred to as the “debt-fossil fuel trap.”

Rich countries, IMF and World Bank keep global south’s fossil fuel projects running

• The richer countries and multilateral and bilateral lenders have financed fossil fuel projects, often through loans, adding to debt burdens and keeping countries locked in fossil fuel production.
• One of these loan contracts is: Resource based loans (RBLs).
  • In RBLs, repayment is either made directly in natural resources (in kind) such as oil or minerals, or from a resource-related future income stream; or repayment is guaranteed by a resource-related income stream, or where a natural resource asset serves as collateral.
  • Example: Surinam after defaulting on its debt in 2020 and 2021, negotiated a deal in which creditors would get the right to 30% of Suriname’s oil revenue until 2050.

Way Ahead

• Governments should implement ambitious debt cancellation for all countries that need it, across all creditors, free from economic conditions.
• Debts accrued from fossil fuel projects should be recognised as illegitimate and cancelled.
• Significantly scale up grant-based, new and additional public climate finance.
• Bilateral and multilateral finance should be aligned with a 1.5 degree warming scenario and fair share calculations, and not be used to finance fossil fuels.

MCQs about Debt-Fossil Fuel Trap Report

Question 1: What is the primary concern raised in the “Debt-Fossil Fuel Trap” report?

A) The need for increased public spending during the pandemic.

B) The environmental consequences of extreme weather events.

C) The reliance on fossil fuel extraction to address debt.

D) The lack of funding from richer countries for mitigation efforts.

Question 2: Which country supports fracking in the Vaca Muerta oil and gas field as a strategy to ease its debt crisis?

A) Dominica

B) Argentina

C) Suriname

D) Venezuela

Question 3: What term is used to describe the situation where countries are stuck in a cycle of increasing debt due to fossil fuel projects?

A) Debt-Trap Cycle

B) Fossil Fuel Conundrum

C) Debt-Fossil Fuel Trap

D) Resource-Based Dilemma

Question 4: How have external debt payments for global south countries changed between 2011 and 2023?

A) They have decreased by 150%.

B) They have remained constant.

C) They have risen by 150%.

D) They have been waived due to extreme weather events.

Read also:- Debt-for-climate swaps